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ragerunner

US Economy: News & Discussion

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I thought I would start a new thread (if the mods don't mind), since the housing = recession thread has now been confirmed.

 

Recession began a year ago, economists say

 

"WASHINGTON (MarketWatch) -- The U.S. economy entered a recession in December 2007, a committee of economists at the private National Bureau of Economic Research said Monday."

http://www.marketwatch.com/news/story/Recession-began-a-year-ago/story.aspx?guid={FDD60E1C-DD65-49AB-8421-507B79C14220}

 

I thought it would now be good to discuss how long and how deep this recession will be. We already know we have been in a recession for a year now and its clear we are not at the bottom. So, what will be the bottom, when, some have even expressed concerns this might become more than a recession. I am still in the camp that this will be a long and very deep recession. I guess time will tell.

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I am not sure how comforting it is to hear this since Bernanke and the FEDs just kept telling us we were not even in a recession for the last year (had to make it past those pesky elections). I guess they have been firing cannons for quiet sometime know, so they might as well try the arrows out.

 

Bernanke says Fed still has arrows in quiver

Fixing credit markets necessary before economy can recover

 

"WASHINGTON (MarketWatch) - The Federal Reserve has lowered interest rates just about as far as they can go, but the U.S. central bank still has plenty of available firepower it could deploy to restore financial markets to normal, Fed Chairman Ben Bernanke said Monday.

 

The Fed could buy Treasury notes and bonds or agency bonds in a bid to drive yields lower and "spur aggregate demand," Bernanke said. Many analysts refer to such a policy as "quantitative easing," because the Fed would target a specific amount of money to flood into the economy.

 

The U.S. economy is under "considerable stress," Bernanke said, and is likely to remain weak for some time. The economy "downshifted further" after the financial crisis of September, he said. Read his full remarks.

 

...

 

http://www.marketwatch.com/news/story/Bernanke-says-Fed-still-has/story.aspx?guid={A03BB585-54D0-4E8E-8804-612BE2194A3E}

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Here is one way we maybe able to pay our way out of this debt over the next X amount of decades. All of these bailouts and modifications of laws will have a price to be paid in the future.

 

A European-style tax?

Like it or not, there's only one way we're going to be able to pay for our ballooning deficit: a value-added tax.

 

"NEW YORK (Fortune) -- It's highly possible, if not inevitable, that Americans will soon live under a radically different tax system - one that the pundits and politicians aren't talking about.

 

It's called a value-added tax, or VAT, and it's been used for decades to pay the bills and sustain the immense growth of governments around the world, from France to Mexico to Australia. Created in 1954 by a French economist, the VAT is the most potent, efficient machine for revenue generation yet invented.

 

And if there's one thing the U.S. government needs as the federal budget balloons, it's a ton of new revenue. "The bottom line is that the income tax cannot support the level of spending that's projected, something other countries faced years ago," said Roberton Williams of the Tax Policy Center, a non-partisan research institute. Today the VAT raises almost half of the total government revenue in France, and a similar share in most of the developed world.

 

...

 

http://money.cnn.com/2008/12/01/news/economy/tully_vat.fortune/index.htm

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Now that we're officially in a recession ...

Commentary: What this economic downturn is likely to hold for the U.S.

 

"PORT WASHINGTON, N.Y. (MarketWatch) -- The National Bureau of Economic Research has finally confirmed what the real world has known for at least a year: The U.S. economy is now well into its 11th postwar recession.

Although the bureau says that it takes anywhere from six to 18 months to determine that a peak in economic activity has been reached, this one has taken longer than its four immediate predecessors.

 

The bureau says that the latest business cycle peak was reached a year ago, in December 2007.

 

By contrast, the March 2001 peak was announced eight months later, while the July 1990 peak was determined within nine months. The July 1981 peak was set six months after the fact, while it took only five months to establish that a peak was reached in January 1980.

 

...

 

http://www.marketwatch.com/news/story/No-surprise-US-officially-recession/story.aspx?guid={FB24B86D-7611-4783-955C-7482CA23FD99}

 

While I hope these projections are right, I think they are to optimistic. This is becoming a worldwide recession and that has it own time line attached to it, that is longer than this.

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Some are talking about using a massive tax break in 09 as a way to kick start the economy and then use the gap to redo the tax system (with VAT one of the likely winners). I'd say VAT plus a low flat tax with a progressive earned income tax credit spread much further through the class structure.

