| Author | Message | |||
| Jon P. Kofod (95f355c)
Intermediate Member Username: 95f355c Post Number: 1128 Registered: 8-2001 |
Jim, Terry is correct. What you allude to is called monetizing the debt. The Fed returns almost all the interest they earn to the Treasury. The problem, as you point out, is that if the Fed prints more money than people are willing to hold we get inflation. It's quite rare the Fed would actually do this in modern times but I seem to recall at least two instances, one right before WWII and one either during the war or shortly thereafter. It's also quite rare that banks borrow money directly from the Fed. This is called the Discount Window and the Fed doesn't like banks using it. It's used mainly in extrem cases where banks are teetering on insolvency or have huge funding gaps that are temporary. The Fed Funds rate is the overnight lending rate between commercial banks and the Fed has a number of ways in the open market to influence such. It's been a long time since I have had time to read any good Fed books but the following might be worht a look: 1)The Central Banks by Pringle and Deanne 2)The Bankers: The Next Generation by Martin Mayer 3)Secrets of the Temple: How the Federal Reserve Runs the Country by William Greider Regards, Jon | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 2006 Registered: 7-2002 |
I'm telling you it is a great book. It is thick though..about 700 pages I think. He does go off on some tangents and is quite a conspiracy theorist so if you can weed out that bias it is great. But basically he is saying the the Fed and Foreign Banks call the shots whether you think so or not. I need to read it again to absorb it all. | |||
| Terry Springer (Tspringer)
Member Username: Tspringer Post Number: 836 Registered: 4-2002 |
Thats actually an excellent piece. It does a good job explaining where "money" actually comes from, and how the US creates, floats and manages currency. It also shows some ways in which the US could move to monetize its debt through the banking system. The notes mentioned in the article more refer to currency than pure treasury bonds as issued at quarterly refundings and auctions. The Govt raises new debt but conducting these debt sale events. This new debt is then converted into currency as per how the article describes. This is shown when he talks about how you cannot have currency without having debt with a fiat based money system. I also agree with him totally that with this type of system, and with the way our Govt manages it, its not a matter of "if" we eventually get hyperinflation.... its simply when. When you see the Fed actually purchasing new treasury bonds at auction.... watch out! | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1999 Registered: 7-2002 |
Well you work in the biz and I don't so all I know is what I have read. Here is a link to a cutout chapter from Jekyll Island. Called the Mandrake Mechanism which is about how the Fed creates money out of debt. Author is a noted expert on the Fed or so I have read! He does reference govt published docs as sources and not just other authors works. Read it if you have time. http://www.bankindex.com/read.asp?ID=1130 | |||
| Terry Springer (Tspringer)
Member Username: Tspringer Post Number: 835 Registered: 4-2002 |
Jim... The Fed does not lend money against treasury bonds to the US Govt. The Federal Reserve Board is a seperate entity from the treasury department, the Fed really doesnt have much if anything to do with the issuance of treasury bonds. The Fed does comment on the issuance of treasure bonds and the dangers associated with mounting Federal debt.... and they have done so vocally over the past year... but so far Congress and GWB have ignored all of this. The Fed doesnt lend money at all really... at least not to individuals or corporations. They lend money to Banks. The purpose of the Fed is provide liquidity to banks and manage the overall money supply while using their influence on rates to try and manage inflation. Banks can borrow from the Fed at the overnight lending rate. The Fed also sets a Fed funds target rate that they manage too. I agree that the only reason a treasury bond is worth anything is because its backed by the "full faith and credit of the United States of America". How long that verbal guaranty will be worth anything to worldwide investors given a Federal debt approaching $7 Trillion is anyones guess. The fact that the Fed does not purchase treasury bonds would make such a purchase a major change in policy. If the Fed were to begin stepping in and doing so.... EVERYONE, worldwide, who purchases these bonds would sit up and take notice: The US is monetizing its debt. Ive never heard of inflation indexed mortgage payments or any inflation protected mortgage backed securities. I can see lots of problems relative to portfolio runoff that would make such a bond offering extremely difficult to float. You may be thinking of TIPS. These are inflation protected/adjusted treasury bonds that are offered quarterly and are very popular with many investors. | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1998 Registered: 7-2002 |
also we can't really say that we borrow all the money in reality. that would indicate a set and finite amount of money in exisitence. In theory there would not be enough money to pay the interest. If there is $10 in circulation and you borrow it at 10% interest where is the extra $1 going to come from? Typically it comes from the loans that default thus freeing up some money. But as you suggest if we print money to simply pay down debt/interest that does create hyperinflation. I think we currently do this, but they control inflation with interest rates, foreign exhanges, foreign debt, loans etc. An excellent book I read is called The Creature from Jekyll Island....1994. About the Fed Reserve and international money politics. Hard to absorb it all and recount it, but very compelling read. | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1997 Registered: 7-2002 |
Well maybe I am arguing over symantics. The Fed may not "buy" the bonds but rather they accept the bonds as collateral for a "loan" thus we borrow from the Fed. basically, here is junk piece of paper worth $XBillion because we say it is now give us some money. On another note I read something recently about tying mortgage payments/values to inflation and having them valued periodically. So if inflation goes up 1000% in a week your next house payment will be $1,500,000 instead of $1500. | |||
| Terry Springer (Tspringer)
Member Username: Tspringer Post Number: 834 Registered: 4-2002 |
Jim, When the treasury does not have enough money to pay for everything the budget calls for relative to spending.... the issue treasury bonds. However, the Fed does not purchase these bonds. They are sold on the open market via auctions. For example on 10/8 the Treasury conducted a 5 Year T-Bill auction selling something like $25 Billion in debt. The Fed had nothing to do with this. The treasury conducts the auction.... huge institutional investors and other entities bid and purchase the debt, then they go and sell it to investors. So, the Govt. does not print the money to fund the new $87 billion in Iraq spending, the borrow it. Not from themselves... but from others. Some GIANT holders of treasury debt that the US in hock too.... Central Bank of China, Central Bank of Japan, Most European central banks, pension funds, Insurance funds, filthy rich foreign dudes.... something like 30% of the outstanding debt is held offshore. The problem comes when all these buyers of US debt start to realise that not only does the US not have the specie to repay the debt... but its borrowing more just to pay the interest on the current debt, AND in the scenario of the Fed purchasing debt to keep rates artificially low these investors see that the US is now printing more money in order to purchase its own debt. Bad. I think its inevitable that the debt will eventually get monetized in this manner. That will lead to hyperinflation. Dont get too tied up in love with that $400K 401K balance..... someday it may be enough to take your wife out to a nice dinner! When this ball starts rolling, there will be a lot of money to be made. I hope to have as much hard capital as I can placed offshore... and to be carrying as much hard asset backed debt as I can possibly get approved here in the US. That $400K mortgage wont look like such a bad idea when inflation is running 250% and a new car costs $8,000,000 and the average hourly wage is $10,000. | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1995 Registered: 7-2002 |
