Economy Tanking Worldwide

[Lucky]

Who said it couldn't get worse? The economy is tanking world wide and governments are cutting spending. Mortgage rate are as low as they have ever been, but sales aren't anything to brag about. Foreclosures and short sales are the main way houses get sold these days. Predictions for the housing market are that prices will drop another 10% as banks sit on a trove of foreclosures they are afraid to flood the market with. Unemployment? Where would we get new jobs in this economy?

There are several posters who know more about economics than I do, so what do you guys think? Any hope out there?

http://www.nytimes.com/2010/08/12/business/12markets.html?hp

[Guest zipperzone]

Who said it couldn't get worse? The economy is tanking world wide and governments are cutting spending. Mortgage rate are as low as they have ever been, but sales aren't anything to brag about. Foreclosures and short sales are the main way houses get sold these days. Predictions for the housing market are that prices will drop another 10% as banks sit on a trove of foreclosures they are afraid to flood the market with. Unemployment? Where would we get new jobs in this economy?

There are several posters who know more about economics than I do, so what do you guys think? Any hope out there?

http://www.nytimes.com/2010/08/12/business/12markets.html?hp

Sorry, but I refuse to buy into the doom & gloom mind set. I have never been a fan of self-fullfiling prophecies.

[TampaYankee]

Sorry, but I refuse to buy into the doom & gloom mind set. I have never been a fan of self-fullfiling prophecies.

Your buy-in won't be necessary for it to proceed.

[TampaYankee]

I am certainly no expert, not even an armchair expert, but I seldom let that stop me. What ails the US is somewhat different from what ails Europe and the rest of the world. I know even less about those issues.

We have gone through a very bad recession -- the worst since the Great Depression. The reasons for that have been apparent, rooted in the housing crash and the attendant finance industry crash. That rolled into impacting small and big business ability to operate. Not only could they not short-term-borrow to meet payrolls they could not borrow to buy materials and supplies for manufacturing or resale. Dominos fell. That led to a shedding of workers at up to 750,000 a month.

Major part of the solution was to pump massive public spending to keep the economy from spiraling into a black hole. Now many believe we have come through the bad times and now we need turn to austerity measures to wring all that money out of circulation before inflation spirals out of control. This will eventually need to be done or it will become a very very bad problem. But it is premature at this time.

We really haven't emerged as many think. We only feel that way, which is not only very good but essential to emerging eventually. We wont fully emerge until housing and unemployment make a comeback. New housing is our biggest economy component. A healthy housing sector employs hundreds of thousands and requires all kinds of materials and supplies that support tens of thousands more jobs, and financing with those jobs too.

We have a glut of housing now. The supply outstrips the demand. Why? Because we have millions out of work -- many who have lost their homes. New housing demand will not come back in a big way until unemployment is drastically reduced.

Also, our banks are still sitting on a mountain of bad mortgages unwilling to write them off even though they really are not worth the paper written on. Paulson was suppose to buy them up to unburden the banks. Instead he gave the banks the money by buying stocks and let the bankers declare early profits and take big bonuses. The bottom line remains: they remain reluctant to loan because their real-worth underpinnings are too thin to protect them against more non-performing loans. So much for TARP.

Unemployment is the key. Real unemployment is estimated at somewhere between 16% and 22%, not withstanding usual government numbers based solely on unemployment applications. Unemployment in an economy working at full capacity hovers around 4%-5%, which represents workers in-between jobs or dropping out to attend school, etc. This translates into millions and millions unemployed. I believer the number of jobs lost in this deep recession is seven million jobs (http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aVmZJLQoKv2g).

It is claimed that 100K-150k new jobs need to be created each month just to hold the unemployment rate steady. With the current economy we are at best breaking even. To restore seven million jobs in five years will require an additional 120,000 jobs to be created on average every month. That is not on the horizon at this stage of the recovery.

But without continued application of stimulus, unemployment won't be significantly diminished for years. That is a fact, whether or not existing stimulus funds have been best spent. It is a no brainer that thousands of our roads and bridges in this country are crumbling under us. Municipal water, gas, and sewer systems are patchworks as much as a century old in some cities. The national power grid is a patchwork of antique and modern technology that leaves us at significant risk of sabotage by a committed enemy. There is lots of serious need for serious refurbishment of our infrastructure that not only provides jobs but lasting value with real return on investiment.