My guess 20 months, give or take. Those surviving through the beginning of next year should look for a decent Christmas season.

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In my view, the most likely outcome is a recession whose length will exceed the postwar record but whose severity might not even be as bad as the 1981-82 downturn.

 

At the end of that recession, the jobless rate wound up at 10.8%, the highest since 1940. No one is forecasting that we will see this number this time around, at least not yet."

 

I predict that this current economic crises will become know as THE GREAT RECESSION.

 

As a victum of the 81/82 recession (I graduated college in May 1983 - jobs?  you've got to be kidding.  There were no jobs - period!) I can say that a prolonged economic downturn is no fun.

 

This current Great Recession will undoubtedly last thru all of 2009 and into 2010.  It will be longer than any post-war downturn.  There are many reasons for its projected longevity.  Here are some:

 

1. destroyed household balance sheets

2. few real jobs created outside of housing/construction since last recession

3  large decline in disposable income

4. declining real wages over the past 8 years

5. International depression (look at what's happened to US manufacturing this past quarter)

6. No future demand for housing/commercial property due to 'pull-ahead' sales over past 4 years.

7. Oversupply of housing/commercial space -further decreasing construction for next xx years.

8. Meddling by the government.  Instead of letting things contrast quickly, and thereby letting the recovery begin sooner, the government has done everything it can to slow down the contraction - thereby delaying the recovery.

9. lack of wealth pass-thru to next generation (inheritance) for them to build on

10. Less savings than at any time in history to build on

11. More competition for resources from rising Asian countries.

12. Probably lots more that I'll think of as this thread goes on.

 

Basically, as a nation, we've way over expanded in so many areas.  Once we work off those excesses and get back to where we should be economically, I'm not sure what resources we will have left to build an expansion on.

 

Buisness cycles are measured peak-to-trough and trough-to-peak.  Not sure that we will see a nice, clear-cut bottom this time around.  We could be bouncing along for quite some time, so I don't know how you call a business cycle bottom in this case.

 

I don't look for the next meaningful growth and expansion to take place before 2012. That's no reflection on the incoming administration, but on how long I think it will take to clean up the mess that we're in.

 

As to depth, real hard to say.  The government seems determined to prop things up artificially, so that may limit the degree of the collapse.  But as to new projects taking off, I don't think much will.  I don't look for employers to expand payrolls, or even replace workers over the next 4 years.  Those who do not lose their jobs will be OK.  Those that need to land a job, forget it.

 

So, if you have (and keep) a job, the recession won't look too bad.  If you need to find a job, the recession will look deeper than you can imagine.

 

That's my prediction.

 

 

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I say don't worry about the recession and go out and live your life.  If you done whats right all along, you should be good to go.

 

No sense sitting at home and worrying!

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If you done whats right all along, you should be good to go.

 

I wish I could agree with that.  The people who made all the bad calls leading into this mess still have millions, while many who played by the rules are screwed.  I know some disagree with this assessment, but I don't think the modern "service" economy model is capable of working.  It is fundamentally flawed in its low valuation of human beings. 

 

If land and fuel cost that much more than the revenue labor can generate, manual or otherwise, feudalism will result.  The growth of the cost of intellectual capital-- education-- continues to outpace growth in its returns.  Either those ratios turn around or we won't have an economy.  Instead we'll have people born with a right to land and services, and people born with an ultimatum of serve or die.  That's feudalism folks.  Look what's been happening since the real estate crash... those with the cash to do so are purchasing multiple tracts at bargain prices, while others are too paralyzed by destitution to take advantage.  Ownership of land is consolidating.  As per CincyDad's prognosis, if you're OK now, you're gonna be OK.  If you're not OK now, expect that to continue.  Social mobility grinds to a halt.

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Social mobility may grind to a halt if you don't have the skills/education/will to be socially mobile. Call me crazy, but this 'Service Economy' places a lot more emphasis on education, overall intelligence and entreprenuership than the old Manufacturing Economy.

 

I think there is something very flawed when you let unions dictate how an entire industry is run. There is no sane reason any of these blue collar auto workers should be making what they're making for doing a job that any high school graduate (or drop-out for that matter) can be taught in a few weeks.

 

I also fail to realize how, in any worst-case economic scenario, we will revert back to feudalism. Seems like a stretch to me.