I have read some books on the Fed and it was my understanding that they frequently buy up the bonds and monetize the debt. Isn't that what is happening when Bush requests $87BB for Iraq? Congress approves the "funding" well lord knows we don't have the money in a shoe box so we print it via bonds from the treasury and monetize it via the fed. Just a promise to pay based on the credit of the US Gov't. Nothing at all behind it other than our word. So M1 goes up by $87BB thus diluting the money supply and viola you get inflation. A US Gov't sponsored and protected cartel. Also, per history all fiat money systems end up self destructing due to hyperinflation. The US has had 4 occurences of this since its inception. We've been insolvent since the depression and going off the gold standard. Just a matter of time til the house of cards comes down. | |||
| Terry Springer (Tspringer)
Member Username: Tspringer Post Number: 833 Registered: 4-2002 |
Jim... The Fed has "hinted" at the purchase of treasury debt as an "unconventional" means of economic influece the Fed could take. If the current rate of increase in bond yields were to continue, they may at some point actually attempt this. Would that be a good thing? Nobody knows. I think that if they did it very carefully, and quietly and on an EXTREMELY limited and short term basis they could perhaps get away with it. The Fed purchasing treasury debt is basically the Govt. monetizing the debt. Instead of borrowing money on the open market by selling bonds like they always do, the will be in effect issueing new bonds to themselves. Here are a couple of historically proven consequences to this: 1. Hyperinflation. The nation is at this point printing money in order to pay the interest on existing debt while also continueing to try and float new debt. In effect they are borrowing money to pay the interest on the money they have already borrowed... and at the same time printing money for the same purpose. For bond investors this means they are going to suffer big price declines, decreased liquidity, a huge dilution of equity (if in fact bond investors are deluding themselves into believing the US Govt is actually solvent at this point). The result of this will be rampant inflation. It sounds simple that the Fed could just purchase all treasury bonds coming to market at a set price and thus prevent any further price declines and yield increases. But given that this is monetizing the debt.... what kind of an idiot would any bond holder be to continue to hold treasury debt given this new policy? I believe if the Fed took this action in a big way we would see major bond holders begin to dump their holdings on the Fed. I dont mean individual investors or mutual funds...... I mean Foreign central banks like Japan and China. If they see that huge increases in money supply are likely to cause a crash in the dollar and big inflation.... why would they want to continue to hold any treasury debt, they would be fools. So.... they begin to sell.... the Fed is forced to continue to purchase.... other see the trend, they start to sell.... the Fed must purchase even more.... now its big news "US GOVT MONETIZING ITS DEBT!!!"... EVERYONE begins to sell..... Hyperinflation. This is an economic reality with a long historically proven track record. Its not "if" this type of scenario happens when a nation monetizes its debt, its only how fast does it occur. See the history of Germany, Argentina, Brazil, Mexico, China, and many other nations who have faced this. 2. Political instability. When hyperinflation really takes root.... people end up not only poor and unhappy, the end up PISSED OFF. This collapse of the US monetary system may be what finally leads to the destruction of the current 2 party political system (though I would sure hate to see it take this). It could also lead to the deepest recession we have seen since the 1930s, the elimination of the US ability to dominate the world militarily and some pretty radical political whackos gaining wide political support. It is exactly this kind of economic scenario that lead to Adolph Hitler taking power in Germany.... with huge public support. John.... I agree with you points about the short term trend on money supply. My concern however is that the Fed is trying to take advantage of this on a level that cannot be sustained. It seems they are saying "well, we increase the supply by X and it didnt bring us any real inflation.... so its ok to increase it as much as we want to whenever we want to and not expect any real inflation". At some point it WILL spook things! Perhaps the recovery will be strong enough to generate huge new tax revenues... AND the Govt will see the danger its in and institute huge cuts in Federal spending... AND the decreased estimates on Federal borrowing will give some support to the bond market.... AND OBL will be caught, a peaceful solution to the fighting in Israel reached and "victory" in the war on terror declared... But im not holding my breath. | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1992 Registered: 7-2002 |
Oh another thing: I really enjoy Terry and Jon's views because they seem to be "relatively" unpolitically biased. The facts are what I am interested in or at least acknowledging political motivation for certain actions taken by the adminstration. | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1991 Registered: 7-2002 |
Terry/Jon: in regards to the huge flow of treasury bonds coming on market...... I thought the Fed Reserve would buy whatever surplus of bonds the markets don't absorb in exchange for the cash they give them. I also have conflicting stories on whether the Fed charges them interest or not. So my question is this: To avoid flooding the market with bonds could the Fed buy "a large portion or all" of these bonds thus keeping them off the market and then charge no interest on the bonds? So basically they are printing money from nothing and in reality owe nothing. Free money! Would this cause crazy inflation by the increase in M1? Just not sure what the effect of this would be or if it is feasible. This whole scenario reminds me of a restaurant. The customers think everything is fine, but in the kitchen all hell is breaking loose. As long as it stays in the kitchen and the food comes out everything is fine. | |||
| Mfennell70 (Mfennell70)
Junior Member Username: Mfennell70 Post Number: 186 Registered: 7-2001 |
What a great thread for us economist wannabees. | |||
| David Perini (Oppie20)
New member Username: Oppie20 Post Number: 6 Registered: 9-2003 |
again, so what is the next boom industry to pull us out of the rut? For the short run. Bioinformatics. Seems to be a lot of folks talking about this as a growth field. Long term: Cat food Indusrty. With all the men deciding that it really is a negative NPV investment to get married there will be a lot of single women herding cats in America. Dittto consumer electronics and Ferrari's for the guys. Rubber Sheets and Recreational vehicles. Giant RV's and anything else retired folks use will be covered under the next step of the prescription drug plan offerered by the government as they are vital for the mental health of our seniors. Sadly, goovernment is also a big growth industry. Information Security? This is hot now but I do know that it can and will be sent to bangalore shortly as well. IT Project mangement is your safest bet in IT. Someone still needs to talk to the customer in terms they can understand. | |||
| Jon P. Kofod (95f355c)
Intermediate Member Username: 95f355c Post Number: 1125 Registered: 8-2001 |
Terry, Along with being a solid "Libertarian" you also seem to be the most knowledgeable mortgage banker I have come across. As for Bush having no plan for interest rate increases......well he doesn't really need one since he won't be in office IF and WHEN the sh*t hits the fan!!! The wealth effect I spoke of will be put to the test when interest rates rise. Housing prices can't stay where they are once rates go up and then we will see who is right on the wealth affect (was it the stock market gains or housing price gains)?? I agree with about 90% of what you have said and share the same concerns about the deficit and rising interest rates though I am more positive than you are on the deficit. I think if we can solve the deficit problem (no easy task) then the interest rate rise will be more controllable. If however we fail to reduce the deficit at the same time rates go up the GAME IS INDEED OVER! As Jim Glickenhaus pointed out in a prior post treasury receipts were surprisingly good this past month and hopefully it wasn't a one-month fluke. I do take some issue with your money supply concerns. Up until the mid 90's every large increase in either M1 or M2 did in fact start rapid inflation but in the mid 90's the same argument was made and we averted inflation because of the huge productivity increases and global competition. Was that an anomaly or has it started a trend? Too early to tell at this point but M1 and M2 were being cranked up at incredible rates in 96, 97, and 98 and we averted inflationary