djAdvocate
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Post by djAdvocate on Jul 7, 2012 0:59:23 GMT -5
everyone knows it, but the question is WHY? before you jump to any conclusions, read THIS: seekingalpha.com/article/294847-weakest-recovery-since-great-depression-in-chartsi have been contending that this is a natural correction to a financial meltdown that was precipitated by policies that we adopted under Clinton. i am starting to think, based on the above, that i am totally wrong. this appears to be something more fundamental than that, and it appears to have to do with personal debt. this is a VERY long read, but has a lot of interesting data in it. i would encourage anyone interested in US economics to read it, but i will understand if some of you simply lack the time. but for those that won't even click the link, here is the crux of the article: What policy and monetary makers fail to grasp is that this time really is different. Typically it’s the cyclical sectors of the economy such as business inventories, auto production, etc. that lead to the variability of the economy and produce expansions and contractions. However, this time around the main driving force is a broken consumer credit cycle. Rather than leveraging up on debt like they have during every recovery since the Great Depression, the U.S. consumer has reached maximum credit saturation and instead is deleveraging and reducing overall debt levels. This has not happened since the Great Depression and the sooner Washington figures this out the better as policies to stimulate consumption such as tax breaks and more transfer payments aren’t going to do the trick. Overall debt levels must come back down further to more normal levels relative to economic activity.
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AgeOfEnlightenmentSCP
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Post by AgeOfEnlightenmentSCP on Jul 7, 2012 5:39:09 GMT -5
I agree. Completely. The problem isn't borrowing costs. Low interest and stimulus spending are so much pushing on a string. This complicates things because it creates an inflationary rather than simply allowing the contraction that is long overdue. We are going to have to stop spending, Ay down debt, start saving, and start producing again if we hope to remain competitive.
Lots of unpleasantness lies ahead...
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Value Buy
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Post by Value Buy on Jul 7, 2012 8:48:49 GMT -5
Taxbreaks and income (tax) transfers. In other words, both the Republicans and the Democrats are wrong for different reasons and both are screwing it up.
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djAdvocate
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Post by djAdvocate on Jul 7, 2012 12:40:04 GMT -5
Taxbreaks and income (tax) transfers. In other words, both the Republicans and the Democrats are wrong for different reasons and both are screwing it up. precisely. what is interesting about that is that there is virtually NO policy statements i have heard to address this. the ONLY thing that i have heard recently that might be of some assistance with it was during the student loan debate, and ONLY with regard to that programme.
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djAdvocate
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Post by djAdvocate on Jul 7, 2012 12:41:43 GMT -5
One thing that would help a lot is for businesses to know what the political climate is going to look like in the future. Using one example - Caterpillar - they were stockpiling cash during the downturn, basically because they needed to have a strong balance sheet to get credit (which is how their business runs). Now that their business is back on the upswing, they have the cash to put out there and make the business grow...but where to put it? Companies like this don't pop up a new plant costing millions of dollars on a whim, they want to know if taxes are going to change in that location, emissions regulations, a whole range of political decisions could affect their business decisions. They did make out pretty good with the government take-over of GM, they where able to buy Bucyrus (and Terex, owned by Bucyrus) for pennies on the dollar when GM's empire was basically going through a fire-sale (with Warren Buffett greasing the skids, since Cat is known as a union-busting company the sale wouldn't have gone through without his pull). I think Mitt Romney would do very well if he would come out and say very plainly "American businesses have nothing to fear if I am elected. Your taxes will not increase, we will not make harsher EPA standards, etc." you didn't read the article, did you? the business climate has very little to do with our problem. the business climate is driven by consumers, and consumers are the problem. please read the article, then comment. thanks.
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djAdvocate
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Post by djAdvocate on Jul 7, 2012 12:44:02 GMT -5
I agree. Completely. The problem isn't borrowing costs. Low interest and stimulus spending are so much pushing on a string. This complicates things because it creates an inflationary rather than simply allowing the contraction that is long overdue. We are going to have to stop spending, Ay down debt, start saving, and start producing again if we hope to remain competitive. Lots of unpleasantness lies ahead... the policies are not helping the individual get over this. that is where the problem lies. we are encouraging more consumption in an atmosphere where people are reducing debt. it is 180 degrees the opposite of how we should be thinking, from a policy standpoint. the question is: how do we get people to stop spending on credit? what incentives could we put on the consumer credit system that would allow people to pay down debt AND spend?
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djAdvocate
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Post by djAdvocate on Jul 7, 2012 12:46:39 GMT -5
YES!!!! That is exactly what the businessman wants to hear. But be aware, he is not as trusting as he once was, so there had better be actions behind those words. I often wonder what kind of an impact boards like this have on the slow recovery. Posters here are advocating to other members less credit and more savings. Much like businesses have been doing, many are now getting out of debt and hanging onto cash, which can't be good for an economy fueled on credit. i agree with the last half of this statement. it is really crappy for the economy. we need to somehow encourage people to spend in an atmosphere where they are saving, and that seems like an impossible task to me. our fears about this recovery are, ironically, making it much more slow than it might otherwise be.
