What is wrong with the US economy?

[Art]

Quadrophonics You do know personal insults are not allowed on this forum?

In light of your extremely bad manners I can't be bothered to respond to your posts any more.

 

[quadraphonics]

Quadrophonics You do know personal insults are not allowed on this forum?

In light of your extremely bad manners I can't be bothered to respond to your posts any more.

Nice cop-out. Anyway, please make a point of adhering to this pledge; your responses are unwelcome.

 

[turbo]

August unemployment rate jumps to 6.1%. A 5-year high.

http://news.yahoo.com/s/ap/20080905/ap_on_bi_go_ec_fi/economy;_ylt=ArPkFMAAsahRe89_iFDs5DCs0NUE

 

[ramsey2879]

The only group whose income can be directly tied to the CPI are retirees, which are hardly synonymous with "the less well-off."

What about those who were force to retire early because of company downsizing, disability or age restrictions.

 

[Astronuc]

Government apparently will take over Fannie Mae and Freddie Mac.
http://news.yahoo.com/s/ap/20080906/ap_on_bi_ge/mortgage_giants_crisis

WASHINGTON - The government is expected to take over Fannie Mae and Freddie Mac as soon as this weekend in a monumental move designed to protect the mortgage market from the failure of the two companies, which together hold or guarantee half of the nation's mortgage debt, a person briefed on the matter said Friday night.

Some of the details of the intervention, which could cost taxpayers billions, were not yet available, but are expected to include the departure of Fannie Mae CEO Daniel Mudd and Freddie Mac CEO Richard Syron, according to the source, who asked not to be named because the plan was yet to be announced.

Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and James Lockhart, the companies' chief regulator, met Friday afternoon with the top executives from the mortgage companies and informed them of the government's plan to put the troubled companies into a conservatorship.

The news, first reported on The Wall Street Journal's Web site, came after stock markets closed. In after-hours trading Fannie Mae's shares plunged $1.54, or 22 percent, to $5.50. Freddie Mac's shares fell $1.06, or almost 21 percent, to $4.04. Common stock in the companies will be worth little to nothing after the government's actions.

The news also followed a report Friday by the Mortgage Bankers Association that more than 4 million American homeowners with a mortgage, a record 9 percent, were either behind on their payments or in foreclosure at the end of June.

. . . .

The only reason the GDP is positive is that the government is borrowing money resulting in chronic deficits and debt accumulation.

http://en.wikipedia.org/wiki/United_States_federal_budget#Deficit_Spending_and_Increases_in_the_Debt

After the budget deficit shrank for a third straight year, to $163 billion in fiscal 2007, the White House in February projected a $410 billion budget deficit for fiscal 2008, just shy of the $413 billion record gap in fiscal 2004. Updated White House forecasts are expected later this month.

http://www.reuters.com/article/businessNews/idUSWAT00978320080715


http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm

$431,270,863,309.37 so far in fiscal 2008.

Go figure this - http://www.whitehouse.gov/omb/budget/fy2008/pdf/spec.pdf

So what expenditures should the government cut?

 

[russ_watters]

Yes, the economic stimulus package (the checks) increased this years' deficit in order to keep the GDP positive. But it may turn out that it was timed and sized perfectly to prevent a recession.

 

[edward]

The government take over of Fannie Mae And Freddie Mac is another example of privatizing profits and socializing losses.

There is still no light at the end of the tunnel for mortgage default problems. All of those LIAR and NINJA loans (no income, no job or assets) took a heavy toll.

Everybody drank the Kool-Aid" said David Zugheri, co-founder of Texas-based lender First Houston Mortgage. They knew if they didn't give the borrower the loan they wanted, the borrower "could go down the street and get that loan somewhere else."

The loans were also immensely profitable for the mortgage industry because they carried higher fees and higher interest rates. A broker who signed up a borrower for a liar loan could reap as much as $15,000 in fees for a $300,000 loan. Traditional lending is far less lucrative, netting brokers around $2,000 to $4,000 in fees for a fixed-rate loan.