pressures. Another question we have not answered yet is the 100K programmer making 30K at Wal-Mart. Is this temporary or long term and if so is it an IT phenomenon or less industry specific? In tend to think it's more IT related then widespread. What is even more worrying to me is the current administrations waffling on the dollar. Just tonight Bush made the statement that the currency markets should determine the value of the dollar. To the unobserved this might show that Bush has a very good grasp on the fundamentals of currency markets and the relative uselessness of currency intervention but he really wants the Japanese to stop intervening in the market while he is in Japan. Using the dollar for political gain is eroding confidence among traders and the international financial community very rapidly. Imagine if the Federal Reserve started manipulating interest rates to suit Mr. Bush (very remote). In fact that's what Bush's idiot father wanted Greenspan to do, lower interest rates right before the election to get him more votes. Greenspan wisely told daddy Bush to take a hike. Bush Sr. still blames Greenspan for losing him the election (never mind his nearly non-existent domestic policies). As pointed out earlier if the dollar is falling because of a pe4rceived loss of confidence in our economy, our political administration, and unattractiveness of our financial assets we will lose valuable funding for the deficit and the national debt. Rising interest rates may help stem some of the dollars decline but it won't be enough. Basically Terry is pretty spot on if two things happen. Interest rates rapidly go up due to perceived inflation threats AND the deficit continues to increase with no end in sight. I am a bit more optimistic that a short growth spurt can bring the deficit under control but if I am wrong then Terry's scenario is SPOT ON! Regards, Jon | |||
| Terry Springer (Tspringer)
Member Username: Tspringer Post Number: 831 Registered: 4-2002 |
Yea ART, its going to be GREAT. Folks who are 75 years old and living on the Govt. teat are going to start taking longevity drugs paid for by medicaid.... and live to be 150 years old! As to the original question..... The economy is NOT bad. Its actually rocking along pretty dang good and rapidly picking up steam. Productivity gains have been massive, unprecedented in history for this short a time frame. Companys have become VERY lean and mean and capable of moving much faster. Retain sales are up. Consumer spending is strong and the coming Christmas season is likely to be very strong. There are excellent signs that corporate investment is increasing and manufacturing activity is likewise showing surprising strength. Even the previously "bad" employment sector is looking up as weekly unemployment claims continue to decrease and last month the economy actually added 54K jobs. 3Q GDP is likely to come in around 5% and 4Q GDP may very well top 6%. Basically..... the economy is rocking along pretty dang well. So everything is rosy, right? Nope. The Fed has the overnight lending rate and fed funds target at 1%. They have also pumped massive supplies of money into circulation (increases in M1 money supply have been huge) and the Govt. is pursueing a weaker dollar policy (even though they deny this the actions of the Fed point to it). If the economy continues to pick up steam.... given all of the above factors.... we WILL see signifant inflation. The markets know this. This inflation will cause the Fed to begin a rapid and aggressive shift in policy toward tightening and we will see rates increase quickly. I believe we will see the Fed begin to tighten as early as January of 2004. Also, a HUGE amount of the economic growth we have seen over the last year is based purely on Federal spending. The Govt. is set on spending the economy into growth. Is this a sustainable economic model? It sure didnt work very well for the Soviets now did it? Another key point relative to the Federal spending.... its all being done on borrowed money. The Federal deficit this year will top $500 billion. Next year will be more. There is no end to deficit spending even anticipated in Washington. The economic plan is to continue massive Federal borrowing. The markets know this also. This means HUGE new supplies of Federal Treasury bonds will be coming to market.... in addition to all the quartely refundings required from the maturation of existing debt instruments. Basically... the market is going to have to absord unprecedented new supplies of treasury bonds. When you have massive supply, what happens to prices? Too much supply.... prices go down. This will happen with treasury bonds as well. The fact that the Fed is heading toward a tightening stance will further fuel this. Lower prices on treasury bonds means higher yields. Higher yields mean increased borrowing costs for the Govt. That means even higher deficits.... and that means they need to borrower even more money.... so they issue more bonds.... and that gives more supply....higher yields.... You can see the viscious circle. Net Result: Hyperinflation. Vertical yield curves on treasury debt. What is the GWB plan to avoid this? Nothing. They have no plan. They see no problem. Increased economic activity will bring in more tax revenue. Increased spending doesnt count since its war related. The US can borrow money forever, were immune from any credit crisis. Thats basically the GWB platform. Unemployment is indeed showing some positive signs lately. However, there is also plenty of evidence that huge numbers of higher paying tech jobs and white collar jobs are being exported or eliminated. People are findings jobs.... that computer programmer who used to make $100K but has been out of work for a year just finally took a job at Wal-mart making $30K a year because he didnt want to starve. Or, that project manager who used to make $80K no longer qualifies for continued unemployment claims and thus stops filing... and is dropped from the calculations for claims. He is still unemployed, but he doesnt count to the Govt any more. In short...... YES the economy is currently showing good signs of strength. NO, I dont think it will last. I believe this is the calm before the REAL storm hits. By 2005 we may very well be in a new recession that makes the last one look like a late '90s BOOM. The key to this will be rising interest rates. As all the new treasury bond supply continues to come to market and the economy continues to show signs of strength shortening the estimated time a Fed tightening..... rates will continue to increase and will pick up steam in the rate of increase. Eventually the rise in rates will chop the stock market rally off, and begin to stifle the economy. However, when signs of this rate induced slowdown begin to appear, rates will not decrease as they have traditionally done because all the new debt supply will overshadow demand and continue to force prices lower and yields higher.... we will have reached a vertical yield curve. GAME OVER. | |||
| todd montandon (Sllade)
Junior Member Username: Sllade Post Number: 247 Registered: 7-2003 |
the problem is people r spending but the net income of the businesses are dwindling it doesn't take a rocket scientist to figure out why .for one thing workers comp rates have nearly quadroupled in the last three years alos regular liability insurance has skyrocketed. this causes a serious bite out of the bottom line .I now pay 17000.00/yr for insurance on my restaurant last year i paid 6000.00 total i have never had a claim in ten years its out of control.i think we small business owners in ca. should boycott workers comp ins. this will cause the state to step in and help us out they wonder why ca.is in deficiet spending,hello the net income of your tax revenue base is in the shitter. but iunfortunately it will take the feds 3 0r 4 more years to realize this before they step in to help.just my 2 cents todd | |||
| Dave White (Dwhite)
Junior Member Username: Dwhite Post Number: 174 Registered: 5-2003 |
Art I do agree with the biotech thought and you are right, when time get tough litigation soars -it's a new found revenue stream. | |||
| arthur chambers (Art355)
Advanced Member Username: Art355 Post Number: 2739 Registered: 6-2001 |
Bio Tech. Genentech has rats that live 5 times as long as the average rat. In the next 20 years or so, there are going to be some great changes in our lives and society with this new industry. Art | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1981 Registered: 7-2002 |
again, so what is the next boom industry to pull us out of the rut? | |||
| arthur chambers (Art355)
Advanced Member Username: Art355 Post Number: 2738 Registered: 6-2001 |