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Deleted
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Post by Deleted on Jul 7, 2012 16:17:13 GMT -5
"you didn't read the article, did you? the business climate has very little to do with our problem. the business climate is driven by consumers, and consumers are the problem."
Perhaps true, but political uncertainty is still part of it. There is a lot of uncertainty surrounding what the political climate will be after November. Uncertainty tends to reduce investments. I'm not going to suggest that the economy will start to soar after the elections, but the level of uncertainty will decrease, and that alone will cause hiring to pick up somewhat.
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Post by Deleted on Jul 7, 2012 16:47:07 GMT -5
I will start spending again when I see the gov address it's spending and debt issues. There is nothing that I need right now. If I do really need something I will buy it but I will continue to cut back on my wants. What I really want/need is some security for my old age. For that to happen I need to feel confident in the future value of the dollar . For that to happen the gov needs to address it's debt problem. For that to happen the gov needs to stop creating more entitlement programs and fix the ones that already need fixing. As that is not happening I will continue to save . Even as the dollar becomes worth less and less as I age, the less I spend, the more I will have. I am not deprived, I live a nice life, I am able to help others. I would like to be able to continue that when I am finished working.
eta: There are so many still trying to gain back what was lost from jobs lost when recession first hit. I think it will be really hard to get them to spend for quite some time.
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Post by Deleted on Jul 7, 2012 17:18:44 GMT -5
"As that is not happening I will continue to save . Even as the dollar becomes worth less and less as I age, the less I spend, the more I will have." xmascookie--I hear what you're saying about the uncertainty. Although if it's any consolation, the value of the dollar really has not been declining. It's had a lot of ups and downs, but the dollar is a bit higher than it was 5 years ago. Also, the value of the dollar has an inverse relationship to the state of the global economy. So a declining dollar isn't necessarily even bad. www.bloomberg.com/quote/DXY:IND/chartAnd if you were talking about inflation, that has also been below average lately. Last 12 months was something like 1.8% (3.5% is more typical). Inflation also isn't necessarily bad, and the current low rate of inflation is due to the poor state of the global economy. So far, gov't spending really hasn't hurt the value of your dollars. Hopefully they will fix the problem before it does!
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Deleted
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Post by Deleted on Jul 7, 2012 17:34:37 GMT -5
Thanks investorbob I understand this. This is my problem I quess. I'm past that hopeful stage.
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vandalshandle
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Post by vandalshandle on Jul 7, 2012 18:01:30 GMT -5
No, government is the problem. The consumer doesn't trust the government and that lack of trust is a big part of what is keeping consumers from spending. Let me see if I have this right. I want to buy a new car, but, I don't trust the government, so I don't buy a new car? OOOOKAY!
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vandalshandle
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Post by vandalshandle on Jul 7, 2012 18:05:42 GMT -5
DJ, I think the problem is multi-leveled. The unemployment situation I blame on the fact that the global economy is now in full bloom. The Chinese bought 100 million cars last year, and their economy is full speed ahead. More developed countries such as us are going to suffer. it makes no sense to manufacture Cotton t-shirts in a country that is as expensive to live in as the US is. I am afraid that the higher unemployment is here to stay...at least until we come up with more high tech products to produce.
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Don Perignon
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Post by Don Perignon on Jul 7, 2012 18:24:24 GMT -5
I think energy prices are the dominant factor affecting the economy. When people can't afford gasoline, few of them will purchase cars.
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vandalshandle
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Post by vandalshandle on Jul 7, 2012 18:30:35 GMT -5
I think energy prices are the dominant factor affecting the economy. When people can't afford gasoline, few of them will purchase cars. Which brings us back to the global economy, and the fact that we are now competing for petroleum against 100 million Chinese with new cars.
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Post by Deleted on Jul 7, 2012 18:50:46 GMT -5
I think the problem is right at the root of our whole economic system. We move money from one person to another by paying for what they produce. (For simplicity I am ignoring wefare right now) With industrialization and technology the labour of one person produces more than they can consume. Like a 1000 times more. Hence the introduction of credit to be able to buy more than you could with just the money you get paid for producing. The system is not sustainable. It is actually taking longer than I thought it would take to fall apart. I think the introduction of welfare has prolonged it's demise. I have said for a while that I believe we are going through an economic revolution that we won't really be able to see until we are on the other side.
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Post by Deleted on Jul 7, 2012 21:10:25 GMT -5
"This is my problem I quess. I'm past that hopeful stage. "
I try to stay positive. Sometimes it's tough, though.