EDIT:

Fannie Mae and Freddie Mac, the nation's largest buyers and backers of mortgages, lost a combined $3.1 billion between April and June. Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.

http://ap.google.com/article/ALeqM5jhZwMfeNXfD5OvIA8NL8X6uDUPFAD92KRKL00

Defaults on prime adjustable rate mortgages are still increasing.

http://washingtontimes.com/news/2008/sep/06/mortgage-paying-problems-spreading/

 

[Astronuc]

Yes, the economic stimulus package (the checks) increased this years' deficit in order to keep the GDP positive. But it may turn out that it was timed and sized perfectly to prevent a recession.

The only reason the GDP is positive is government borrowing. Then again it may not be sufficient to prevent recession.

It's a bit like a company declaring a profit when it's net income is all based on borrowed money.

Some politicians and economists have argued that the U.S. can "grow its way" out of these fiscal challenges. Their argument is that economic growth (driven by tax cuts, productivity improvements, and borrowing) will generate sufficient tax revenue to offset growing entitlement spending. However, the GAO has estimated that double-digit GDP growth would be required for the next 75 years to do so; GDP growth averaged 3.2% during the 1990's.

http://en.wikipedia.org/wiki/United_States_federal_budget#Can_the_U.S._Outgrow_the_Problem.3F

There appears to be a long term trend of decreasing GPD growth.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=274
http://research.stlouisfed.org/fred2/data/GDP.txt

And we still have a strong trade deficit, which has yet to show a significant decrease or turn over to positive.

 

[mheslep]

The government take over of Fannie Mae And Freddie Mac is another example of privatizing profits and socializing losses.

Agreed, if the takeover happens. If it does then the entire upper management structure should be, needs to be, fired. Similarly share holders need to lose. All of that _before_ the treasury pays a dime, which it may need to do.

 

[mheslep]

...
So what expenditures should the government cut?

My preference:
-Agriculture subsidies http://en.wikipedia.org/wiki/Agricultural_subsidies#United_States"
-Defense spending, the DoD programs not Iraq/Afghanistan could lose ~$50B/year. I'm for a strong defense but spending a lot of money on it does not guarantee one. Slash missile defense (too little bang for the buck) and don't deploy the new AF fighters.
-http://fas.org/sgp//crs/misc/m012606.pdf" , all of them: $30B/year
-Kill the Dept of Education, let the states and the people keep the money. $80B/year

But this is all minor. The entitlements social security, medicare, medicaid dwarf the rest. The government either needs to get out of the health care business or take it over.
http://www.heritage.org/Research/Budget/upload/93690_1.pdf

 

[aquitaine]

The only reason the GDP is positive is government borrowing.

Don't forget the fudged inflation numbers as well. See my earlier posts about that.

It's a bit like a company declaring a profit when it's net income is all based on borrowed money.

Didn't Enron do something like that?

Yes, the economic stimulus package (the checks) increased this years' deficit in order to keep the GDP positive. But it may turn out that it was timed and sized perfectly to prevent a recession.

Ever the optimist, but all that did was create what economists call a "dead cat bounce". From what I heard it will probably get worse. later on. The financial system is rotten to the core, and that makes it's collapse inevitable.

 

[russ_watters]

The government take over of Fannie Mae And Freddie Mac is another example of privatizing profits and socializing losses.

I haven't read up on that much, but as one might expect, I'm not a fan of the general idea of socializing businesses, especially as a bailout.

 

[russ_watters]

There appears to be a long term trend of decreasing GPD growth.
http://www.data360.org/dsg.aspx?Data_Set_Group_Id=274
http://research.stlouisfed.org/fred2/data/GDP.txt

The first link shows only one cycle, so it is incorrect to associate a long term trend with it. The second doesn't include correction for inflation, so it doesn't reflect true growth. I threw it into Excel and graphed the growth at 1 year intervals and it shows the 70s as a time of very high growth and doesn't show a negative GDP year since 1960.

And we still have a strong trade deficit, which has yet to show a significant decrease or turn over to positive.

Throw the word "deficit" in there and people automatically assume it is a bad thing. I have yet to hear a convincing argument that it is an unequivocably bad thing. Certainly, it is a debateable issue:

Modern economists are split on the economic impact of the trade deficit with opponents viewing it as a long run drag on GDP and employment with high social costs while proponents claim it is a sign of economic strength.

http://en.wikipedia.org/wiki/Balance_of_trade

 

[russ_watters]

Don't forget the fudged inflation numbers as well. See my earlier posts about that.