Jim: There were questions about how the economy affected the lawyers. Look at the earlier posts just before my response. When I get busy, usually the economy is poor. Things that most people might let slide, or ignore in good times, get litigated when the times aren't so good. It's just another indicator of the economy. I get busy when times are bad, get paid when times get better. Art | |||
| Jon P. Kofod (95f355c)
Intermediate Member Username: 95f355c Post Number: 1111 Registered: 8-2001 |
I have read that the productivity numbers may have been misleading. Any input on that? Actually in some cases I think that the numbers are under-represented on productivity. This area is not really my expertise but one of the areas that points to increased productivity was the relative lack of inflation during the boom period of 95-2001. With the kind of growth we had the Fed was constantly worried about the threat of inflation. Look back over history and most of the time when growth accelerated past 3% for extended periods of time inflation appeared. There are many people who believe that prior growth periods were all ended by the Fed when they took pre-emptive action against inflation (ignoring the hype inflation 70's and 80's). Some of you who follow the Fed may have heard the oft-used term "The Fed is taking away the punch bowl at the party". Part of the problem with fighting inflation is that you can't really wait until it appears to fight it so naturally the Fed has throughout history raised rates when inflation had yet to appear and hence the view by many that it ended the party early. This past growth spurt (or bubble) the Fed did not do this and their argument was that as long as productivity outpaced wage gains overall inflation at the wage level would remain low. This did in fact happen but it caused other problems. While many people on Wall Street agreed with the Fed's new policy that growth was not sparking inflation, some think the Fed allowed a bubble to form and didn't do enough to stop it. My opinion is that the productivity increases are real and while over hyped in some industries they are under counted in others. As I am no lawyer I am not really in tune with this issue but it's always been my belief that when times are bad people sue the hell out of each other and this is increased workload for the lawyers. Obviously bankruptcy and divorce lawyers do well but I think any litigation lawyer does well in a downturn. The "social contract"(study hard, work hard, get a decent job) that used to exist in the US is slowly eroding into this quarters profit projections I don't agree with this. Unless the jobless recovery that is now going on is permanent (which I don't think it is) then hiring will pick up again soon. Some industries my see less hiring and more outsourcing but overall hiring demand has to pick up. As far as getting a job out of college it's entirely dependant on the current state of the economy. When I came out of undergrad in May of 91 we had just gotten done with the Gulf War and a recession was in full swing. I had a degree in History, which was absolutely useless for anything at the time except teaching. There was no hiring going on for other jobs that my degree would get me any money. I went into a real estate and the low interest rates of 91-93 paid my bills. Totally different when I got out of grad school a few years later. I had firms knocking the door down to talk with me. The state of the economy has much to do with it. On the subject of retraining people and the death of manufacturing industries some of you might want to read up on "Creative Destruction" a subject written extensively by world famous economist Joseph Schumpter. This "Creative Destruction" where some industries or jobs totally disappear and are replaced by newer ones has been a hallmark of our capitalistic system for the past 100 years and is the reason we come through many financial crisis much better than other systems. Look at Europe and their over protected cradle to grave systems. They have struggled with low growth and high unemployment for 25 years with no end in sight. Lastly the IT industry is hurting badly in terms of re-hiring people because many of those workers who were hired on in the second half of the dot.cm bubble had no tangible skills whatsoever. You had people making 100K at the mid level manager's position who couldn't manage a night shift at Seven Eleven. These people will never find work again at that level and are left looking for jobs at Barnes and Noble or Starbucks. The incredible growth in IT meant thousands of people were hired to do low skill work but had to be paid large compensation due to very low unemployment in our economy and restrictive foreign visas. If you were a live body you could get a job making 40K a year around my area (the ISP capital of the world) and not do much of anything. Such was the demand! In my opinion the business cycle is the same as it has always been. Production will crank up in the future and workers will be needed. What type of workers and in what industries is open to debate? Regards, Jon | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1978 Registered: 7-2002 |
art: what does that have to do with the economy? does it simply mean that a bunch of employees are going to start suing their employers for damages and the attorney's make money off it? | |||
| arthur chambers (Art355)
Advanced Member Username: Art355 Post Number: 2736 Registered: 6-2001 |
The larger business oriented firms are still a little slow from what I'd heard but the employment bar is doing well. Our governor just signed AB 678 which provides that if an employer is violating any labor statute, any employee bringing an action to force compliance received 25% of the recovery, and his attorney's fees. That was the employment lawyer's retirement act of 2003 for California. In my humble opinion, its a win-win situation. One, it forces those employers on the edge to clean up their acts, or face expensive litigation, and 2. It provides an incentive for employees to act, rather than just follow the companies party line, and Lastly, 3. It provides the economic motivation for attorneys to prosecute these cases. Art | |||
| Dave White (Dwhite)
Junior Member Username: Dwhite Post Number: 172 Registered: 5-2003 |
Art how are your frinds at Brobeck doing during this great time to be an attorney. The only attorneys that are doing anything are in bankruptcy, the transactional side is doing quite poorly right now, no M&A and no IPOs. I would not want to be a associate with 4-5 yrs and be "on the beach", especially in SF. | |||
| David Perini (Oppie20)
New member Username: Oppie20 Post Number: 5 Registered: 9-2003 |
I think to REALLY see who the downturn is hurting you need to go to places with lots of manufacturing, like Pittsburgh. People are constantly being laid off and governments are going into debt just to keep some companies open via tax incentives and outright bribes. Also newly minted college students with mountians of debt are unable to find decent paying work. By decent I mean $15 dollars and hour. That's not a huge amount of money by any stretch. It's a real shame to see all these talented young kids who are very good not getting hired. Many folkks would like to pick them up but the entry level job they would like to give them has already been sent to the Phillapenes. The "social contract"(study hard, work hard, get a decent job) that used to exist in the US is slowly erroding into this quarters profit projections. The "me" generation of the 60's and 70's who are running things can't look past the next fiscal year to see they are going to ruin their companies in the long run if they sell out to artificially cheap foreign labor now. ZIPS UP FLAME SUIT Let the torment begin. | |||
| Mfennell70 (Mfennell70)
Junior Member Username: Mfennell70 Post Number: 185 Registered: 7-2001 |
Unfortunately, many of those people had no idea what they were doing. The tech schools were just churning out "Network Engineers" who couldn't set up a home network, "Java Developers" who could barely give you a Hello World, etc.. It only appeared to be working because companies were so desparate they would hire anyone. | |||
| Sunny Garofalo (Jaguarxj6)
Intermediate Member Username: Jaguarxj6 Post Number: 1022 Registered: 2-2003 |
Jon, thank you for that comprehensive post. Mark, I'm also in the tech sector. I made a jump from IT in the medical/dental insurance industry over to IT in the title/escrow industry just over a year ago. Our company has grown 25% for the last four years. Sure, business tanks when interest rates rise, so you let the 50-100 temps go. When business picks up, you hire them back, or others, and the pattern repeats. With good planning, you can steadily grow. Its a great and stable industry to be in. Sunny | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1971 Registered: 7-2002 |
