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).

 

[Astronuc]

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.

Well then there is the slight increase in default rates and foreclosures -

Foreclosures up 60% in February
http://money.cnn.com/2008/03/13/real_estate/foreclosures_feb/index.htm?postversion=2008031410
The number of filings jumps year over year but decreases modestly over last month.

NEW YORK (CNNMoney.com) -- Foreclosure filings nationwide jumped 60% in February compared with the same month last year, but they decreased slightly versus January, according to a report released Thursday.

RealtyTrac, an online marketer of foreclosure properties, said 223,651 homes got hit with foreclosure filings last month, which include default notices, auction sale notices and bank repossessions. 46,508 of those were lost to bank repossessions, which more than doubled over last year.

The report also indicated that foreclosure filings in February fell 4% compared with January, similar to a 6% decrease that occurred during the same time-span in 2007.
. . . .

In California, foreclosure activity was up 131% year-over-year with a total of 53,629 filings. Florida reported 32,447 foreclosure filings, up 69% over the same period last year.

. . . .

BTW -

Slowdown could have been avoided
http://money.cnn.com/2008/03/20/news/economy/recession_forecast/index.htm

Lakshman Achuthan, a well-respected economist and the managing director of the Economic Cycle Research Institute, says the U.S. is now in a recession...and that Congress and the Federal Reserve could have stopped it.

Achuthan maitains that the Fed should have acted more aggressively last fall.

But Bush stated that his administration anticipated this slowdown or crisis, and they took prompt action - two weeks ago.

 

[mheslep]

Well then there is the slight increase in default rates and foreclosures -

Foreclosures up 60% in February
http://money.cnn.com/2008/03/13/real_estate/foreclosures_feb/index.htm?postversion=2008031410
The number of filings jumps year over year but decreases modestly over last month. BTW -

Slowdown could have been avoided
http://money.cnn.com/2008/03/20/news/economy/recession_forecast/index.htm

Achuthan maitains that the Fed should have acted more aggressively last fall.

But Bush stated that his administration anticipated this slowdown or crisis, and they took prompt action - two weeks ago.

The President and the Fed are two different things; the former doesn't tell the latter what to do. Why didn't Spkr. Pelosi and Congress 'anticipate' and take prompt action?

 

[Gokul43201]

It's not fair to blame Congress - they were busy dealing with another crisis: Is Roger Clemens lying?

 

[Astronuc]

The President and the Fed are two different things; the former doesn't tell the latter what to do. Why didn't Spkr. Pelosi and Congress 'anticipate' and take prompt action?

Good point. But, the Fed is independent of the administration and Congress! Bush was trying to claim some timely corrective action - which apparently it wasn't - which is further proof the Bush doesn't get it. http://en.wikipedia.org/wiki/Federal_Reserve#Independent_within_government

Pelosi and Reid are as effective as leaders as Bush. I don't expect much of the current Congress, and even less from the Whitehouse.

 

[Astronuc]

New Book Predicted Mortgage, Credit Crises
http://www.npr.org/templates/story/story.php?storyId=89123972

All Things Considered, March 26, 2008 · Many people, with the benefit of hindsight, say they saw the credit crisis coming. But Charles Morris can prove that he knew what would happen long before others did. In his new book, The Trillion Dollar Meltdown: Easy Money, High Rollers and the Great Credit Crash, Morris lays out pretty much exactly what would and did happen.

Morris, a banker and lawyer, is the guy whose company developed the software that investment companies, e.g. brokers and hedgefunds, use to do complex transactions. He says the software has been misused!

https://www.amazon.com/dp/1586485636/?tag=pfamazon01-20

Paul Steiger, former Mng Editor, Wall Street Journal
"[The Trillion Dollar Meltdown] is an absolutely excellent narrative of the horror that we have in the credit markets right now... It's a wonderful explanation of how it happened and why it's so rotten, and why it will take a long time to unwind."

The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash
http://www.publicaffairsbooks.com/publicaffairsbooks-cgi-bin/display?book=9781586485634

The sub-prime mortgage crisis is only the beginning: A more profound economic and political restructuring is on its way.