Looking at it again won't make it any less wrong.

Didn't Enron do something like that?

No, that isn't anywhere near the same as what Enron did.

Ever the optimist, but all that did was create what economists call a "dead cat bounce". From what I heard it will probably get worse. later on. The financial system is rotten to the core, and that makes it's collapse inevitable.

And where have you heard this? Where will this "worse" come from? Despite the worst housing and financial sectors in decades, the rest of the economy has been doing just fine. If those don't get much worse (and really - how could they?) then a recovery is on its way.

All in all, what we are in now looks like nothing more than an unusually mild downside of a normal economic cycle.

 

[wildman]

I'm actually looking forward to see what will happen. I am wondering who is right. Interesting arguments.

 

[aquitaine]

Looking at it again won't make it any less wrong.

Your failure to present any convincing evidence than I'm NOT wrong is your problem, not mine. In fact you haven't presented any evidence whatsoever that I'm wrong.

No, that isn't anywhere near the same as what Enron did.

How so?

And where have you heard this?

People who know what they are talking about.

Where will this "worse" come from? Despite the worst housing and financial sectors in decades, the rest of the economy has been doing just fine. If those don't get much worse (and really - how could they?) then a recovery is on its way.

More bad debt. We don't really know how good or bad our banks are because they have a very bad habit of hiding their debts. There was supposed to be a new FASB rule change that would have put a stop to this practice and force the banks to disclose the true amount of bad debt, but because of this crisis implementation was pushed back from January '09 to January '10, so we won't know for another year and a half how good or bad our banks are.

So, when is this recovery supposed to happen? Later this year? Guess we'll find out soon enough.

 

[russ_watters]

Your failure to present any convincing evidence than I'm NOT wrong is your problem, not mine. In fact you haven't presented any evidence whatsoever that I'm wrong.

Basically your whole position was that you think the statistics are lies. You choose to believe whatever you want. Fine. Either way, there really isn't anything to argue here - I just wanted to point out for others that there is no agreement on that.

BTW, that makes your position basically conspiracy theory. It isn't mainstream economics.

So, when is this recovery supposed to happen? Later this year? Guess we'll find out soon enough.

Yes, later this year (unless it has already happened - the GDP isn't doing half bad right now). The 3rd quarter is projected to be worse than the 2nd, and then the 4th to be better again. But note, "recovery" is a relative thing and a tough word to use here - what are we recovering from? It is now all but certain that the economic slowdown will not be termed a "recession" - it was nowhere near deep enough for that term to be accurate. So we're recovering from a minor slowdown.

I could see some hedge words used to still allow the use of the word "recession", but they'd have to be things like "housing and finance recession", emphasising that only those specific sectors experienced a recession. Their down market, however, has probably not hit bottom yet (though it is probably close). Perhaps in a few months it will start back up, but it'll probably be at least another year before it really shows some strength.

How so?

It's pretty tough to explain a negative to a one-liner that has little real meaning. You think they are similar. You need to justify it. In short, though, ENRON was just basic fraud. National economic data is not.

 

[Gokul43201]

Socialized mortgage?

U.S. seizes Fannie and Freddie
Treasury chief Paulson unveils historic government takeover of twin mortgage buyers. Top executives are out.

NEW YORK (CNNMoney.com) -- Federal officials on Sunday unveiled an extraordinary takeover of Fannie Mae and Freddie Mac, putting the government in charge of the twin mortgage giants and the $5 trillion in home loans they back.

The move, which extends as much as $200 billion in Treasury support to the two companies, marks Washington's most dramatic attempt yet to shore up the nation's housing market, which is suffering from record foreclosures and falling prices.

The sweeping plan, announced by Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, places the two companies into a "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing.

http://money.cnn.com/2008/09/07/news/companies/fannie_freddie/index.htm?postversion=2008090711

 

[Astronuc]

My preference:
-Agriculture subsidies http://en.wikipedia.org/wiki/Agricultural_subsidies#United_States"
-Defense spending, the DoD programs not Iraq/Afghanistan could lose ~$50B/year. I'm for a strong defense but spending a lot of money on it does not guarantee one. Slash missile defense (too little bang for the buck) and don't deploy the new AF fighters.
-http://fas.org/sgp//crs/misc/m012606.pdf" , all of them: $30B/year
-Kill the Dept of Education, let the states and the people keep the money. $80B/year

But this is all minor. The entitlements social security, medicare, medicaid dwarf the rest. The government either needs to get out of the health care business or take it over.
http://www.heritage.org/Research/Budget/upload/93690_1.pdf

My latest statement from Social Security Admin is that the SSAccounts will by depleted by 2014.