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Not agrarian feudalism obviously, but a parallel situation where access to land and capital is determined much more by birth than by accomplishment.  The unprecedented debt burdens facing many who acquire the education levels necessary to participate meaningfully in this economy force them to defer or forgo previously commonplace activities like:

 

- buying property early in life (thereby having time to build significant equity), or

 

- starting a business in mid-life (one family can open a main street shop, but not a big box), or

 

- educating the next generation (this bubble won't pop for another 10-20 years, but just you wait... our parents didn't have to pay educational costs on two generations simultaneously, like many of us will)

 

While educational costs may be the biggest impediment to social mobility, other factors also contribute to the worsening situation of most Americans.  A housing boom without a wage boom means owning property becomes less likely for more people.  It's a simple equation.  Wages and salalries, for the educated and everyone else, must keep pace with property values or housing will crash-- guaranteed, every time.

 

Skills and education have costs, and "will" is not currency.  The currency now available in exchange for raw will and effort is a pittance compared to what it was in the industrial economy we've given up on.  That formerly broad access to captial was what allowed average people in the last genration to translate their talents into businesses and holdings, and in many cases to pay for their childrens' education.  Not so many get to do that now.  When educational costs factor in, with usurious interest for some people and no cost for others, the future order of things comes into focus.  We all wanted an education based economy, welcome to the economy based on education costs.

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well don't you just have all the answers.

 

I wish.  It's all conjecture at this point.  I have theories, others have other theories.  My prediction is that economic trends will improve as inequality is addressed.  My prediction may be garbage.  The people on the "housing downturn" thread here were pretty accurate in predicting what was about to happen.  They were a lot more accurate than the heads of some major banks had been, who were paid millions to be right. 

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I say don't worry about the recession and go out and live your life. If you done whats right all along, you should be good to go.

 

No sense sitting at home and worrying!

 

I am not sure this is so much about worrying as its about discussing the future of our country's economics and making decisions based what each individual believes that future will be.

 

A good example was the housing = recession thread. Depending on what you thought was going to happen 2 years ago could have made a big difference in weather you profited (so far) by the downturn or lost a lot financially up to this point.

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I say don't worry about the recession and go out and live your life.  If you done whats right all along, you should be good to go.

 

No sense sitting at home and worrying!

 

I am not sure this is so much about worrying as its about discussing the future of our country's economics and making decisions based what each individual believes that future will be.

 

A good example was the housing = recession thread. Depending on what you thought was going to happen 2 years ago could have made a big difference in weather you profited (so far) by the downturn or lost a lot financially up to this point.

 

I agree.  That why I look at people who are "trying to keep up with the Jones" and move out to go knows what suburb because they a) need more space ::) or b) want a better school district  ::) ::)  are getting exactly what they deserve!  The shaft!

 

Those tacky cheap ass craptastic Solon-Esq McMansions were over price to begin with!

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Those tacky cheap ass craptastic Solon-Esq McMansions were over price to begin with!

 

True story. I work with a guy who bought what could be called a crap-tastic McMansion in NKY. Argued with him all the time about the benefits of living in an urban neighborhood or first gen suburb. A couple of months ago he admitted that he found out that his house (It's either a Drees or Fisher, not sure), was missing a number of cross beams under his first floor. He said the floor had always 'bounced,' but he didn't think anything of it until his wife put her heel through the living room! He broke out he plans, and sure enough, about a half dozen of them were missing.

 

The type of structures that we're building in the suburbs aren't just the architectural equivalent of vomit. They're crappy too. I know I'm preaching to the choir, but if you try to keep up w/ the Jones' you're going to end up living in a pile of crap.

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Which means all means if you can afford or want to build a new house, now is the time to do. They have plenty of time and the prices of the inputs are coming down.

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Which means all means if you can afford or want to build a new house, now is the time to do. They have plenty of time and the prices of the inputs are coming down.

 

also there are plenty of foreclosed homes available along with plenty of homes in the city and first tire suburbs that are move in or close to move in ready.

 

Why do people think newer=better?

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>We all wanted an education based economy, welcome to the economy based on education costs.