Mark brings up some good points that point directly to our march towards global socialism. Most theories state that the US standard of living must decline in order to spread the wealth. we must bleed money etc from us to them. All the foreign aid packages, loans to 3rd world countries, the UN, NATO, NAFTA, CFR and so on. Everyone governed by one entity with one currency...the UN, UN Peacekeepers, the Fed Reserve, the World Bank and the Euro. | |||
| Mark Lambert (Mlambert890)
Junior Member Username: Mlambert890 Post Number: 112 Registered: 4-2002 |
My biggest fear is the "global economy piece". I'm in the tech sector and we are starting to bleed jobs the way the manufacturing sector was 20+ years ago. Some say this is healthy trending, but how many times can a huge number of people completely reinvent their career in one lifetime? Also, what industry will really be left hiring when even the financial sector has started to outsource actual banking jobs to India? The tech sector was one of the big saviors of the US economy. Literally millions of folks retrained themselves and got into various aspects of technology. People were told that the power to make themselves viable and join the new knowledge worker economy was in their hands. Now, a mere decade or so later, the pact is breaking. I'm not sure where people can turn next. The whole country can't work for Walmart, McDonalds and Starbucks serving lawyers, doctors, executives and celebrities! I was always under the (possibly mistaken) impression that a healthy middle class was vital to the overall economic health of the nation. To make matters worse (in my view), I don't think the next wave of trading partners are capable of a healthy trade relationship. India, China and the rest of SE Asia (with the exception of Japan and S.Korea) seem poised to really do nothing other than consume US jobs and dollars. Their only real commodity is cheap (and now highly educated) labor and they place no value at all (at a cultural, philosophical level) on one of *our most* valuable commodities - intellectual property. In addition, they are perfectly capable of manufacturing their own goods (since our corporations taught them all about it) and will almost certainly choose to do so rather than import from the US. | |||
| Crusing (Crusing)
Junior Member Username: Crusing Post Number: 119 Registered: 10-2002 |
Art: I wish this economy was great for attorneys. I just moved to Denver and can't get my foot in the door anywhere. Tons of resumes sent out and I have decent experience. As for the rest of the economy seems like things are not bad, just unemployment. The real problem I think is that this economy is and has been in transition from a manufacturing economy to an information based economy. That means lots of manufacturing people will continue to get laid off and never get their jobs back. Production will just become more automated. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 733 Registered: 11-2002 |
Thanks, Jon! Very good commentary, easy for an idiot like me to understand. Appreciate the input, and you sure do know your stuff! | |||
| Mfennell70 (Mfennell70)
Junior Member Username: Mfennell70 Post Number: 184 Registered: 7-2001 |
Awesome Jon. A thorough and objective presentation. Thank you. One comment: I have read that the productivity numbers may have been misleading. Any input on that? | |||
| Thomas I (Wax)
Member Username: Wax Post Number: 569 Registered: 7-2003 |
The 2 minute US Economic Forecast is presented the night after Thanksgiving by a Reporter with a(n) (Assistant) Manager at NY Macy's chiming in his/her tuppence worth (perhaps there's also a Professor on the West Coast) while footage of cash registers and credit card machines rolls. Special Bonus: Talking Head's Key Economic Indicator; If there is a "hot" toy, you'll see women fighting over it, and the Reporter will declare the upcoming year a Boom. If not, a Bust. This footage and forecast is presented 2 1/2 hours before the East Coast stores close after the first day of Christmas Shopping if seen EST, 5 1/2 hours if seen PST. Either way, the US Economic Forecast is adhered to for the next solid year. | |||
| Jon P. Kofod (95f355c)
Intermediate Member Username: 95f355c Post Number: 1109 Registered: 8-2001 |
My main criticism of Bush's domestic policies and his handling of the economy is of course the war with Iraq which to me had more negative benefits to our economy and much less positive benefits to our saftey in terms of the war on terror. Also, I am a huge propenent of cutting ALL taxes, but as I stated, history shows that tax cuts enacted during times of high budget deficits work less efficiently than under surpluses. Even if we set aside the costs of 9/11, Bush has increased government spending at every level, hasn't cut any government programs, protected the steel industry with huge tarrifs on global steel producers, extended the unemployment benefits way past a reasobable time frame, and has the most detrimental dollar policy since Carter's idiot administration. In short he hasn't done much of anything to help the ecomomy. I don't blame him for the bad economy but I am also not going to give him any praise if it turns around. He's just like his idiot father....predisposed on foreign policy. Regards, Jon | |||
| Jon P. Kofod (95f355c)
Intermediate Member Username: 95f355c Post Number: 1108 Registered: 8-2001 |
Nebula, If you guys want to skip my long winded diatribe and get my opinion skip to the Summary at the bottom. Politicians will always find a way to knock the economy by attacking the current administrations record. While it may have seemed more genuine and correct 10 months ago it's still the favored strategy in politics. Remember the oft-used phrase "it's the economy stupid". You can lump in all the other issues but the bottom line in any presidential election is JOBS, JOBS, JOBS, and more JOBS. What the Democrats are doing now is no different than what Reagan used to defeat Carter (although a chimp could have done that) or what Bob Dole tried to unsuccessfully do against Clinton. Dole tried to paint a bad picture of Clinton's economic record but it didn't wash with the voters. Your question about the economy and its current state is a topic of much debate among everyone from economists to the average schmoe on the street. Overall I think the economy is doing fairly well, though 6-8 months ago I was very worried about the state of the economy. Part of the problem as pointed out by some here is the unbelievable growth in the later part of the 90's. We went from a period of 1-2% growth in the 80's and early 90's to record 5-6% growth in the latter part of the 90's. Without getting onto another tangent here about the validity of those growth numbers and whether it was real economic growth or just dot.com bubbles fueled by funny money (another topic altogether) economic growth soared. When you have 1-2% growth for a period (say 5 years) and suddenly growth goes negative (-1%) for a couple quarters you are technically in a recession but it may not feel quite so bad because you are not starting from such a bubble level. Contrast that to annual 6% growth dropping to negative growth and the economy appears to be in a great depression. How bad the economy is depends on who you talk to and what industry we look at. I think the economy has held up rather well through crisis after crisis and this is a testament to our capitalistic system that is able to weather the storms. We got through the Asian Contagion, the collapse of Long Term Capital, the dot.com melt down, and the 9/11 attacks. While in terms of stock market valuation we have had the largest market crash in terms of equity lost (dollar amount not % wise) the economy hasn't tanked. A lot of this has to do with the consumer and low interest rates. Remember consumer spending is 2/3rds of the economy while business spending makes up the rest. Low interest rates (hence refi's) put money back into the consumers pocket and at the same time those low rates doubled housing prices in many areas of the country and made people feel better off and more willing to spend money. This is called the wealth effect and is the center of much debate over its effect on consumer spending. During the late 90's there were many economists that felt that this wealth effect was driven by huge stock market gains and that a correction would wipe out consumer spending. The thought was that everyone now owned stock and that it would affect their spending habits. This proved not the be the case as the true wealth effect in my opinion stems from housing prices which make up more of the general populations net wealth. In getting back to your question about how bad the economy is everything is relative: 1) While unemployment has doubled from 3% to over 6% (a huge increase in people out of work) that number (6%) would have been considered very good during the 80's when Reagan was at one point faced with 10% unemployment. 