What U.S. Economic Recovery? Five Destructive Myths

[WhoWee]

This story puts a human face on a Greece's slow economic downward spiral,

http://online.wsj.com/article/SB100...8261061694524.html?google_editors_picks=true"

An honorable hard working man turned to desparation through no direct fault of his own.
I had never heard of this technique used by banks (domestic or as is the case here foreign) before either, at least not till reading this story:



Could a scenario like the one portayed in this article happen, here in the U.S. ? If so, why, and if not, why not ?

Rhody...

Factoring is a common practice in the US.
http://www.businessfinance.com/factoring-receivable.htm

Smaller retail merchants use their merchant accounts.
http://expressfinancing.americanexp...html?extlink=ps--G_-_P_-_C_-_Merchant_-_Loans

For individuals - there are "pay day" loans:
http://www.advanceamerica.net/payday-loans

 

[mheslep]

This story puts a human face on a Greece's slow economic downward spiral,

...

Could a scenario like the one portayed in this article happen, here in the U.S. ? If so, why, and if not, why not ?

Rhody...

Could happen, and does, everywhere: see credit cards. That's a ~20% loan the bank gave the guy.

 

[mheslep]

This story puts a human face on a Greece's slow economic downward spiral,

http://online.wsj.com/article/SB100...8261061694524.html?google_editors_picks=true"

An honorable hard working man turned to desparation through no direct fault of his own.
...

Greece's government and protected bureaucracy is where my anger goes with this story. Same WSJ issue:

http://online.wsj.com/article_email/SB10001424053111904194604576581011334285814-lMyQjAxMTAxMDEwOTExNDkyWj.html?mod=wsj_share_email

"The present government has done absolutely nothing during the last 12 months to speed up privatizations, reduce the public sector or open up closed professions," Athanasios Papandropoulos, a leading economic analyst, told me recently in an interview. "In these 12 months it has not fired even one civil servant. The only thing it is doing is trying to tax the private sector out of existence.
...
"Whereas more than 1,000 Greeks were losing their jobs in the private sector every day in August, the government was assuring civil servants with lifetime tenure that their job privileges were not in danger."

 

[rhody]

A ray of hope for young college graduates who choose to be in the following fields: Finance, Medical Assistant, Network Administration.

http://www.usnewsuniversitydirector...t-you-hired-right-away_11401.aspx?mcid=52491"

For graduates in these fields who have had no luck finding jobs, here is your chance to debunk this article.

Rhody...

 

[AlephZero]

Could a scenario like the one portayed in this article happen, here in the U.S. ? If so, why, and if not, why not ?

The part of the story that you quoted about discounting (or factoring) bills has been a standard (and perfectly respectable) business practice for hundreds of years, except that normally when you "sell" the bill to the factoring company or discount house (the bank, in your quote) they take over the responsibility of collecting the debt directly from your customer, and they also take the risk that they can't collect it. The 10% discount on the bill is your "insurance payment" for transferring the risk to them.

Financial fraud isn't a new invention, either.

 

[rhody]

http://www.usatoday.com/money/econo...ucks-jobs-for-usa-loans-donations/50641312/1"

Starting Nov. 1, Starbucks will collect donations of $5 or more from customers to stimulate U.S. job growth through its "Jobs for USA" program. The Seattle-based coffee chain is collaborating with the Opportunity Finance Network, a nonprofit that works with nearly 200 community development financial institutions to provide loans to small businesses and community groups.

Starbucks says 100% of donations will go toward loans for companies and organizations that can add jobs or stem job losses.

For any contribution 100% voluntary, I am all for. I have a problem when the government, state, local, or federal mandates a tax or fee and you have no choice but to pay it.

Rhody...

 

[MrNerd]

http://www.usatoday.com/money/econo...ucks-jobs-for-usa-loans-donations/50641312/1"

For any contribution 100% voluntary, I am all for. I have a problem when the government, state, local, or federal mandates a tax or fee and you have no choice but to pay it.

Rhody...