Some believe mistakenly that lower taxes always create jobs. That can happen in certain enivronments, maybe. What the proponents fail to take into account is that massive joblessness without massive public spending causes product and services demand to evaporate. The real unemployment rate just does not support any real demand now. Cutting the taxes of people out of work doesn't add to their ability to buy a new home or new car or new washing machine to put in the home they no longer own. People with jobs are not looking to buy new homes in this environment. Small businesses are begging for loans they cannot get. I doubt tax breaks can fill that void on a regular operating basis.

Cutting taxes is unlikely to spur investment in this environment of low demand. Big corporations are sitting on mountains of cash they do not want to invest in this climate -- that is what the cable business channels tell me anyway. They are not waiting on tax cut incentives, they are waiting on demand.

Cutting taxes does increase the deficit. Even the argument that it will create more demand with so many out of work just doesnt mesh with business actions at this time.

Given our indecision as to what our biggest problem is, I do not see us affecting either unemployment or the deficit much. In the face of that indecision, I see a slowly improving economy with millions remaining out of work for some years.

My own view is that our bus is stuck in a ditch (sand, mud, snow, your choice) with no outside help available. We must use our own engine to 'rock us' out. We must apply whatever gas is needed to get the job done. We also must be cognizant that keeping the engine rev'd once we free ourselves has dangerous consequences to avoid. However, we cannot be too timid in applying the foot to the pedal, else we will remain mired. We need the application of more stimulus and better targeted. We also need a post recovery plan to excute once we pull out else we will have an inflation armageddon.

The big fly in the ointment remains the banks. Are they really strong enough at this time to underwrite an ecomonic comeback?

[BiBottomBoy]

I think Europe is going to be fucked for far longer than America will be.

In the states we've fixed a bunch of the fundamentals and will start to get some traction. A lot of people who didn't get sucked into the shitty mortgages a few years back are now taking on reasonable mortgages because house prices are so low. Reasonably priced homes with responsible mortgages actually do build wealth and consumer confidence.

In the short term, Obama needs to get a WTA type jobs program out there. This will, I think eventually happen, though it may be held back a bit by the mid-term elections.

The trick to the whole thing is to allow higher deficits in the short term in order to create more jobs and stop the foreclosure bankruptcy cycle.

[RA1]

Adding government jobs isn't going to do it. We need jobs that produce goods primarily and services secondarily. "Giving" money to the banks or any other persons or institutions is just putting us further into debt.

The country is fed up with the current Congress and administration and whether wholesale change in the Congress will help or not, it is a place to start.

35,000 people in Atlanta showed up today to apply for Section 8 housing. They expected 10,000.

64% of folks in the US think the Congress should be shown the door.

As mentioned above, a good attitude is mandatory for people to spend money. What goes into having a good attitude is a very mixed bag but being employed is one important feature. However, wealthy folks are not anxious to spend money either without a good opinion of the economic future. I think a lot of folks are anxiously waiting upon NOV for a clear signal of which way this country is going.

Best regards,

RA1

[BiBottomBoy]

Adding government office jobs won't do it, but adding jobs that produce and accomplish things like fixing roads, building schools and shoring up our infrastructure will not only help put spending money into people's hands today but create things that our country needs for tomorrow.

[RA1]

The government doesn't know how to do those things. The government is more like an insurance company in that they don't repair cars, homes, airplanes, etc. that are damaged, they PAY for other folks to do those things. So, we are back to the government "giving" money out and putting us more into debt.

"Running" the country should mean governing it not managing its' business enterprises.

Best regards,

RA1

[BiBottomBoy]

If that was really true we wouldn't have an Interstate Highway system and the WPA wouldn't have built us out of the recession. Oh, and we wouldn't have bridges and airports and, um the Internet.

At the moment there are highways that are crumbling all over the country. Fixing them would good for public safety, create jobs and stimulate the economy.

Also, our rail system sucks at the moment compared to western europe or Japan and causes people to fly or drive a lot of places when it would be much better for the environment if reliable train service was available. Building more train tracks and adding more train routes would create jobs, be good for the environment, and have a host of lasting benefits for years to come.

The list goes on and on.

[JKane]

The government doesn't know how to do those things. The government is more like an insurance company in that they don't repair cars, homes, airplanes, etc. that are damaged, they PAY for other folks to do those things. So, we are back to the government "giving" money out and putting us more into debt.

"Running" the country should mean governing it not managing its' business enterprises.

Best regards,

RA1

Or, if this gets any closer to being like the Great Depression we could follow your advice in the other direction!

Fuck the worthless fat-cat middlemen siphoning off this money--let their 'invisible hand' decide THEIR fate for once!

RE-establish public works and have the government directly hire people or SMALL subcontractors to build things we need anyway like solar power plants and wind farms, plus road improvements and help the army core of engineers put levies and such in places in Sacramento and Louisiana, among others.