We are living in the most reckless financial environment in recent history. Arcane credit derivative bets are now well into the tens of trillions.According to Charles R Morris, the astronomical leverage at investment banks and their hedge fund and private equity clients virtually guarantees massive disruption in global markets. The crash, when it comes, will have no firebreaks. A quarter century of free-market zealotry that extolled asset stripping, abusive lending and hedge fund secrecy will come crashing down with it.

"The Trillion Dollar Meltdown" explains how we got here and what is about to happen. After the crash our priorities will be quite different. But things are likely to get worse before they get better. This book will be indispensable to understanding the gross excess that has put the world economy on the brink - and what the new landscape will look like.

Investors should probably read this book.


Newsweek interview with Morris: http://www.newsweek.com/id/124231

NEWSWEEK: The Federal Reserve has now lowered the short-term interest rate two percentage points since December. Is this a smart move ?
Charles R. Morris: The Fed's emphasis seems all directed to keeping consumers spending and borrowing, and to keep asset prices high. That is just more of the "hair of the dog," or exactly the opposite of what we need. It will also feed into the collapse of the dollar, which has been a big cause of the recent uptick in inflation, especially in energy. The Fed can't stop a recession; it's already underway. We have to switch gears from a low-saving, high-spending country to nearly the opposite. It's impossible to make that switch without going through a recession. The current strategy will just drag out the process.

NW: So you're saying, Why make it cheaper for consumers and banks to borrow now?
Morris: I can't imagine why they want to encourage more borrowing. I think it's because when you have a hammer everything looks a like a nail … But what we need to do is to cut consumer spending. You have consumers stretched, really overleveraged. Then we need to mediate an orderly reduction of asset prices—an honest deleveraging. I'm talking about prices of homes, bonds. And it's better to do that sooner than later … We also have to help low-income people who could be badly hurt, but we're not helping them by propping up investment banks.

NW: How much could home prices fall?
Morris: Home prices will probably fall another 15 to 20 percent, if you look at differences between rental and mortgages. [Average monthly rents in many areas are now about 15 to 20 percent lower than average monthly mortgage payments for a comparably sized home.]

NW: You estimate that once the dust settles, investors will have lost about $1 trillion in defaults and write-downs from mortgages and other loans. How did you come up with that estimate?
Morris: That encompasses residential mortgages, corporate debt, commercial mortgages, credit cards and several others. About half of it will be on the books of banks. It's actually a very conservative estimate, based on the losses and write-downs that have already taken place. It also takes full account of likely recoveries, from defaulted mortgages and loans. But the trillion-dollar estimate assumes that the de-leveraging goes smoothly—as if we could have a big meeting and agree on reasonable numbers. If we continue this crazy crash-a-month cycle, we're more likely to overshoot by two to three times.

. . . .

Save the economy - stop spending!

 

[Astronuc]

UBS Writes Down $19 Billion; Chairman to Leave

UBS, the largest Swiss bank, said Tuesday that it would write down another $19 billion related to "U.S. real estate and related structured credit positions" and said Marcel Ospel, its chairman, would step down.

In addition, the bank announced it would seek new capital of about $15 billion in what would be its second plan to raise new funds since the credit crisis began. With Tuesday's announcement, the total write-downs at UBS in the last year have surpassed $37 billion.

The news came as Deutsche Bank, the biggest German lender, said that it expected a first-quarter loss of about $3.9 billion on write-downs of United States real estate loans and assets.

Ouch!

http://www.nytimes.com/2008/04/02/business/worldbusiness/02ubs.html

There fear is that more banks have lost money and have yet to report it publicly. UBS apparently had $12 billion from Asian sovreign funds, which have now lost money and may be reluctant to lend to western banks. So this is not over, and could even get worse.

 

[Astronuc]

Bernanke Sees Little Growth for U.S. Economy
http://www.npr.org/templates/story/story.php?storyId=89303477

NPR.org, April 2, 2008 · The U.S. economy is unlikely to grow in the first half of this year, says Federal Reserve Chairman Ben Bernanke.