I agree, the government forces us to pay too many taxes that we don't want. I think of it like the greatest racketeering scam ever. Pay up or go to jail. However, I admit that the government also does a fair amount of good, too, with the money it collects(and doesn't waste). But I still don't want to pay for some taxes that I don't even want the effects of. I suppose it's hypocritical to say this before I even get a first job(I'm beginning to resent the world from my frustration), so I can't really say I pay too many taxes myself.

 

[rhody]

Wow,

http://www.latimes.com/news/nationw...hdakota-20110928,0,2405433.story?track=icymi"

This state epitomizes a problem the Obama administration may face even if it is able to turn the economy around by 2012: People have suffered in this recession, and even when back on their feet, they have long memories of what they lost along the way.

and

But Williams is losing his $1-million home in Montana to foreclosure, and spent his first few months in North Dakota camped out in a tiny RV with his family, going to the bathroom in a bucket and living without running water.

"We're starting over again at 60, and we're adaptable. But our hopes and dreams got washed by the wayside," he said, as he fed his grandsons carrots and potatoes in his kitchen, where he and his wife sleep on a foldout couch each night. Light bulbs hang from the ceiling near exposed sockets, and the yellow, peeling walls are stuffed with sacks of fiberglass for insulation.

Every incumbent should read this article, then plan accordingly. It's sink or swim time...

Rhody...

 

[mheslep]

Wow,

North Dakota isn't feeling the slump...

http://online.wsj.com/article/SB10001424052970204226204576602524023932438.html?KEYWORDS=hamm"

...[Oil company CEO]Mr. Hamm believes that if Mr. Obama truly wants more job creation, he should study North Dakota, the state with the lowest unemployment rate in the nation at 3.5%. He swears that number is overstated: "We can't find any unemployed people up there. The state has 18,000 unfilled jobs," Mr. Hamm insists. "And these are jobs that pay $60,000 to $80,000 a year." The economy is expanding so fast that North Dakota has a housing shortage.

...But Williams is losing his $1-million home in Montana to foreclosure,...

Million dollar home? That's probably two million on the coasts.

Every incumbent should read this article, then plan accordingly. It's sink or swim time...

Plan for what? Who's sinking in this story? Voters or incumbents? Should the incumbents plan to fix the problems of the million dollar home owners by imposing on everyone else? If there is an plan from the current administration, perhaps it is to look for strong job growth and harras business there:

A few months ago the Obama Justice Department brought charges against Continental and six other oil companies in North Dakota for causing the death of 28 migratory birds, in violation of the Migratory Bird Act. Continental's crime was killing one bird "the size of a sparrow" in its oil pits. The charges carry criminal penalties of up to six months in jail. "It's not even a rare bird. There're jillions of them," he explains. He says that "people in North Dakota are really outraged by these legal actions," which he views as "completely discriminatory" because the feds have rarely if ever prosecuted the Obama administration's beloved wind industry, which kills hundreds of thousands of birds each year.

Question: Do people imagine some incumbent politician made a 'plan' for the economic boom enjoyed by N. Dakota, or is more likely that tens of thousands of motivated people like Williams, some of them even rich, made the N. Dakota economy what it currently is?

 

[rhody]

Sobering news...

This does not bode well for the Greeks, according to the article, the Government only has funds to keep going to mid November.

http://content.usatoday.com/communities/ondeadline/post/2011/10/greece-paralyzed-by-24-hour-strike-by-civil-servants/1"

A nationwide strike by Greek civil servants to protest ever steeper austerity measures paralyzed the country today, bringing transport to a halt and grounding all flights.

Teachers and lawyers joined the work stoppage and even hospitals were running only on emergency staff, the Associated Press reports.

and

Greek civil servant and trade unionist Tiana Andreou told the BBC that people's lives hav been ruined by the austerity measures and that unions "have decided that we're going to stop this."

Rhody...

 

[mheslep]

Sobering news...

This does not bode well for the Greeks, according to the article, the Government only has funds to keep going to mid November.

http://content.usatoday.com/communities/ondeadline/post/2011/10/greece-paralyzed-by-24-hour-strike-by-civil-servants/1"
:

Let me guess, the striking civil servants will be paid while on strike.

...men and women shouted "traitors" at riot police in central Athens while a crowd of younger protesters chanted "cops, pigs, murderers."