Gov't hired census workers had an impact in unemployment, let's hire at least a similar number a bit longer term to do the other things that need to be done! Gov't isn't as bad at these things as the 'right' would have us believe, just compare Medicare's overhead to private insurances and then consider who each is insuring!

[BiBottomBoy]

"RE-establish public works and have the government directly hire people or SMALL subcontractors to build things we need anyway like solar power plants and wind farms, plus road improvements and help the army core of engineers put levies and such in places in Sacramento and Louisiana, among others.

Gov't hired census workers had an impact in unemployment, let's hire at least a similar number a bit longer term to do the other things that need to be done! Gov't isn't as bad at these things as the 'right' would have us believe, just compare Medicare's overhead to private insurances and then consider who each is insuring! "

You said what I was trying to say better than I said it!

[TampaYankee]

The government doesn't know how to do those things. The government is more like an insurance company in that they don't repair cars, homes, airplanes, etc. that are damaged, they PAY for other folks to do those things. So, we are back to the government "giving" money out and putting us more into debt.

"Running" the country should mean governing it not managing its' business enterprises.

Best regards,

RA1

Two things the government knows how to do are collect money and spend it. Government, at some level, has always been the financier and general contractor for top level architectural studies for infrastructure projects. It decides where roads and sewer lines need to go and specifies throughput requirements etc. Then they hire companies to refine the details, execute the construction, and hire the labor force. Nothing new here.

To imply the government cannot do what it has always done is a red herring. True there is much the government should not get into but that doesn't mean they do not have an important and significant role to play, especially when they are the player of last resort and we are pretty near last resorts. Or we can languish through a decade of slow growth. That will be minimally acceptable to the wealthy and those lucky enough to keep a job. For everyone else it will be hard times.

[BiBottomBoy]

This.

And, you know building stuff the country actually needs, like better roads and train tracks more reliable data networks, etc... isn't giving money away, it's investing in the country's future while at the same time giving people good jobs that will in turn spike the economy.

Two things the government knows how to do are collect money and spend it. Government, at some level, has always been the financier and general contractor for top level architectural studies for infrastructure projects. It decides where roads and sewer lines need to go and specifies throughput requirements etc. Then they hire companies to refine the details, execute the construction, and hire the labor force. Nothing new here.

To imply the government cannot do what it has always done is a red herring. True there is much the government should not get into but that doesn't mean they do not have an important and significant role to play, especially when they are the player of last resort and we are pretty near last resorts. Or we can languish through a decade of slow growth. That will be minimally acceptable to the wealthy and those lucky enough to keep a job.

[Guest CharliePS]

The things that everyone really needs are food, clothing, shelter, healthcare, education and sex. We need to figure out how to increase productivity in all of them, and other improvements in the economy will follow.

[BiBottomBoy]

You forgot booze and porn.

The things that everyone really needs are food, clothing, shelter, healthcare, education and sex. We need to figure out how to increase productivity in all of them, and other improvements in the economy will follow.

[TampaYankee]

If that was really true we wouldn't have an Interstate Highway system and the WPA wouldn't have built us out of the recession. Oh, and we wouldn't have bridges and airports and, um the Internet.

Actually, the WPA did not build us out of the Depression. It did employ many thouands of workers so they could feed themselves and their families and it did provide us with some very important infrastructure that benefitted the country far beyond the investments to create them. Think TVA/hydroelectric dams as examples. It helped keep people alive and prevented a lot of public disarray, violence and possibly potential revolutionary activity.

What got us out of the Depression was the biggest stimulus program in history -- WWII. Overnight, we created more jobs in more industries and farming that worked around the clock. No one worried about deficits. Everyone worked four sheets to the wind over five or more years toward a single goal. After the war, a million plus soldiers came home to another million stateside needing jobs. There was lots of demand and the government pumped more money into the GI bill for education and jobs training. Stimulus does work. No one familar with history can deny it.

Also, our rail system sucks at the moment compared to western europe or Japan and causes people to fly or drive a lot of places when it would be much better for the environment if reliable train service was available. Building more train tracks and adding more train routes would create jobs, be good for the environment, and have a host of lasting benefits for years to come.

Our train system does suck but we as a society are not ready for widespread rail transportation. It is realistic only for high density corridors like the Northeast and California. It wont be realistic for the rest of the country until we force ourselves off of gasoline as an everyday fuel. As a society, we are incapable of coming to grips with that. It will have to be imposed externally. It would not be cost effective to build railroads that didnt attract enough ridership to pay for itself.

