BF2S Forums Just what does "US Economy Bad" mean?

Yellowman03 wrote:

GunSlinger OIF II wrote:

generalizations are for idiots and bigots.  But, you are from Texas.  Most Texans I know are retards. I would say that is a safe generalization.

my being form texas is not the point. They point is that most Americans don't know about the massive debt we have.

'nuff said.

Last edited by unnamednewbie13 (2008-01-15 20:40:37)

ATG wrote:

Bad economy is when your home value falls out from underneath you.
It's when your gross receipts are down 50%.
It's when major financial institutions begin to melt down and borrow money from other countries to stay open.
It's when your taxes becomes an unbearable burden.
It's when a large portion of the population does not participate and operates on a cash only basis.
It's when your government borrows money from Europe to keeps it's military bases open in Europe.
It's when your government borrows money from Japan to defend japan from China.
It's when your government borrows money from China to fund a war in Iraq.

All of this is happening right now, and the meltdown is just getting started.

I guess my questions are:
-can you sit on your house until the market changes or do you have to sell right now
-the gross receipts thing - man I hope that isn't your biz.  I don't know many industries which would be such a massive change.
-no comment on the bank stuff, not sure which ones you are talking about
-on taxes, eventually the government wakes up.  but i would think if taxes are causing problems overspending in other areas are more of an issue.
-on the cash only basis - illegals suck, but unless somethings done it can't be avoided (unless your competing against that of course). i would think if the economy tubes & people need jobs...then that equals less illegals (of course raising the minimum wage won't help).
-no comment on the military bases issue, again not familiar with that.

Last the meltdown is just getting started - if it happens it'll be a little cooler economic climate.  i don't think it'll be anything like the newpaper says.

I'm assuming most everyone is still employed.

Ford & GM are poor examples - when have the NOT been in trouble? I understand it's not about the individual - I'm asking about the overall climate.  A 50% decrease in sales is a bit dramatic.  If businesses are failing - why?  Aren't we betting on a loser because the industry is fading?  Wouldn't we not focus on something else?  Aren't we suited to adapt?  Aren't we well positioned for the next technologies?

Bertster7 wrote:

If anything, the US needs dramatically higher tax revenues (not necessarily correlating to higher income taxes, but probably). At present US income taxes don't even cover the interest payments on the vast loans the US has accumulated over the years.

So back to my original question - if taxes are increased dramatically, when is does it become "bad"?  When our economy is 15th instead of 1st?  Is that "bad"?

ATG wrote:

Bad economy is when your home value falls out from underneath you.
It's when your gross receipts are down 50%.
It's when major financial institutions begin to melt down and borrow money from other countries to stay open.
It's when your taxes becomes an unbearable burden.
It's when a large portion of the population does not participate and operates on a cash only basis.
It's when your government borrows money from Europe to keeps it's military bases open in Europe.
It's when your government borrows money from Japan to defend japan from China.
It's when your government borrows money from China to fund a war in Iraq.

All of this is happening right now, and the meltdown is just getting started.

Though I understand, especially from the viewpoint of right next to or under the avalanche, it looks bad, in economic terms, it really isn't. Basically at the moment it's a correction: yes, we're below the highs of peak 2007, but it could definitely get a lot worse. When your economy begins to contract, combined with steadily rising unemployment and falling house prices, then you and the rest of the world should keep worrying, but as long as GNP and GDP keep expanding, you'll pull out of it in the shorter to medium term.

unnamednewbie13 wrote:

Sure sucks when your government ties its economy into the rest of the world. I mean, nobody'd want us to collapse then, would they?

Every economy in the world is undeniably linked, in some way or another, and the bigger the economy, the greater the link. Though the world's markets hurt when the Dow Jones dives, the real worry would be a slow-down in the Chinese economy.

The economy is bad and in a weak recession in my opinion. Most people will start saying we are in one soon, but by that time we will be in such a major recession and it will be obvious. I believe things could be extremely depressing in the near future, so let me explain.

Firstly we have a lot of major sectors in bad shape in the US. The housing market is certainly not good, the financial sector is grim, and the auto industry isn't great either. You also have a weak dollar, and a weaker dollar = less purchasing power. The cost of everything goes up, and people still have mortgages to pay. US consumer bankruptcy filings rose 40% in 2007, even after stricter laws on filing for bankruptcy were enacted. So if you think inflation isn't going to be a problem you need your head examined. Right now we currently have credit revulsion, and not a credit crunch which usually doesn't last very long. Maybe the most a year.

Axel Merk wrote:

“The dangers of stagflation have been long in the making: if you drive an economy to maximum efficiency (or productivity) by encouraging consumers (through low interest rates) to finance their spending on credit, you get a consumer highly sensitive to increases in interest rates (and home valuations, a source in recent years to finance consumer spending). Add to that global overproduction (fostered by low US interest rates, low US taxes, and Asia subsidizing its exports through low exchange rates), and you foster low consumer prices on anything you can import from Asia and high commodity prices. US corporations have their margins squeezed and are unlikely to create as many jobs as would be typical at this stage in the economic cycle. US wage growth and job security are unsatisfactory due to the pressures of globalization. Driving this environment to extremes by responding with an economic stimulus to every crisis, we have an economy that is no longer resilient to shocks. The clearest sign that we are at an extreme is that US car manufacturers had to apply “employee discounts” to empty their inventories – this should not happen with the GDP growth we have.”

