What U.S. Economic Recovery? Five Destructive Myths

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 [Broken]

"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.

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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
Staff Emeritus
October 18, 2011, 8:48 pm Investment Banking, NYTimes
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. 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 $736 million from the federal government to make the jobless payments. It is one of 34 states that got a loan from the government. And it will probably borrow more during this economic downturn. The foundation said however Nevada was only one of 15 states that had an adequate reserve to make more than one year in payments going into the current economic downturn. Nevada has had the highest unemployment rate among the states at more than 13 percent. But it is one of 18 states that have not imposed a solvency tax on employers. Havas said Nevada has preserved its system and “we don’t have to have a solvency tax.”" **** If the Senator Majority Leader - from the state with the highest unemployment in the country - thinks "it is very clear that private sector jobs are doing just fine" - Harry Reid is either absolutely clueless or has other reasons to push for funding of more public sector (union?) jobs. Again - IMO. Last edited by a moderator: Astronuc Staff Emeritus Science Advisor I think this story might help explain why the economy isn't getting any better - even though Washington has spent at record levels. my bold . . . . If the Senator Majority Leader - from the state with the highest unemployment in the country - thinks "it is very clear that private sector jobs are doing just fine" - Harry Reid is either absolutely clueless or has other reasons to push for funding of more public sector (union?) jobs. Again - IMO. There is also the little matter of the$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 $26.9 billion 19 March 2007 http://www.world-nuclear-news.org/newsarticle.aspx?id=13078&LangType=2057 There is also the little matter of the$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. Gold Member 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... Last edited by a moderator: 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? Last edited by a moderator: Gold Member 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... Last edited by a moderator: 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.

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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.

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russ_watters
Mentor

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.

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Gold Member
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...

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? Gold Member 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...

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...

I'd like to see the entire program re-evaluated - that's another very long discussion.

My point is focused on the real estate market - it hasn't hit bottom yet and any attempts to support prices from correcting can slow overall recovery.

As discussed up-thread, in some areas of the country banks are donating foreclosed houses to land banks or otherwise demolishing them to eliminate inventory and avoid paying taxes and insurance. In other areas, there is a feeding frenzy among bargain shoppers - many looking for properties to use in participation of Section 8 programs - where they are guaranteed significant long term returns.

Here's an over-simplified summary of the problem. The value of the rent voucher is based on the income of the beneficiaries - not the property market value or actual cost. The rent charged must be reasonable in that it's comparable to similar units or unassisted housing units. If comparable houses are renting for an average $600 per month and you purchase a foreclosure for$10,000 in the area then invest $10,000 (maybe pick up a green credit?) to bring it to standards - you'll realize a$7,200 per year cash flow from a $20,000 investment - assume$2,200 for taxes, insurance, and maintenance - pre-tax (all or part of the $10,000 might be considered a current year maintenance expense) cash flow +$5,000 or 25%.

http://www.bankforeclosuressale.com/list/oh/county035/cleveland.html

Exactly, WHAT economic recovery? This recession isn't like the recessions of past, it is more than just due to down consumer consumption. This recession represents the culmination of years and years of terrible financial policies and a paradigm shift in world history. We are watching the end of American dominance. The US is going the way of England post 1900. The US will never fully recover. As a person in STEM myself, after I graduate from grad school, I'm definitely going to look globally for a job and look to a country where they are heavily investing in research and development. According to the CIA world factbook, the US economy is already a majority service economy. What's the point of staying here then as a future engineer? After the dust settles the only jobs outside of health care will probably be in retail, food preparation/restaurants, or related to tourism. We're toast .

Which country is it that you suspect spends more on R & D?
http://en.wikipedia.org/wiki/List_of_countries_by_research_and_development_spending

Those stats say nothing about the future or changes in R and D spending either. They are only a snapshot of the a static moment in time. National rates of savings are intrinsically linked to investment expenditures over the long run. After Asian economies went under in 1997 and were subsequently bailed out by the IMF, they were forced to adopt strict fiscal measures. After Brazil melted down in the 1990s during its hyperinflation crisis they too adopted strict financial measures. It's the reason why both of those regions have been shielded from much of the current global economic meltdown and also why banks as well as the governments in those regions have hordes of cash and have more conservative investments. Meanwhile, here in the US, our entire economy has melted down after we deregulated huge financial institutions which failed after gambling on mortgage derivatives. It has plunged the US economy into a severe recession that has also led to a huge loss of government tax receipts. It's only a matter of time before the US is forced to adopt severe fiscal contraints which will add another blow to R and D expenditure, not to mention also the national rate of savings in the US has been atrocious for a long time.