[RA1]

I agree WWII brought us out of the "great depression". I don't agree that Medicare is well run. Most of the part that is well run is run by private industry under contract to the Feds. Do the east or west coast railroads make money? I was under the impression they were intensely subsidized by either local or federal government or both.

However, the discussion seems lively and that is all to the good.

Best regards,

RA1

[TampaYankee]

I agree WWII brought us out of the "great depression". I don't agree that Medicare is well run. Most of the part that is well run is run by private industry under contract to the Feds. Do the east or west coast railroads make money? I was under the impression they were intensely subsidized by either local or federal government or both.

However, the discussion seems lively and that is all to the good.

Best regards,

RA1

Medicare is not particularly well run IMO. It does run with a low overhead which many consider a good thing, including myself. There is a lot of fraud in Medicare and that can be better policed, probably at some cost to overhead. Also, clearly more of every dollar spent goes to health care, which after all is its purpose. That is a big plus over profit health care providers whose purpose is to make profit.

I remain to be convinced that private companies running Medicare do a better job generally. I know of one example (University related) that seems to provide good service. I'm not sure it is better because I do not know how to quantify 'better' .

Also, I know of two private companies my parents used that provided abominable service very much worse. I know they were worse because they discouraged doctors from seeing my parents 'too often'. They simply refused reimbursements after some number of office visits without regard to the nature of the complaint. I KNOW that is worse than regular medicare.

That's all I know first hand.

[lookin]

However, the discussion seems lively and that is all to the good.

Indeed!

I think what was unique about the 2008 financial meltdown was the role played by the "shadow banking system", a significant and largely unregulated component of the economy at the time. These are the Wall Street folks who, among other things, bundled up subprime mortgages, got the ratings agencies to declare the bundles safe, leveraged them enormously through derivatives and such, and then sold them throughout much of the world's economy.

In the past, when someone defaulted on a mortgage, the exposure was for the amount of the mortgage and the loss was limited to the bank that held it. The new shadow system, on the other hand, amplified the exposure tremendously and distributed it throughout the U. S. economy and to anyone who was tied to it. The way they were able to highly leverage subprime mortgages meant that, when the defaults began, the effect was many times greater than under the old one-mortgage-one-bank system. Not only was the effect greater, but it was nearly impossible to tell who had the exposure and the risk. This was a primary reason that nobody wanted to lend; they just didn't know where the risks were. They still don't.

While traditional banks had been regulated to prevent such dangerous and destabilizing activities, the new financial institutions were not. At one point, these "shadow institutions" were nearly as big as the traditional banks, and were responsible for about half of all lending in the U. S. When they finally started to fail, beginning with Bear Stearns and Lehman Brothers, they risked taking the entire U. S. economy with them. Without the 2008 bailout program, we may have entered the economic dark ages.

We're not out of the woods yet, although there is at least now a greater awareness of what the Wall Street wizards created and there are attempts to keep them from doing it again. Investment bankers took the better part of a decade to build up this alternate economy, and it may take us a little while to dismantle it. Also troubling is that the bonus-addicted shadow bankers are probably trying to figure out some new whiz-bang financial folderol that will skirt the new regulations.

Those who believe that throwing out the current batch of politicians will suddenly solve our economic problems are, in my opinion, being a bit naive, especially if they replace them with other politicians who believe thoughtful regulation of the financial markets is a bad thing. It may make folks feel better for a short while, but Wall Street is where the economic minefields are. Washington can only help keep us from stepping on them. Or not.

I think the job we have before us now is to restore confidence in our economic institutions, as only then will it make sense to start investing again. And helping restore that confidence is the the role I see government playing.

Not that a few good WPA projects wouldn't be nice while we're waiting.

[BiBottomBoy]

Yep, WPA projects to put people to work and put money in their pockets while we work on banking reform.

[RA1]

I am all for putting some bankers and politicians to work with a pick and shovel, whether it be a WPA type project or some place with a vertical sun tan.

I agree we have a long way to go and improvement won't happen over night.

Best regards,

RA1

[BiBottomBoy]

When this happened in the 30s we got rid of a lot of bad bankers when they jumped.

Unfortunately these days the insurance companies insist that all the windows in those buildings are sealed.

[KYTOP]

Looks like Germany is doing much better than we are. What are we doing so wrong? See BBC article:

http://www.bbc.co.uk/news/business-10962017

[BiBottomBoy]

In Germany the Euro was down 25 percent against the dollar last year so they were able to lower their prices on all their US exports which meant more people bought them.

[RA1]

So, when the USD tanks, we will all be rich?

Best regards,

RA1