2) Don't confuse the national debt with the budget deficit. The national debt has remained fairly constant over the years and isn't too much of a cause for concern. The budget deficit on the other hand is another matter. I agree with James that recent numbers are encouraging about treasury receipts but the deficit still remains high and this presents a problem to raising private capital once businesses decide to spend again. The two factors that concern me are: 1) The deficit's main use. In other words what the money is being spent on by our government. No one can argue that we need to fight terrorism and that it costs money but the bottom line is that this money isn't being used on something to boost the economy or it's productivity (unless you work for the Department of Homeland Security). Certainly spending $80 billion on rebuilding Iraq isn't going to benefit many people here except for Halliburton. 2) Jobs. This is the area that concerns me most. The huge increases in productivity means companies are less apt to hire back workers. Also the swiftness of the drop in growth has a lot of companies scarred. Companies have had to cut costs to the bone during the past three years to sustain or minimize profit loss. They are not about to get bloated again. Getting back to the consumer spending issue. If people are worried about their jobs they may not spend (or if out of a job). As pointed out the housing boom has muted this effect but if interest rates rise housing prices will fall and consumers may feel less of the wealth effect. The question of whether we are in the old boom and bust cycle and that hiring will have to come back at some point is being contrasted with those who think we are now in a global environment where everything will be outsourced including jobs. We keep hearing about the jobless recovery. Is it permanent or temporary? I think the economy is not as bad as the media make it out to be but I also don't think the economy is operating near it's long run potential. As for the debate on cutting taxes and stimulating tax revenues there is some evidence that this works but overall taxes as a percentage of overall GDP has remained pretty constant at 19% regardless of whether tax rates were at 30% or 70%. If you look at the overall tax policies of Reagan you will see that he drastically cut marginal tax rates. When Ronald Reagan took office, the top individual tax rate was 70 percent and by 1986 it was down to only 28 percent. All Americans received at least a 30 percent tax rate cut; yet federal tax revenues as a percent of GDP were almost unchanged during the Reagan presidency (from 18.9 percent in 1980 to 18.1 percent in 1988). Economic growth went from 1% to nearly 8% in Reagan's first term. The rate of economic growth was more than 50 percent higher for the seven years after the Reagan tax cuts compared with the previous seven years. An interesting fact (one I did quite bit of research on when studying economics) is that if you look over the past 50 years (post WWII) it made little difference if marginal tax rates were 80% or 28%. The amount of revenue collected by the treasury, as I showed above never changed much. It always averaged between 18-19%. Why? You would think that either raising taxes on the rich or cutting them for the rich would see huge gains/shortfalls in taxes collected. The reason is simple. The tax code is so poorly written and has so many gray areas and tax loopholes, that when taxes are high it pays for the rich to spend their money on "creative" accountants rather than pay the high taxes. History shows this is exactly what happens. When taxes go up the wealthy pay much more to accountants to figure out ways (both legal and illegal) to avoid paying taxes. As I have stated in other posts, supply side economics, trickle down economics, whatever you want to call it works well when budget surpluses are present and doesn't work as well when budget deficits are being run. As for the Democrats they will never admit that it was a Democrat who invented the concept and that it worked like a charm during the early to mid 60's. But hey the average voter can't even explain supply side economics. Lastly a weak dollar does boost exports and help multinational corporations but in the long run it's detrimental to our economy and the world economy. Over 51% of international bonds are denominated in US $'s. If the dollar falls, those bonds would all become much less valuable to the investors holding them--and much more of a problem for the global financial system. Also the value of foreign held assets in the US is well over $6 trillion. A sharp plunge in the dollar would dramatically reduce the value of these assets, reducing the wealth of foreign investors. That could drag down consumption and investment overseas, and damage financial systems in countries that had grown accustomed to using the dollar as a safe currency. Lastly a declining dollar signals overall reduced confidence in our country and currency and can be a sign that foreign investors are pulling money out of our country at a time when we need external funding to plug the trade deficit, budget deficit and other items. This would increase our borrowing costs ( higher interest rates) and reduce growth. The Clinton administration had the right policy on the dollar and Robert Rubin did a great job. In contrast Bush's dollar policy is terrible and his two Treasury Secretaries are complete idiots who have no concept of the implications of a weak dollar. As crazy as Art's contention seems I too use a similar gauge to see how the economy is doing (at least locally). We have a small trendy strip mall nearby that is in the heart of the dot.com/IT industry here in Northern Virginia. It's literally 5 minutes from AOL's headquarters, Sprint's big offices, WorldCom, and at least a half dozen other Internet ISP and software forms. Up until the dot.com meltdown you couldn't get a parking place at any time. Even in the middle of the week around 1 pm you had to park across the street. The time it took to get a cup of coffee at Starbucks was roughly 15 minutes or so and getting a chair and table outside was impossible. Six months ago you could get a parking spot at the same time of day near the front door of Bestbuy and there were some tables and chairs available at Starbucks (coffee could be had in less than 2 minutes, about the time it takes them to make it.). In recent months I have seen a large increase in traffic and a large decrease in parking spots, and the lines for coffee are starting to get longer again. Not really scientific but interesting. As Jim G. pointed out earnings are looking very good at the moment and the prospect of higher revision for the next quarter bode well for corporate profits. The final nail in this past recessions coffin is the jobs picture and while it's improving we need it to continue to do so at a healthy clip before the economy is out of the woods. IN SUMMARY: How bad the economy is doing is a relative thing dependant on who you talk to. Unemployment has doubled but is still at the best levels of the 80's when Reagan brought it down from 10% to 6% (where it currently resides). Also those people who benefited the most from the IT boom and the dot.com bubble are also the ones that got hurt the most. Mass layoffs in IT and the resulting spillover into Wall Street affected those sectors the most. People whose wealth was tied to the stockmaket were more affected than those who get all their compensation based on salary (assuming they kept their job). If you compare the economic situation to the 80's recession and unemployment/inflation/deficit numbers we are doing better than the media or the Democrats want you to think, BUT.... If you look at the long term economic growth potential we aren't doing as well as we could be. This is one of those questions/debates/issues that can always be answered with.... IT DEPENDS ON WHOM YOU TALK TO!!!! Regards, Jon P. Kofod 1995 F355 Challenge #23 www.flatoutracing.net | |||
| Sunny Garofalo (Jaguarxj6)
Intermediate Member Username: Jaguarxj6 Post Number: 1015 Registered: 2-2003 |
Closing bases with a slight increase each year from '97-'01 was what I remember. The pay raises were for two years, one increase in I think '99 and another in '00 or the first was in '00 and the second in '01. More money to go around. The conventional forces might have been put under the knife more so than those in SOCEUR, USAFE HQ, USSOCOM, and AFSOC. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 732 Registered: 11-2002 |
Sunny - Here's a chart from the Clinton era. I beleive the defense budget reached somewhere around $400bil in the mid 80's. It's around $380bil now. Not really relevent, though, as all spending in the 80's was huge because of the Cold War. Who knows what it would have been without the arms race? Also, there was no War on Terror in the 90's.