Brazil and countries in Asia have vast reserves of cash in savings and are now using it to invest. Sure, the US may remain on top for now, but by the time I get out and need to look for a long term job that can last for more than 5 years, it will very likely be a different story.

mheslep
Gold Member
Those stats say nothing about the future or changes in R and D spending either. They are only a snapshot of the a static moment in time. National rates of savings are intrinsically linked to investment expenditures over the long run. ...

Brazil and countries in Asia have vast reserves of cash in savings and using it to invest. Sure, the US may remain on top for now, but by the time I get out and need to look for a long term job that can last for more than 5 years, it will very likely be a different story.
Well I'd reserve the term "vast" for only the cash reserves of US companies. But ok, what do you imagine is going on with the personal savings rate in the US? Going up or down in the last few years? Furthermore, do you think the best way to avoid another recession (official) is encourage more spending or more saving?

Well I'd reserve the term "vast" for only the cash reserves of US companies. But ok, what do you imagine is going on with the personal savings rate in the US? Going up or down in the last few years? Furthermore, do you think the best way to avoid another recession (official) is encourage more spending or more saving?

The amount of saving should be matched by the investment in industry. The growth in industrial capacity should match the growth in demand. Otherwise there will be imbalances and these imbalances will need to be corrected.

JonDE
Exactly, WHAT economic recovery? This recession isn't like the recessions of past, it is more than just due to down consumer consumption. This recession represents the culmination of years and years of terrible financial policies and a paradigm shift in world history. We are watching the end of American dominance. The US is going the way of England post 1900. The US will never fully recover. As a person in STEM myself, after I graduate from grad school, I'm definitely going to look globally for a job and look to a country where they are heavily investing in research and development. According to the CIA world factbook, the US economy is already a majority service economy. What's the point of staying here then as a future engineer? After the dust settles the only jobs outside of health care will probably be in retail, food preparation/restaurants, or related to tourism. We're toast .

First you need to realize that there is nothing wrong with America being largely a service based economy. This is more due to our technology and investment in it. I'll give you an example.
In 2007 China produced 2.8B tons of coal first in the world, America was 2nd with 1.1B tons, both were net exports and make up over half of all coal mined in the world. China, produced roughly 2.5X as much as the US does, but look deeper at the number. China employs 5,000,000 people in their coal industry, the US, less then 200,000, less then 100k of those are actually miners. So they produce 2.5X as much but employ about 25X as many people, so American coal miners are 10X more efficient then there Chinese counterparts. In America we still produce a ton of stuff, it just requires less and less people to do it ever year.

China employs 5,000,000 people in their coal industry, the US, less then 200,000, less then 100k of those are actually miners. So they produce 2.5X as much but employ about 25X as many people, so American coal miners are 10X more efficient then there Chinese counterparts. In America we still produce a ton of stuff, it just requires less and less people to do it ever year.

So if things can be produced so cheaply why is it that goods are so expensive for so many? If so much more value is being created who is enjoying the bounty of all this production?

The graph supporting your claim is striking
http://seekingalpha.com/article/157767-manufacturing-output-per-worker-hits-a-record-high
http://www.freerepublic.com/focus/f-chat/2695456/posts
Is the graph deceiving us? Has the value of what is produced not increased as much as shown for the worker worker. I think I'll give this more thought and address it in another thread.

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It's going to take me a while to figure out how the statistics are calculated and what flaws may exist. The following link suggests significant flaws may exist.

But new evidence suggests that shifting production overseas has inflicted worse damage on the U.S. economy than the numbers show. BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.

The short explanation is that the growth of domestic manufacturing has been substantially overstated in recent years.
........
"In some sectors, productivity growth may be an indicator not of how competitive American workers are in international markets," says Houseman, "but rather of how cost-uncompetitive they are." For example, furniture manufacturing has been transformed by offshoring in recent years. Imports have surged from $17.2 billion in 2000 to$30.3 billion in 2006, with virtually all of that increase coming from low-cost China. And the industry has lost 21% of its jobs during the same period.

Yet Washington's official statistics show that productivity per hour in the furniture industry went up by 23% and output by 3% between 2000 and 2005. Those numbers baffle longtime industry consultant Arthur Raymond of Raleigh, N.C., who has watched factory after factory close. "And we haven't pumped any money into the remaining plants," says Raymond. "How anybody can say that domestic production has stayed level is beyond me."

Phantom GDP
The portion of real GDP, or of an increase real GDP, that occurs when domestic producers switch to lower cost imported inputs. Although it represents a valid gain from trade, it does not represent real output produced within the domestic economy, but may be treated as such in statistics.
Found on http://www-personal.umich.edu/~alandear/
http://www.encyclo.co.uk/define/phantom gdp

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JonDE
It's going to take me a while to figure out how the statistics are calculated and what flaws may exist. The following link suggests significant flaws may exist.