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Post by Deleted on Jul 7, 2012 21:12:26 GMT -5
"I think energy prices are the dominant factor affecting the economy. When people can't afford gasoline, few of them will purchase cars."
Where is your evidence? Energy isn't even expensive right now. Oil is, but everything else is not. And the price of oil is actually directly corellated to the state of the global economy. Growing economy, high oil prices.
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Don Perignon
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Post by Don Perignon on Jul 7, 2012 21:15:48 GMT -5
Energy isn't expensive? O... kay...
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Post by Deleted on Jul 7, 2012 21:17:15 GMT -5
"More developed countries such as us are going to suffer. it makes no sense to manufacture Cotton t-shirts in a country that is as expensive to live in as the US is."
I gave you some statistics about imports the other day. Did you read them? The US is still the largest goods producing nation in the world. Even China's economy is struggling right now, hence the $20 drop in oil prices. Developing nations are not the cause of our economic problems. At most, they've slowed the rate of wage growth a little.
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Post by Deleted on Jul 7, 2012 21:18:09 GMT -5
"Energy isn't expensive?"
The price of natural gas is basically the lowest it's ever been. And it has dragged down the price of coal with it. Even propane has come down a lot.
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Deleted
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Post by Deleted on Jul 7, 2012 21:45:52 GMT -5
I didn't say it doesn't affect you. But energy prices are not a significant drag on the economy, and prices are not as high as people seem to think they are.
However, if you are in the Northeast (based on your comment about heating oil?), well you are certainly in one of the areas where electricity prices are rediculously (and un-necessarily) high. Hopefully cheaper natural gas is making inroads to replace heating oil in your area.
Plus, US natural gas prices are MUCH lower than they are worldwide. That and high oil prices have actually resulted in some outsourced jobs being brought back to the US.
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vandalshandle
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Post by vandalshandle on Jul 7, 2012 22:13:34 GMT -5
I agree that energy is not dragging down the economy, Bob. Frankly, I think that gasoline at $3.30 per gallon is still a bargain. If it gets as high as a gallon of Jack Daniels, I'm going to start to worry.
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handyman2
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Post by handyman2 on Jul 7, 2012 22:14:05 GMT -5
My question is how is anybody going to turn the economy around when we currently have more stuff in warehouses, stores and shipping containers? You look at car, trucks, clothes and appliances. There is enough already manufactured and waiting to be sold than there is consumer demand for them. With automation they can make stuff faster and cheaper with less human personnel. So what is the incentive for companies to hire more people? You can go into a thrift store and find enough good cheap clothes to outfit a medium sized town and more on the way. Car lots with more cars than there is places to park them. Acres and acres of storage containers full of appliances been sitting there for two years are more. Most of it made off shore. Until we make some kind of change on imports the need to hire more people will not happen in my estimation. I know with current trade policies that is not going to change unless Congress stands up and says enough is enough. It is time for America first. You make it there keep it there is my opinion. You want to sell it here, make it here.
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vandalshandle
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Post by vandalshandle on Jul 7, 2012 22:21:31 GMT -5
OMG, Handyman! If you put a ban on imports, nobody in America could buy underwear!
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TonyTiger
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Post by TonyTiger on Jul 7, 2012 23:12:17 GMT -5
Which Depression?
The Great Depression of 1929? (which lasted until 1942-ish)
Or the Greater Depression in Darned Near Everything But Name of 2006? (which has lasted until 2012, so far)
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Post by Deleted on Jul 8, 2012 7:27:14 GMT -5
"Maybe not a significant drag, but when you consider everything oil has an impact on, it has to be considered."
I do consider it. But oil is only about 5% of the economy. And as I pointed out, other forms of energy are fairly cheap. Especially natural gas to industrial and utility customers, which is at unheard of low prices.
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Post by Deleted on Jul 8, 2012 7:31:19 GMT -5
"Until we make some kind of change on imports the need to hire more people will not happen in my estimation."
Handyman, the trade deficity is only about 3-4% of the total US economy. I'd like to see it break even or a surplus, but I don't think the impact of the deficit is quite as great as most people think. And the US is actually moving towards more energy exports and less imported oil, which will help.
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Virgil Showlion
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Post by Virgil Showlion on Jul 8, 2012 7:40:43 GMT -5
To add to the problems of personal debt, public debt, trade deficits, fuel prices, etc. already mentioned, perhaps I'll point out that the labour participation rate—the ratio of working Americans to all Americans—has been in rapid decline since 2008 and is now threatening to breach all-time lows set in 1981. This is unemployment in its rawest form. Each percentage point dropped is 3 million more Americans dependent on the labour of others, and 3 million fewer Americans actually doing productive work.
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handyman2
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Post by handyman2 on Jul 8, 2012 7:51:22 GMT -5
Excessive Importation and Automation are two of the biggest job killers in my opinion.
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