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| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 731 Registered: 11-2002 |
Sunny - the raises, as far as I can remember, were just a tiny bit above the normal COL raises. I remember getting something like 3.5%, .5% above the standard 3% once. The other one I'm not aware of. Also, I know that when I joined the Corps (1994), Dress Blue uniforms were no longer issued because the Marine Corps could no longer afford to issue them based on cuts. In addition, I know of at least two Marine Corps bases that were closed in the 90's: Tustin and El Toro Air Base. There were also a crap load of Army and Air Force bases that were closed in the 90's. A bunch in Riverside and the Victorville area in California are some examples. I was a grunt for two years, and a fiscal chief for the remaining two. During my days as a Marine Corps accountant, I saw Base budgets drop about 10% each year. Dunno what the reasons were, though. | |||
| Sunny Garofalo (Jaguarxj6)
Intermediate Member Username: Jaguarxj6 Post Number: 1014 Registered: 2-2003 |
Wait a minute, I thought Clinton spent more on the US Military than any modern era President? I also remember two raises in an effort (a weak effort, mind you) to retain people and improve the standard of living for all ranks. Maybe my memory is faulty. But, I'd like to see some info on the cuts he made. It might have not affected the two commands I was in. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 728 Registered: 11-2002 |
Llyod - it can easily be assumed (if assuming is kosher) that the 2000 tax revenue was so high because 1999 and 2000 happened to be when the stock market hit its high. Not only were companied making big $$ and paying big taxes, but there were millions of private investors that made big $$ and paid huge capital gains. The big surplus can also, in part, be attributed to the big cuts Clinton enacted in the US Military. | |||
| Lloyd (Lloyd)
Junior Member Username: Lloyd Post Number: 125 Registered: 8-2001 |
Dave, I have no reason to doubt your assertions, but I would like to see budgetary figures which support this argument. When I look at the budget figures on the link that I sent you it appears that tax revenues for the entire year of 2000 are the highest on record and the budget surplus is the highest on record. At first blush it would seem that if the economy tanked as early as in the third month of 2000 that tax revenues and the surplus would have started their decline in 2000 instead of in 2001. However, I do not know how they derive their figures. I suppose one could argue that the 2000 figures were higher as they are based on receipts of 1999 taxes and 2000 estimated tax payments which assumed higher earnings than were actually realized. I don't think either one of us knows the real answer. | |||
| Dave (Maranelloman)
Advanced Member Username: Maranelloman Post Number: 3052 Registered: 1-2002 |
Lloyd, of course, you are 100% correct. Remember, however, that Mr. Clinton raised taxes (as did Mr. Bush senior), and tax revenues declied after each. However, Mr. Clinton offset that with lots & lots of capital gains taxes paid by dot com options millionaires primarily during his secong term. This bubble of tax revenues also helped him to balance the budget his last full year. When the bloom came off that rose in 3/2000, and then the economy promptly started tanking (a full 10 months BEFORE the current Mr. Bush took office!!), those cap gain revenuse all but evaporated. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 724 Registered: 11-2002 |
James - I'm quite happy with Intel's numbers today! $1.7bil in profits, up from $686mil last year! Amazing..... | |||
| James Glickenhaus (Napolis)
Advanced Member Username: Napolis Post Number: 2788 Registered: 10-2002 |
As I pointed out a while ago we're not dead yet. A few hours ago Intel reported. Look at those numbers. Compare them to a year ago. Compare them to those "experts" who predicted eps and rev. Look at J&J's numbers. Take a look at TXN's #'s when they report. Look at unemployment. Not the #'s the trend that was noticable last time they were reported. Look at the deficit. The Dem's are predicting 500. I'm predicting 370. Art you lost one. Feeling lucky? | |||
| Lloyd (Lloyd)
Junior Member Username: Lloyd Post Number: 124 Registered: 8-2001 |
Dave, I am no expert on this issue, however, it appears that tax revenues peaked in 2000 and have steadily declined ever since. (See Historical Budget Data from Congressional Budget Office - http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0#table1 ) It is also my understanding that there are months with surges in revenue such as September, as the government typically runs a surplus in September because of the surge in revenues from quarterly tax payments. | |||
| Dave (Maranelloman)
Advanced Member Username: Maranelloman Post Number: 3048 Registered: 1-2002 |
CNN; Clinton News Network 'Nuff said...  | |||
| Ben Cannon (Artherd)
Intermediate Member Username: Artherd Post Number: 1072 Registered: 6-2002 |
Fully half of it comes directly from CNN anchors telling everybody how 'bad' it is. This is where my parent's get their opinions. Scary to watch actually. Makes you wonder if the cart is leading the horse. Art- GG bridge commute seems better largely due to FasTrack. Up north the freeways are still roaring at 5am (shudders) Best! Ben. | |||
| Michael Yip (Mightyslash)
Junior Member Username: Mightyslash Post Number: 222 Registered: 4-2002 |
Doesnt seem bad to me at all...On F-chat at least. Almost everyday you see someone talking about getting a Ferrari | |||
| Dave (Maranelloman)
Advanced Member Username: Maranelloman Post Number: 3044 Registered: 1-2002 |
"Regarding the Bush tax cut - one of the reasons he pushed for the cut was to increase tax revenue. I just heard that tax revenues are $85bil higher than were expected one month ago. Thing that make you go HMMMMMMM........" How quickly people forget. The same was the case when John Kennedy lowered taxes, and when Ronald Reagan lowered taxes. Federal tax receipts went UP. That's the dirty little secret that the Democrats refuse to acknowledge. Watch them sometime when one of them is asked about this on a political TV show. The squirm & backpedal & prevaricate & deny, and then try to change the debate into one where the "evil" high earners aren't paying their "fair share" (meaning 95% tax). It's all about class warfare, jealousy, and malicious spite. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 718 Registered: 11-2002 |
Hey Art - I don't suppose you could give me any reasons, other than a smaller amount of commuters on the road, why you think it's bad? I'm honestly not trying to start a flame war. I really would like to hear from the other side why the economy is failing. Your example does make sense, but I can vouch for the increase of traffic in Southern California. The freeways, as always, are a total mess, and are constantly filled with cars. I take the MetroLink early in the morning (my ride lasts from 5:30 - 6:20), and the 10 freeway is pretty packed, even that early. Not only is the freeway packed, but the train is often times "standing room only". I'm just guessing here, but could the lower volume of traffic not actually be "lower", but only lower than it was during the tech boom? Again, not trying to start any flame wars here. I just want to see if there is really a valid reason for stating that the economy sucks. | |||