Sure. It is the protesters that set fire to a bank, killing a pregnant woman so of course it is the police that murder.

 

[WhoWee]

I've been listening to news analysis day and night regarding the economy. Regardless of the channel - the question asked is (basically) "what will the Government do about this problem?". Perhaps the question asked should be "what have Government(s) done that contributed to these problems - what can be undone"?.

 

[John Creighto]

I've been listening to news analysis day and night regarding the economy. Regardless of the channel - the question asked is (basically) "what will the Government do about this problem?". Perhaps the question asked should be "what have Government(s) done that contributed to these problems - what can be undone"?.

For once I agree with you.

 

[rhody]

I like stories like this:

http://money.cnn.com/galleries/2011...neurs_under_25.fortune/index.html?iid=L_Jump"
From the Ooshma Garg review (Turbo, take notice...)

Her second and current venture, Gobble, connects customers with a network of chefs (at varying levels of expertise) to secure home-cooked, deliverable meals. Garg's interest in creating the company stemmed from her own dietary decline. "Starting [Anapata], my eating habits went down the drain," she explains. When her parents suggested she search for home-cooked meals in the Bay Area, Garg put an ad on Craigslist, asking for a home-cooked meal for six to eight dollars -- and got enough audition dishes to eat free for a month.

Rhody...

 

[WhoWee]

I've posted previously regarding the special medical benefits provided to Medicare eligible persons in Puerto Rico - this article discusses Social Security Disability.

my bold

http://www.nationaljournal.com/budget/wsj-state-flexibility-pushing-disability-program-to-insolvency-20110322

"The Social Security Disability Insurance program is set to run out of money in four to seven years in part because states have a lot of discretion in deterimining eligibility, the Wall Street Journal reports.
The story highlights the case of Puerto Rico, which has an acceptance rate four percentage points higher than the most generous U.S. states. Nine of the top 10 U.S. zip codes for disabled workers getting benefits are in Puerto Rico.

On its current trajectory, the disability insurance program -- created during the Eisenhower years -- would be the first major federal benefit program to run out of money."

 

[John Creighto]

I've posted previously regarding the special medical benefits provided to Medicare eligible persons in Puerto Rico - this article discusses Social Security Disability.

my bold

http://www.nationaljournal.com/budget/wsj-state-flexibility-pushing-disability-program-to-insolvency-20110322

"The Social Security Disability Insurance program is set to run out of money in four to seven years in part because states have a lot of discretion in deterimining eligibility, the Wall Street Journal reports.
The story highlights the case of Puerto Rico, which has an acceptance rate four percentage points higher than the most generous U.S. states. Nine of the top 10 U.S. zip codes for disabled workers getting benefits are in Puerto Rico.

On its current trajectory, the disability insurance program -- created during the Eisenhower years -- would be the first major federal benefit program to run out of money."

My understanding is that raising the contribution cap would make the fund self sustaining.

 

[WhoWee]

My understanding is that raising the contribution cap would make the fund self sustaining.

Are you comfortable that "Nine of the top 10 U.S. zip codes for disabled workers getting benefits are in Puerto Rico"? Increasing the contribution cap will fix the Social Security system - the Disability side is now expanding very fast and covers younger (20's, 30's, 40's, and 50's - not just 65+) age groups that will be covered for much longer time period.

 

[Astronuc]

October 18, 2011, 8:48 pm Investment Banking, NYTimes
Goldman Loss Offers a Bad Omen for Wall Street
http://dealbook.nytimes.com/2011/10/18/goldman-loss-offers-a-bad-omen-for-wall-street/

Wall Street is feeling the pinch. Last week, JPMorgan Chase reported that earnings dropped by 4 percent in the latest period. Both Bank of America and Citigroup booked banner profits. But much of those results were attributed to one-time accounting gains, rather than improved fundamentals.