And this is exactly what the Fed and other central banks have done by lowering interest rates and increasing the money supply, creating economic stimulation with credit beyond our means. The fact that inflation is at 15% according to Shadowstats estimate on M3 shows just how much the fed has been printing. The more dollars you print, the less value every dollar has currently in existence, but excess money, along with low discount rates, has lead to the sub-prime crisis. Money supply has gotten out of control where anyone could borrow money, and lots of it.

But wait the Fed says inflation is at 4.5% stupid, right? They use a flawed substitution based index from the CPI to measure inflation. The ol' if steak gets too expensive people will buy hamburger method. Also, the Fed has said they wouldn't publish M3 because it was too expensive and didn't provide useful information. Since when has something been taken off the books for being too expensive? The Fed uses a lot of methods that are flawed and/or biased for obvious reasons, and the real hard numbers show a different story.

Now lets look at our debt. It is currently at $13 trillion dollars, and continues to grow. We also have $60 trillion in projected debt from entitlements if we promise them. Ok so we have a weak dollar which means we have less purchasing power which our economy is largely based on (70% of our GDP is based on consumer purchasing), and now we have all this national debt to pay for? People have their own debt to get rid of, and now they are supposed to carry another cross too heavy to hold. Even if you tax everyone to death it won't solve our problem in time, so the only solution is to cut spending. Sadly, the elderly may not get their social security, and veterans may not get their benefits either.

From the wise words of Axel Merk again, "As of late 2005, the U.S. is paying more in interest on its obligations to overseas investors than it receives in interest from its own investments abroad. As a result, higher interest rates increase the out flow of dollars—a relationship more typically associated with third world countries."

So what happens is you flood the market with all these dollars, and investors just invest them into bonds for the most part. People holding federal bonds are moving into commodities because no one wants to hold bonds. You can’t have 15% or 16% inflation (according to M3) and 5% bond yields for very long. Sooner or later yields are going to catch up with inflation. It is why gold and commodities are good for investment, and commodities shot up in 2005.

Explained further:

Doug Casey wrote:

To understand the loud popping noise heard in August, you have to understand the simple truth that over the past decade, the U.S. has imported far more than it has exported, leaving the rest of the world with large quantities of U.S. dollars to invest on an unprecedented scale. Depending on how you slice the data, the total pile now adds up to between $7 and $8 trillion.

The trade deficit isn't just the result of American gluttony. Much of the imbalance results from foreign governments intervening to keep their currencies from appreciating against the dollar. Cheaper currencies, of course, make foreign-made products less expensive and, therefore, more attractive to U.S. consumers. Consider it a gift. But as many are now learning, it's a gift that falls into the same category as the Trojan Horse.

The cycle is exacerbated by foreigners deciding to invest their freshly minted U.S. dollars back into U.S. bonds, treasuries, agencies and stocks. As we have detailed in prior articles, that constant stepping up to the buying window for U.S. paper has provided a large infusion of cash to U.S. institutions, including the Treasury, keeping the credit channels well greased and U.S. interest rates surprisingly low.

This is one reason why I believe the markets are totally skewed. Link to full story here.

Bill Gross wrote:

'What we are witnessing is essentially the breakdown of our modern day banking system, a complex of levered lending so hard to understand that Fed Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August."

This is coming from a guy who is the CEO of PIMCO, the largest bond funds manager in the world. You don't think that is scary? And with all these companies that have gone under, you have all these credit derivatives and insolvency flooding into the market and it is beginning to unfold. Insolvency = debt that can't be payed back, so banks like the European Central Bank, Royal Canadian Bank, Federal Reserve, and Asian banks have been pumping liquidity into the market trying to solve this. The ECB alone printed 350 billion euros back in December, and it hasn't really helped. Liquidity won't help insolvency.

But what makes this situation more serious than others before? We saved the dollar in the 80's during the savings and loans crisis by putting all this "bad debt" into special entities, and people have been saying this is the 70's all over again, but one thing you need to know is back then we were the world largest creditor, and now we are the worlds largest debtor. We have too much debt we simply can't pay back. If we continue on this route, we are going to default and the dollar is going to become worthless. People are exiting the dollar and are moving into the euro, yen, and other strong currencies. That worries me a lot.

Derivatives are also a new thing, and some say they are more of a risk than insurance. But because they are so vast in the hundreds of trillions of dollars and complicated, when something like this corrects, it will be major. There is a lot of correction ahead and it will be major. Why don't banks trust one another and come clean with their balance sheets? If they do the market will normalize, but that is exactly what they don't want.

Central banks are not as powerful as they use to be, and while they can stall things for a bit, it will only make matters worse when it hits. The idea they can create "wealth" or "liqudity" out of thin air is ridiculous. I guess we have long forgotten about Weimar Germany. But if printing money out of thin air can literally create wealth, then Zimbabwe would be the richest country. Sadly that is not the case in our situation, or the worlds.

This is where I end here. You can call me pessimistic, but I say I'm being realistic. You can argue how it will end, but you will get hurt no matter what if you stick your head in the sand. I just hope you all are truly prepared for something major if something ever happened.

Debt is always either re-payed or reneged.

Last edited by Phrozenbot (2008-01-17 01:11:27)

Turq's spot on. Even during the Great Depression, there were normal people who did just fine and even made more money.

Ahh, SgtHeihn.  I have a rebuttal.  But I'm not going to get to it until tommorrow.