| arthur chambers (Art355)
Advanced Member Username: Art355 Post Number: 2734 Registered: 6-2001 |
The right guy to respond to this is Jon. He has the facts, and the reasons why. What I can say is this: my commute is much quicker now than 3 years ago, and BART (public transit) ridership is also down. That tells me that despite an increase in the SF Bay area, employment is down. Like all times, there are winners and losers, but given todays economics, I suspect more losers than winners. It's a great time to be a lawyer, since when times get bad, we get busy. Art | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1959 Registered: 7-2002 |
does that make sense? refund X billion so we will spend it and then the gov't gets back a % of that in taxes? I guess it stimulates the economy and they get some back via sales taxes. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 715 Registered: 11-2002 |
Regarding the Bush tax cut - one of the reasons he pushed for the cut was to increase tax revenue. I just heard that tax revenues are $85bil higher than were expected one month ago. Thing that make you go HMMMMMMM........ | |||
| William H (Countachxx)
Advanced Member Username: Countachxx Post Number: 3344 Registered: 2-2001 |
a weak US$ would help the US economy by allowing our trading partners to buy more of our goods The Bush dividend cut should help consumer spending & thus retailers & manufacturers by giving consumers more $ in the wallet, it should also help boost the stock market in dividend paying stocks at least | |||
| Jim Schad (Jim_schad)
Intermediate Member Username: Jim_schad Post Number: 1958 Registered: 7-2002 |
I think everyone compares today with the late 90's and anything less is bad even though that was an overheated false environment. IT fueled everything. Now lots of companies are looking for all that ROI they spent millions on so they are not spending today. Housing refi's has stimulated alot of the consumer spending I think and that has to end at some point. I am seeing loans for 125% of value which is disaster if the housing market falls. I think the wars of course are taking a toll. They cost billions, but not really money we ever had. congress approves it and the fed prints more thus diluting our buying power and you have the hidden tax called inflation. I have no idea how they are controlling inflation with that much spending. Read an article on GE the other day saying it keeps issuing vague warnings on earnings estimates from its plastics biz, but that is a small portion of their revenue so some speculate that GE is a bellweather to the economy as a whole and it is down. Manufacturing is down and that is usually the first indicator of an up or down economy. Gold shot up based on a weak dollar, but then crashed when a jobless report came out better than expected. Also read that the Fed had dumped gold on market last year to keep price down to give impression of stronger dollar. what happens when they run out? Companies are using derivatives to prop up earnings ala Enron, WorldCom, Cross Timbers. Warren Buffet called derivatives Weapons of Mass Destruction to the financial community. The real question is what is going to be the next big thing to save us like the dotcom, IT mania did? What is the next growth industry that produces something? | |||
| DES (Sickspeed)
Senior Member Username: Sickspeed Post Number: 7125 Registered: 8-2002 |
LOL, oh, ok... That's a pretty wholesome answer... i thought it was something republicanly perverted... Ok, ok, i'll stop now...  | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 713 Registered: 11-2002 |
LOL DES - Art and Amir and a few other of my good friends would always refer to me as "Nibbles" or "Nibs" when responding to one of my posts. I thought it was kind of funny, so I decided to change my name! You know what they say, imitation is the most sincere form of flattery.... | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 712 Registered: 11-2002 |
Dave - I agree. I want to draw my own conclusions, but as I am uneducated in economics, I was hoping that someone who thinks the economy stinks and that Bush is doing a crappy job can chime in here and give me thier .02 cents. I mean, the last thing I want is to be called biased or uneducated by the left, you know? | |||
| DES (Sickspeed)
Senior Member Username: Sickspeed Post Number: 7123 Registered: 8-2002 |
Nebs, for yours and Dave's sake (translation: sanity), i'm gonna stay out of this thread... ...however, i'm curious about the origin of your newfound name, Nibblesworth... or do i not want to know...? | |||
| Dave (Maranelloman)
Advanced Member Username: Maranelloman Post Number: 3041 Registered: 1-2002 |
Well, the debt is bigger than it has been in the past few years, mostly due to 9/11, 2 wars, and decent tax cuts that gave some of OUR money back to US. In some areas, the job market is not great. High tech & telecom are 2 examples. However, your anecdotal observations are probably more important as an OVERALL indicator. As for this: "But from my standpoint, I don't see why everyone is criticizing Bush for the "bad" economy." Everyone isn't. Only those with a vested interest in seeing someone else in the White House in 2 years are. Think about it, and look at who is whining the most. Then draw your own conclusions. | |||
| Nibblesworth (Nebulaclass)
Member Username: Nebulaclass Post Number: 711 Registered: 11-2002 |
I'm not trying to start a flame war or anything. It's just that I am, by no means, an economist, so I could use an explanation. From what I see, the two main factors limiting the US economy right now are jobs and national debt. In a distant third might be the weakened US dollar and perhaps the trade deficit, although some people say that these things can be good for the economy. I'm a little confused because there seems to be nothing but good news for the economy, save for jobs and the national debt. Intel had posted higher than estimated 3rd Q earnings, as has Novellus and Merril Lynch. The stock market has been on a fairly nice rise since Oct 02 (except for a dip in March 03). Whenever I go out, I see nothing but packed parking lots and lines. I got to Best Buy and I'm forced to wait for hours for any help and I have to stand in a long line to buy my items. Some may say that people are using credit, but from what I know, credit use has been declining as people are realizing how deep in debt they are. The housing market, while slowly declining, is still pretty damn hot. People have made good money by selling their homes, although they just use their profits to buy a more expensive house. But if that is the case, isn't that a good sign? Again, I'm no economist, so I'd like some clarification. But from my standpoint, I don't see why everyone is criticizing Bush for the "bad" economy. Is the job market really that bad? Again, from what I know, it's something that could get better, but unemployment rates aren't anything disastrous. Is the debt really as horrible as it could be? I know that $388bil is a big damn number, but how badly does that effect the economy? Someone clarify for me. Again, no flame war intended. I just want to know if this "bad" economy is a matter of reality or if the 8 dems running for office are using it to drum up support. |
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