 

If the federal student loan program wasn't such a blind giveaway, college costs wouldn't be near what they are.  We'll only see college costs come back to earth when student loans are reduced and universities are forced to cut the nonsense.  I would love to see how much of a university's costs are directly related to advertising and have an agreement banning certain types of advertising and the number of admissions reps if a school wants to receive student loans.  And community colleges are every bit as bad because they seduce low-income individuals who often quit midway through the first quarter but the school gets the full grant from the government and the admissions rep gets his or her commission.  Publications like US News & World Report do a ton of advertising for colleges and I bet if colleges themselves were taken out of the business of creating superstition about their programs that all kinds of independent stuff like that would spring up.   

 

That said the US has tens of millions more educated professionals than any other country, so even if the US dollar became worthless, we would still have that human capital, aside from having the best land in the world.  Speaking of which, wealthy people I know are in fact taking their investments out of stocks and US dollars and putting them in Swiss Franks, gold in Swiss vaults, and buying land.  There is a bit of a silent rush to get wealth somewhere safe before Obama gets into office. 

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"Speaking of which, wealthy people I know are in fact taking their investments out of stocks and US dollars and putting them in Swiss Franks, gold in Swiss vaults, and buying land.  There is a bit of a silent rush to get wealth somewhere safe before Obama gets into office."

 

Gold and foreign currency have been good ideas for years, because our economy was pretty clearly about to crash.  I'm not sure what that has to do with Obama.  If people bought gold before Bush's second term, they'd have been better off.  I think the economy will get worse before it gets better, meaning these wealth-preservation investments are still good, just not as good as they were in the early Bush years.

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Payrolls plunge by stunning 533,000 in November

Jobless rate rises to 15-year high of 6.7%, Labor Department reports

 

"WASHINGTON (MarketWatch) - U.S. nonfarm payrolls plunged by an astonishing 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday.

 

It's only the fourth time in the past 58 years that payrolls have fallen by more than 500,000 in a month. Since the recession began 11 months ago, a total of 1.9 million jobs have been lost."

http://www.marketwatch.com/news/story/Payrolls-plunge-stunning-533000-November/story.aspx?guid={5446C124-6428-4C60-8CB9-30505CCA12AA}

 

Job loses are starting to hit the early 1970 numbers and we still are not at the bottom.

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"WASHINGTON (MarketWatch) - U.S. nonfarm payrolls plunged by an astonishing 533,000 in November, the worst job loss in 34 years, the Labor Department reported Friday.

 

34 years ago would be the 1974 recession, which followed on the oil price shock from the Arab oil embargo and price jack.

 

That was the second worst postwar recession, and was an economic landmark of sorts as the decoupling of productivity and wage growth dated from around then, as well as the start of wage stagnation (adjusted for inflation, which shot up that year, too). 

 

So the 1974 recession marked the movement into a new economic era after the great postwar expansion (esp. the go-go 1960s, a time of widespread prosperity..or I should say widely shared prosperity.. as well as an era social change).

 

Im spinning a 70s funk compilation disc in celebration. yay. 

 

 

 

 

 

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Jim Cramer did note that if you put these losses up to a per capita test, we are still doing okay 73-74 would be 1 mil. a month in lost jobs and 81 would be 600k. I'm guessing we may hit 1 mil a month in the next three months, but I think (hope) that's the peak of job losses.

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Some of this is simply our predictions coming to fruition, though the accelerating speed is unnerving.

 

Agree, 100% and for the employment numbers to do this during the holiday season is even more concerning. We should be seeing an uptick this time of year with holiday hiring.

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Some of this is simply our predictions coming to fruition, though the accelerating speed is unnerving.

 

Agree, 100% and for the employment numbers to do this during the holiday season is even more concerning. We should be seeing an uptick this time of year with holiday hiring.

 

do temporary/seasonal jobs (8 weeks) count?  How are they counted?

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Economy bad all over -- even before current crisis

Economic troubles reached most of nation's cities long before current financial crisis

 

"WASHINGTON (AP) -- Things really are bad all over -- and they had gone bad even before the housing and finance industries crashed and sent the economy into a tailspin.

 

New census data shows that throughout the first half of the decade, the slumping economy touched nearly every community in the country. Incomes dropped while poverty and unemployment rose in the vast majority of the nation's cities and towns.

 

Small and medium-sized cities in the Midwest, already suffering from an ailing auto industry, were hit the hardest, with unemployment rates doubling or tripling in communities throughout Michigan, Ohio, Indiana and Illinois.

 

Link for full article

http://finance.yahoo.com/news/Economy-bad-all-over-even-apf-13780442.html

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^ from the article...