Testifying before Congress' Joint Economic Committee, Bernanke said, "It now appears likely that gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly."

The GDP measures the value of all goods and services produced within the United States; it is seen as the best barometer of the nation's economic health. Under one interpretation, six straight months of declining GDP would constitute a recession.

In his prepared testimony, Bernanke didn't use the word "recession." But it's the closest he has come to date to suggesting that possibility, given that a trio of crises — housing, credit and financial — has pummeled the country.

Many private analysts believe the economy contracted in the first three months of the year, signaling the start of a recession.

Meanwhile -

In Economic Drama, Bush Is Largely Offstage
http://www.nytimes.com/2008/04/03/washington/03bush.html

WASHINGTON — The first hint that President Bush might be detached from the nation’s economic woes was in February, when he conceded that he had not heard about predictions of $4-a-gallon gasoline.

Bush has been detached from reality for a long time, certainly since the beginning of his presidency.

 

[Astronuc]

ATA shuts down; budget flights to Hawaii in peril

Airline ceases operations while filing for bankruptcy, the second airline in two weeks to do so. Passengers left stranded again.

• Southwest halts plans to outsource maintenance to El Salvador

That's good news. Apparently there are questions about the maintenance.


Regarding the economy - there's a whole lot a shakin' goin' on.

 

[edward]

One in ten home mortgages is upside down. The owners owe more than the home is worth. With the price of homes still in a free-fall that ratio is going to increase.

Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater.

http://www.nytimes.com/2008/02/22/b...nted=1&hp&oref=slogin&oref=slogin&oref=slogin

 

[Astronuc]

And -

Banks deep into unregulated 'gambling'
http://marketplace.publicradio.org/display/web/2008/04/01/credit_default_swaps_q/

Treasury Secy. Paulson's plan to get the financial system under control doesn't address a once-obscure kind of credit insurance that's become an enormous money-maker for some of the country's biggest banks and other rich investors. Bob Moon explains.

Soros: Financial crisis worst since '30s
http://marketplace.publicradio.org/display/web/2008/04/03/soros_book/

Investor and philanthropist George Soros says the financial system as we know it is broken.

Of course, Soros has a book to sell, but he made some interesting comments, particularly about the complex financial instruments out that the were based upon increasing value of property and randomness of downturns. But there may be negative feedback loops (e.g. overleveraging) that force stronger downturns in the economy, such as we are now experiencing.

 

[edward]

Death of a bond insurer

There seems to be plenty of blame to go around for this financial crisis. There was a lot more involved than just people buying more house than they could afford. The problem appears to have come from the top down.

For years the bond insurers operated in relative obscurity. They mostly sold guarantees on basic municipal debt, paying out claims in the rare case a bond defaulted. But as competition increased, companies moved into more exotic products with bigger profits, including the risky securities known as collateralized debt obligations that invested in subprime loans and other assets. ACA—the fledgling outfit that got a new lease on life back in 2004 from an investment by Bear Stearns—took it to extremes. By 2007 CDOs and other types of exotic securities accounted for 90% of its portfolio, compared with 36% for MBIA, the nation's largest bond insurer

Emphasis mine

http://www.businessweek.com/magazine/content/08_15/b4079024463824.htm?chan=top+news_top+news+index_investing

If the bond insurers have problems it is going to adversely affect states and municipalities.

 

[Astronuc]

America for Sale
2 Outcomes When Foreigners Buy Factories
http://www.nytimes.com/2008/04/07/business/07sale.html

The company, Electrolux, sent production to Mexico, eliminating 2,700 jobs from a town of 8,000 people.

. . . .

Foreign capital is putting more American businesses in the control of major enterprises based in Europe or Asia. It is also creating jobs, some of them in emerging areas like alternative energy, where prospects for expansion may be greatest. And it is aiding the growth of American exports, a source of vigor in an economy hobbled by a collapsing housing market.