Given the current situation in the financial markets - bad debt, massive losses - I don't see a private account as helping. If the investment companies lose the money, then what? The government bails them out - with money it doesn't have?


To supplement what Gokul posted on Fannie Mae/Freddie Mac -
A look at the Fannie and Freddie bailout
http://marketplace.publicradio.org/display/web/2008/09/08/bailout/

Scott Jagow: Well, it's happened again. The government has stepped in and announced another bailout. This time of the mortgage companies Fannie Mae and Freddie Mac. A lot of people see this as a sign of just how much the financial system stinks right now, but the markets are rejoicing. We'll get to that in a minute. First, let's take a look at this plan.

John Dimsdale: Secretary Paulson said he needed to save Americans' access to home loans, auto loans and other consumer credit.

Tape of Henry Paulson: Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in the financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth from family budgets to home values to savings for college and retirement.

Treasury will inject government capital and credit as needed over the next 16 months so the mortgage underwriters don't run out of money. Douglas Elmendorf at the Brookings Institution agrees with Paulson's claim that incremental payments are better for taxpayers than one big bailout.

Douglas Elmendorf: The crucial step is that if Fannie Mae and Freddie Mac were covered financially after the government has put in money, that the returns for that would go to the taxpayers not to the current shareholders.

Secretary Paulson says when mortgage rates go too high, the government will buy Fannie and Freddie's mortgage-backed securities to ease those rates, but that worries Elmendorf.

Bailout: Why, why now and what next?
http://marketplace.publicradio.org/display/web/2008/09/08/stanton_q/

Bob Moon: It's official: The giant mortgage underwriters Fannie Mae and Freddie Mac are being taken over by the government. The move could potentially cost taxpayers $200 billion, but it could also help reverse the housing and credit crisis. Treasury Secretary Henry Paulson says the cost of allowing the companies to fail could take an even higher told on our wallets.

. . . .

Moon: Why did the government have to take this action and why now?

Stanton: The government had to step in because Fannie and Freddie were undercapitalized and were under immense stress. And what we've learned from past bank and savings and loan failures is that when management comes under that kind of pressure they may feel the need to do something imprudent, take a big risk to try to recoup their losses.

Moon: Has the government maneuvered correctly here? This seems to be a pretty delicate dance.

Stanton: I think the government has done an excellent job. Secretary Paulson has essentially stepped in and figured out a way to reassure both the financial markets -- and particularly foreign investors in Fannie and Freddie's debt obligations, mortgage-backed securities -- and also assure that Fannie and Freddie continue to provide and be a conduit for federal support. There's a second step to this process. The business model of this half-public, half-private government sponsored enterprise has failed us and failed us pretty badly. The Treasury's power to do what they're doing go away Dec. 31, 2009. Secretary Paulson basically tossed the problem back to Congress and said, "Congress, you have got to decide where we're going with these two huge multi-trillion dollar institutions."
. . . .

I think those managers should give back their bonuses and forfeit their pensions - they certainly did not earn them.

I think if corporations default on pensions for the rank and file workers, CEO's and officers should forfeit their pensions as well. That's only fair.

 

[aquitaine]

BTW, that makes your position basically conspiracy theory. It isn't mainstream economics.

So MSN Money is now promoting conspiracy theories? Wow.

 

[Astronuc]

Fannie's Daniel Mudd could get $9.3 million in severance pay, retirement benefits and deferred compensation if his dismissal is "without cause," the consulting firm James F. Reda & Associates told the Times.

And Freddie's Richard Syron could get a package valued at $14.1 million after a clause was added to his employment contract in mid-July, the Times reported.

These guys are unbelieveable. Executive compensation, at least in this case, is ridiculous.

They aren't risking their money (the company is risking other peoples money), they aren't doing day to day investments, they didn't steer their companies clear of trouble, . . . .