 

"The year 2000 was at the end of an incredible boom that lasted a decade," Hoyt said.

 

Incomes were up, unemployment was down and the dot-com bubble had not yet burst on Wall Street.

 

"We just didn't have enough years of expansion" this decade, he said.

 

 

 

Periodic Recessions are good.  It's a cleansing part of the buisiness cycle.  It's like controlled burning to clear out the underbrush to prevent a major forest wildfire.  But when you go playing around with the economy (as Greenspan did) and you work to mitigate the recessions, you end up with a big wildfire someday, which we'll just call the "Great Recession". :wink2:

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There is an argument that the Great Depression was so great because WWI short-circuited a serious recession in 1913-1914. Instead, it drove a fluffy boom in the 1920s that was built heavily on consumer goods and real estate that all crashed down with intensified force because the cleansing component in the teens failed to happen. Sounds familiar, huh?

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Sounds familiar, huh?

 

As usual, dmerkow, you are spot on with your economic history.  And yes, it's freightening the similarities between 1929 and now (in regards to the boom preceeding the crash).  There are a lot of differences today so I don't expect to see a repeat of the 1930s, but we could be in for a 'lost decade' none-the-less.

 

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My expectation is that we will make new and different mistakes that will take this in new and different ways. For instance, at some point will have to figure out a make-work project for white collar workers, which is much more challenging that finding for work for those who can use muscle to make something.

 

I'm guessing mass digitization of medical records would be a place to start. Lots of bodies needed and it would help with things like database admins and the tech industry from the computers and equipment needed.

 

As a historian, I've got a very long list of things that should be digitized.

 

It is worth noting that it wasn't until late in '31 that there was a palpable shift in the tone of newspapers and the like and it still wasn't all that people talked about. Life went on even as it got really rough for a lot of folks.

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Also, most manual labor is mechanized now AND a lot of construction is hoarded by labor unions.  It's easier to just to print money and send people a check to sit around and watch TV than deal with trying to get them to rebuild all the nice WPA retaining walls that have been replaced by fake concrete molds.  The problem is you want to get idle males doing something or else they'll just get drunk and break stuff. 

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I think we are going to see 'positive mental shift' (which might equate to some improved economic data) when Obama takes office. This will be attributed to the stimulus plan that will be put into place early in 2009 as well as 'hope' with a new president taking office. This will impact the economy and even housing sales (I am not sure how much, but some) until summer of 2009. At that point we will be able to gauge if any of these 'bailout/stimulus' plans actually have any sustainable teeth to them. I personally think they will only provide small bumps on a very long steep slope as the 'Great Recession' (per CincyDad) will take hold in full force. The financial and economic cleaning must take place.

 

dmerkow quote:

"It is worth noting that it wasn't until late in '31 that there was a palpable shift in the tone of newspapers and the like and it still wasn't all that people talked about. Life went on even as it got really rough for a lot of folks."

 

I think one of the big difference in mind set and information will be the internet. Weather the main news media reports it like it is will be irrelevant due to the internet. Does anyone watch the evening news anymore?

 

Side note: dmerkow - I really enjoy reading your historical knowledge of the situation. It really adds a lot to this discussion.

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Fed considers issuing its own debt: WSJ

By Simon Kennedy

 

"LONDON (MarketWatch) -- The Federal Reserve is mulling issuing its own debt for the first time in a move that would give it more flexibility to stabilize financial markets, The Wall Street Journal reported Wednesday, citing a person familiar with the matter. Government debt issuance is largely the job of the Treasury Department, but Fed officials are looking for new tools as the crisis drags on and have approached Congress about the idea, the Journal reported. It added the concept could include issuing bills or some other form of debt, but it isn't known whether the preliminary discussions will result in a formal proposal or Fed action. The Journal said one roadblock is that the Federal Reserve Act doesn't explicitly permit the Fed to issue notes beyond currency."

http://www.marketwatch.com/news/story/Fed-considers-issuing-its-own/story.aspx?guid={E5B1EBA3-ED1F-4D54-AE8D-FFC6690249D5}

 

One day the American public will wake up and realize we have been hosed by the FEDs and the banking industry. It is during 'emergency' times that other group(s) rise up and position themselves into power. All in the name of saving others.

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I generally agree that the internet will shape how we experience it, though it is worth noting that the newspapers were far more reflective of the common man in that era than they are know.

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