Goldman, which has been known for its prowess in trading, has found itself buffeted by the choppy markets and economic turmoil. While the firm posted decent results in equity trading and investment management, it lost nearly $3 billion on its investments in stocks and bonds, more than offsetting the pockets of strength.

http://dealbook.nytimes.com/2011/10/19/morgan-stanley-posts-2-15-billion-profit/

Morgan Stanley Posts $2.15 Billion Profit Morgan Stanley, buoyed by solid performances in all its core divisions and a one-time accounting gain, announced third-quarter earnings of $2.15 billion, compared with a loss of $91 million a year ago.

http://dealbook.nytimes.com/2011/10/19/blackrock-earnings-fall-3-to-521-million/

BlackRock Earnings Fall 3%, to $521 Million BlackRock said that its third-quarter profit fell 3 percent, as the world's largest asset manager battled a volatile stock market and an anemic economic recovery.

 

[WhoWee]

I think this story might help explain why the economy isn't getting any better - even though Washington has spent at record levels. my bold

http://www.foxnews.com/politics/2011/10/19/reid-private-sector-jobs-have-been-doing-just-fine/

""The massive layoffs we have had in America today, of course, are rooted in the last administration, and it is very clear that private sector jobs are doing just fine. It's the public sector jobs where we have lost huge numbers, and that's what this legislation is all about," he said."

If the Majority Leader of the US Senate believes what he says on the floor of the Senate - we might never recover (IMO).

*****

Worse yet, unemployment in Nevada - Reid's home state is the highest in the nation. my bold

http://www.lasvegassun.com/news/2011/oct/18/nevada-bucks-trend/

"The Tax Foundation, in a study released Monday, says states routinely cut unemployment taxes to business during good economic times and raised them in bad times.

The state Employment Security Council voted this year to freeze the average tax rate for the 56,000 businesses at 2 percent assessed against an average salary of $26,400 for next year.

Council Chairman Paul Havas said raising unemployment taxes in bad times “is not a religion.” He said the state has done it in the past. But this time the state experienced the highest foreclosure rate in the nation and the highest unemployment rate.

“We work to preserve the lowest tax rate in the nation,” said Havas, chairman of the council for 36 years. That encourages employers to do more hiring.

The study showed Nevada had the 35th lowest tax rate among the 51 states in 2010. And the weekly payments to the unemployed were 18th highest in the nation.

Nevada has borrowed $736 million from the federal government to make the jobless payments. It is one of 34 states that got a loan from the government. And it will probably borrow more during this economic downturn.

The foundation said however Nevada was only one of 15 states that had an adequate reserve to make more than one year in payments going into the current economic downturn.

Nevada has had the highest unemployment rate among the states at more than 13 percent. But it is one of 18 states that have not imposed a solvency tax on employers. Havas said Nevada has preserved its system and “we don’t have to have a solvency tax.”"
****

If the Senator Majority Leader - from the state with the highest unemployment in the country - thinks "it is very clear that private sector jobs are doing just fine" - Harry Reid is either absolutely clueless or has other reasons to push for funding of more public sector (union?) jobs. Again - IMO.

 

[Astronuc]

I think this story might help explain why the economy isn't getting any better - even though Washington has spent at record levels. my bold
. . . .
If the Senator Majority Leader - from the state with the highest unemployment in the country - thinks "it is very clear that private sector jobs are doing just fine" - Harry Reid is either absolutely clueless or has other reasons to push for funding of more public sector (union?) jobs. Again - IMO.

There is also the little matter of the $billions spent by US govt in Nevada for the Yucca Mountain spent fuel repository. If the project is terminated, I don't suppose Nevada would return the money to the Treasury.

"$13.5 billion that has already spent on the project; . . ."
Ref: http://www.world-nuclear-news.org/newsarticle.aspx?id=20196
Yucca Mountain cost estimate rises to $96 billion (06 August 2008)

but then, a 17 months earlier:

Yucca Mountain costs put at $26.9 billion
19 March 2007
http://www.world-nuclear-news.org/newsarticle.aspx?id=13078&LangType=2057

 

[WhoWee]

There is also the little matter of the $billions spent by US govt in Nevada for the Yucca Mountain spent fuel repository. If the project is terminated, I don't suppose Nevada would return the money to the Treasury.