More than 200,000 Michigan residents worked for subsidiaries of foreign companies as of 2005, according to government data.

Yet in a state that has lost 300,000 manufacturing jobs since 2000, foreign investment has not been enough to compensate; indeed, it has sometimes exacerbated the erosion.

Gov. Jennifer M. Granholm, a Democrat, was bitterly disappointed by Electrolux’s decision to abandon Greenville.

She had promised to persuade the company to stay, assembling a package of more than $120 million in state and local tax credits. The city offered to build a new plant. The local union agreed to give up as much as $33 million a year in wages.



“They said, ‘There is nothing you can do to compensate for the fact that we are able to pay $1.57 an hour in Mexico,’ ” Ms. Granholm recalled during a recent interview. “That’s when I started to say, ‘Nafta and Cafta have given us the shafta,’ ” she added, using the acronyms for the North American and Central American free trade agreements.

The economy is certainly going great for some folks - but not for many others.

 

[Jimmy Snyder]

Astronuc, that article seemed a little bit scattershot to me. According to the title of the article, it was about what happens when foreigners buy factories. Of course, since it only gives two examples, it is difficult to ascertain what the overall effect is. However, the part that you emboldened, was about wage disparity. The wage disparity exists whether foreigners buy factories or not and has nothing really to do with the thesis of the article. So why did the wastewater treatment equipment factory go one way, and electolux the other. It seems that Nafta and Cafta can't be called upon to explain electrolux's problem. The article also fails to compare the outcomes. In one case 2700 jobs were lost. What about the other case. What is the point of this article except to raise the blood pressure of the careless reader?

 

[BobG]

America for Sale
2 Outcomes When Foreigners Buy Factories
http://www.nytimes.com/2008/04/07/business/07sale.html

“They said, ‘There is nothing you can do to compensate for the fact that we are able to pay $1.57 an hour in Mexico,’ ” Ms. Granholm recalled during a recent interview. “That’s when I started to say, ‘Nafta and Cafta have given us the shafta,’ ” she added, using the acronyms for the North American and Central American free trade agreements.

The economy is certainly going great for some folks - but not for many others.

Granholm's comments are a little misleading. I can't find how the relocated jobs were distributed, but at least some of them went to South Carolina, not Mexico. In fact, the refrigerator factory in South Carolina has cost Greenville, MI even more jobs than just at the factory closed in Greenville: Company to hire 120 people at new Duncan manufacturing plant

Bronsink said the Duncan plant initially will assemble water dispensers and plastic and glass shelving for refrigerators made at the AB Electrolux refrigerator plant in Anderson County. But the company didn’t come to South Carolina just because of the refrigerator plant, but because of business opportunities it sees in the Southeast, he said.

Of course, if you're from Michigan, news only gets worse, never better: Electrolux tax appeal. Electrolux says the property's value dropped from $27 million to around $3.7 million after the factory closed and wants a refund of excess property taxes it paid in 2006 and 2007.

Michigan's problem is that not only can't they compete against Mexican workers, but they can't compete against South Carolina workers, either.

 

[Astronuc]

Astronuc, that article seemed a little bit scattershot to me. According to the title of the article, it was about what happens when foreigners buy factories. Of course, since it only gives two examples, it is difficult to ascertain what the overall effect is. However, the part that you emboldened, was about wage disparity. The wage disparity exists whether foreigners buy factories or not and has nothing really to do with the thesis of the article. So why did the wastewater treatment equipment factory go one way, and electolux the other. It seems that Nafta and Cafta can't be called upon to explain electrolux's problem. The article also fails to compare the outcomes. In one case 2700 jobs were lost. What about the other case. What is the point of this article except to raise the blood pressure of the careless reader?

It's unfortunate that the media tend to be sloppy. But I'm not concerned about who did what as the two important matters:

1. The US is loosing manufacturing jobs.

2. US labor cannot compete against workers in other countries who are paid $1.57 an hour. And workers who make $20/hr cannot compete against workers who are paid $10/hr who can't compete workers who make $2/hr.

OK - that's economics.