"$13.5 billion that has already spent on the project; . . ."
Ref: http://www.world-nuclear-news.org/newsarticle.aspx?id=20196
Yucca Mountain cost estimate rises to $96 billion (06 August 2008)

but then, a 17 months earlier:

Yucca Mountain costs put at $26.9 billion
19 March 2007
http://www.world-nuclear-news.org/newsarticle.aspx?id=13078&LangType=2057

This debate does not seem reasonable to me. The question isn't whether to operate nuclear sites or not - waste already exists and must be stored somewhere. This site was deemed safest and funds are already allocated.

On the fairness side of the equation, don't we all have some risk? Personally, I'm located at a point on the proposed delivery route (in link) that features 2 rail and 1 truck route. The chance of something happening in my backyard is probably greater than if I lived in one of the states surrounding the Yucca site.

 

[rhody]

The hand picked http://www.washingtonpost.com/busin...L_story.html?wprss&google_editors_picks=true" on deficit reduction is at loggerheads and is raising red flags on Capitol Hill.

Though the committee’s 12 members have been meeting for nearly two months in closed-door sessions, lawmakers, aides and others involved in the process say they have yet to reach consensus on the most basic elements of a plan to restrain government borrowing

This is my humble opinion only. We are headed for the perfect storm, all the signs are there, add the inability to come up with a plan by the supercommittee to the list, Time is running out folks. I am concerned.

Rhody...

 

[WhoWee]

The hand picked http://www.washingtonpost.com/busin...L_story.html?wprss&google_editors_picks=true" on deficit reduction is at loggerheads and is raising red flags on Capitol Hill.


This is my humble opinion only. We are headed for the perfect storm, all the signs are there, add the inability to come up with a plan by the supercommittee to the list, Time is running out folks. I am concerned.

Rhody...

Personally, I think the deal was made months ago to impose the drastic cuts - the "super committee" is smoke and mirrors and diverts blame - why else would the drastic cuts be set in stone?

 

[rhody]

http://www.csmonitor.com/Business/2...op-for-Americans-standard-of-living/(page)/3"

The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession – even though the recession ended, technically speaking, in mid-2009

and

...inflation eroding people's buying power by 3.25 percent since mid-2008

and

Income loss is hitting the middle class hard, especially in communities where manufacturing facilities have closed. When those jobs are gone, many workers have ended up in service-sector jobs that pay less.

and

The bulk of that decline is in real estate, which has lost $4.7 trillion in value, or 22 percent, since 2007.

Given this reality, I have contemplated this thought for some time. I am sure it has not been discussed in this thread before. I will pose it as a question.

Would you rather have an economy where deflation set the prices of goods/services/value of the dollar, or the opposite, inflation ?

Given today's circumstances, if I had to choose, I would pick deflation.

I realize this would have a ripple effect based on foreign currency value versus the dollar and that opens a whole other can or worms.

I remember living through the late 70's and with inflation at more than 18% how impressed I was at getting a 21% raise on my first real job. I shouldn't have been, when adjusted for inflation that was reduced to 3%. A bushel of money looks great until you realize what little you can buy with it.

Rhody...

 

[WhoWee]

http://www.csmonitor.com/Business/2...op-for-Americans-standard-of-living/(page)/3"

Given this reality, I have contemplated this thought for some time. I am sure it has not been discussed in this thread before. I will pose it as a question.

Would you rather have an economy where deflation set the prices of goods/services/value of the dollar, or the opposite, inflation ?

Given today's circumstances, if I had to choose, I would pick deflation.

I realize this would have a ripple effect based on foreign currency value sversus the dollar and that opens a whole other can or worms.

I remember living through the late 70's and with inflation at more than 18% how impressed I was at getting a 21% raise on my first real job. I shouldn't have been, when adjusted for inflation that was reduced to 3%. A bushel of money looks great until you realize what little you can buy with it.

Rhody...

Something very important from your link Rhody: "The bulk of that decline is in real estate, which has lost $4.7 trillion in value, or 22 percent, since 2007."

The decline in real estate values has also impacted small business. Can you imagine if you used your home to borrow money for your business or signed a lease at the top of the real estate bubble? The small business owners that did these things might find themselves locked-in to bubble rates for 10 to 20 years.