But who bats an eye when a corporate executive makes $100/hr or $500/hr or $1000/hr? Do corporate managers really work 5 times or 50 times harder during 8 hrs than they guy on the shop floor? I think not. And it's usually not even the executives/managers money, but the money of stockholders and bondholders.

The problem with the economy is not labor as much as it is lousy and excessively (even obscenely) overpaid management. IMO.

 

[mheslep]

It's unfortunate that the media tend to be sloppy. But I'm not concerned about who did what as the two important matters:

1. The US is loosing manufacturing jobs.

2. US labor cannot compete against workers in other countries who are paid $1.57 an hour. And workers who make $20/hr cannot compete against workers who are paid $10/hr who can't compete workers who make $2/hr.

Perhaps, but JimmySnyder's and BobG's posts show that the NY Times piece doesn't demonstrate that #1 or #2 are true.

But who bats an eye when a corporate executive makes $100/hr or $500/hr or $1000/hr? Do corporate managers really work 5 times or 50 times harder during 8 hrs than they guy on the shop floor? I think not. And it's usually not even the executives/managers money, but the money of stockholders and bondholders.

The problem with the economy is not labor as much as it is lousy and excessively (even obscenely) overpaid management. IMO.

Well two points:
1. If the salaries of top executives were capped by law how would that help the guy on the shop floor?
2. When looking for justification of the salary multiplier CEO/Shop floor, the decisions made by the CEO have enormous economic impact - that's where the justification comes in (or not). What is the value of an Andy Grove at Intel deciding to get the company out of the the ultra competitive commodity RAM market and to concentrate instead on CPU's making Intel for awhile into the most profitable enterprise on the planet? Is any guy on the shop floor capable of having that insight and vision into the semiconductor industry? I don't think so. What do you pay a guy like that, if the consequence of losing him may be to become another forgotten and failed Silicon Valley relic where all the guys on the shop floor lost their jobs.Edit: BTW, if you are looking for a highest paid for least work target of wrath, skip past the CEOs and go straight to the big tort attorneys.

 

[Jimmy Snyder]

The problem with the economy is not labor as much as it is lousy and excessively (even obscenely) overpaid management. IMO.

You got that from the article?

 

[Astronuc]

You got that from the article?

No - from the last 40 years of watching the economy in the US.

 

[Art]

I agree with Astronuc regarding the greed of top executives. For every successful CEO there are a myriad of underperformers who pay themselves obscene salaries to the detriment of the company it's workers and it's shareholders.

One need only look at the number of companies which record huge profits each year and yet never pay a dividend because the profits are siphoned off by the senior execs through stock options or those companies that make a loss and yet still pay huge bonuses to it's execs.

I don't think many people would argue with top performances being well rewarded but that isn't the case, terrible performances are also being well rewarded.

 

[Astronuc]

Even better!

http://stanleybing.blogs.fortune.cnn.com/2008/03/27/two-tales-from-the-tough-economy/

The former Bear Stearns co-president was one of the first heads to roll in the credit crisis when he was ousted last August. But being fired could have saved Spector’s fortune. As part of his resignation (a move suggested by then-boss Jimmy Cayne), Spector was forced to vest most of his stock options and restricted stock by December 28, 2007, when the shares closed at $87.35. That amounted to a little more than a million shares, according to the bank’s 2007 proxy statement, which would have been worth about $91.1 million.

Warren Spector gets fired. Ends up with $91 million. Even after taxes you’d have to say that was a nice payday.

But wait -

Story #2: This morning the cafeteria workers who labor in the neighborhood lunchrooms are demonstrating outside a local building. Their employer has been resisting their demands for higher wages and benefits for quite some time, . . .

So -

The corporations whose lunchrooms are served by this Union rear high above the street around here, each home to any number of guys who will get more when they are fired than the entire group now out on the street will earn in six lifetimes.

So a corporate manager gets fired, and walks with $91 million, but the folks at the bottom can't get better pay. I bet they don't have corporate expense accounts either. And I bet if they get fired, they don't get a generous severance package.