 

[John Creighto]

http://www.csmonitor.com/Business/2...op-for-Americans-standard-of-living/(page)/3"

Given this reality, I have contemplated this thought for some time. I am sure it has not been discussed in this thread before. I will pose it as a question.

Would you rather have an economy where deflation set the prices of goods/services/value of the dollar, or the opposite, inflation ?

Given today's circumstances, if I had to choose, I would pick deflation.

I realize this would have a ripple effect based on foreign currency value sversus the dollar and that opens a whole other can or worms.

I remember living through the late 70's and with inflation at more than 18% how impressed I was at getting a 21% raise on my first real job. I shouldn't have been, when adjusted for inflation that was reduced to 3%. A bushel of money looks great until you realize what little you can buy with it.

Rhody...

I’m okay, with a small amount of inflation provided the money is distributed so that debt growth is balanced by demand growth. In other words: inflation created by an artificial expansion of credit is bad but if consumers have the buying power to sustain the debts then it is okay. There must be a balance between the two types of injections of new money into the economy. The first type of injection is through the finical sector via loans. The other type of injection is through direct stimulus efforts via government spending. The government spending can either be though a negative income tax or through government services/projects. Negative income taxes are the preferred option because there is a much lower administrative cost.

When there is inflation without any corresponding growth in the buying power of the bottom half of the population then this clearly erodes wages and creates disparity. Consequently this type of inflation is bad and such imbalances are periodically corrected periodically though deflation. When the government injects large quantities of cheap money into the economy though the finical sector it becomes possible for the financial sector to make money on bad business fundamentals. Such wealth misallocation due to bad fundamentals is the reason that prior to the downturn the finical sector made up 40% of the economy.

As an example of how money could be made though bad economic fundamentals, consider that if a bank receives money at an interest rate lower than inflation from the Federal Reserve, then a bank can just stock pile commodities such as gold and earn a profit simply on inflation. For another example consider a large department store with access to cheap money that can simply build up their inventories and wait until the price is right to sell their goods putting small players who don’t have the same access to credit at a large disadvantage.

I cannot say that cheap money is allocated as badly as in my examples but we do know that prior to this last down turn there were plenty of bad loans created which is clearly a sign of a large misallocation of wealth due to the subsidization of credit though monetary policy.

 

[russ_watters]

http://www.csmonitor.com/Business/2...op-for-Americans-standard-of-living/(page)/3"

Given this reality, I have contemplated this thought for some time. I am sure it has not been discussed in this thread before. I will pose it as a question.

Would you rather have an economy where deflation set the prices of goods/services/value of the dollar, or the opposite, inflation ?

Given today's circumstances, if I had to choose, I would pick deflation.

Ok...

I remember living through the late 70's and with inflation at more than 18% how impressed I was at getting a 21% raise on my first real job. I shouldn't have been, when adjusted for inflation that was reduced to 3%. A bushel of money looks great until you realize what little you can buy with it.

Didn't you just argue against your own point? Yes, employers will adjust their pay levels to compensate for inflation and/or deflation.

 

[rhody]

Ok... Didn't you just argue against your own point? Yes, employers will adjust their pay levels to compensate for inflation and/or deflation.

I don't believe so Russ, I said I would rather have my smaller buying power buy more with products devalued accordingly, versus having inflation (10 - 20%) to deal with. I have no control over what the Fed, Business, the banks, or foreign governments do in the same regime.

I played straw man to stimulate a logical discussion. and it is working, a good thing IMHO.

Rhody...

 

[WhoWee]

I played straw man to stimulate a logical discussion. and it is working, a good thing IMHO.

Rhody...

I'll again cite this important point from your post:"The bulk of that decline is in real estate, which has lost $4.7 trillion in value, or 22 percent, since 2007."

Now a question - should the Government adjust Section 8 payments downward to compensate for the drop in real estate values?

 

[rhody]

I'll again cite this important point from your post:"The bulk of that decline is in real estate, which has lost $4.7 trillion in value, or 22 percent, since 2007."

Now a question - should the Government adjust Section 8 payments downward to compensate for the drop in real estate values?

Doesn't seem unreasonable, does it to you ? As long as the rents that go with it drop too. The Democrats will scream bloody murder though, that is a given.

Rhody...