 

[turbo]

These bailouts are another example of faux "conservatives" privatizing profits and socializing risks. Surely, firing these guys is not "without cause" after the risks they took.

 

[mheslep]

My latest statement from Social Security Admin is that the SSAccounts will by depleted by 2014...

I was hoping to prompt your own preferences for budget cuts?

 

[edward]

I was hoping to prompt your own preferences for budget cuts?

A good place to start would be to eliminate the Pentagon's spending on every stupid gadget possible.

http://www.smm.org/buzz/blog/bursts/robotic_horse_video

$10,000,000 for this turkey that some college kids could have built for $5,000, was a total waste. Chain saw engines aren't exactly stealthy

 

[Astronuc]

For now, I'd cut 15-20% across the board. Then I'd take a detailed look at each item, to see why the US government is spending those amounts. $80 billion on education!? That seems excessive.

Basically I'd run a slight surplus, and I'd raise some taxes, and eliminate tax credits.

I'd weight corporate taxes based on the ratio of highest paid (total compensation) to lowest paid employee, in order to discourage excessive compensation of CEO's and management. If a company forfeits pensions for wage and salary earners, then the CEO and managers forfeit there's.

Grants would be replaced by some structured loan so as to recover the investment.

I'd also be investigating a lot of earmarks.

I'd cut the Congressional salaries 30%. I don't think they've earned it.

 

[mheslep]

...$10,000,000 for this turkey that some college kids could have built for $5,000, was a total waste.

No 'college kids' could have built Big Dog or anything close to it. At the moment Big Dog is the most advanced ambulatory robot prototype in the world.

 

[mheslep]

For now, I'd cut 15-20% across the board. ...

Brassy. Across the board, you'd cut $112B from SSN checks, $70B from Medicare, $40B from Medicaid, $8B from unemployment benefits, and so on? I think the Astronuc administration is in for some trouble, even if it has the best interests of the country at heart.

 

[edward]

No 'college kids' could have built Big Dog or anything close to it. At the moment Big Dog is the most advanced ambulatory robot prototype in the world.

Yet exactly what is the military going to do with it? They couldn't kick it over, big deal, try kicking both ends at the same time. Plain old fashioned pack mules have been used successfully in Afghanistan.

More Pentagon waste: $300 Billion Down the Tubes: Shocking Wasteful Spending on Weapons Systems:

http://www.alternet.org/workplace/87843/$300_billion_down_the_tubes:_shocking_wasteful_spending_on_weapons_systems/

 

[Astronuc]

Brassy. Across the board, you'd cut $112B from SSN checks, $70B from Medicare, $40B from Medicaid, $8B from unemployment benefits, and so on? I think the Astronuc administration is in for some trouble, even if it has the best interests of the country at heart.

Well - people would have a choice - either we raise taxes, or we cut expenses - while we have a choice. At some point in the future, we will not have a choice - except to default or cancel interest payments on the debt. There is no growing the economy out the problems of chronic deficit spending.

 

[mheslep]

Yet exactly what is the military going to do with it? They couldn't kick it over, big deal, try kicking both ends at the same time.

Edward its an experimental prototype, and its a big advance in the state of the art for robotics.

Plain old fashioned pack mules have been used successfully in Afghanistan. ...

Well if you can find a pack mule to which you can embed a radio and then send it back by itself for more amo you are in business.

 

[Astronuc]

Well if you can find a pack mule to which you can embed a radio and then send it back by itself for more amo you are in business.

I think some mules are trained to do that. They go back home when sent. The problem is getting them to return to where they were (in the field) or to some new location.

 

[edward]

Edward its an experimental prototype, and its a big advance in the state of the art for robotics.

Well if you can find a pack mule to which you can embed a radio and then send it back by itself for more amo you are in business.

I realize that it is a state of the art prototype. And the pentagon paid ten million bucks for it. With that chain saw engine running it will broadcast it's location far and wide. And that includes it's destinations at both ends of the trail. At some point common sense has to enter the equation.

My point was that we have spent three hundred billion dollars on weapons in recent years and no one is sure where all of that money went.

http://www.alternet.org/workplace/87843/$300_billion_down_the_tubes:_shocking_wasteful_spending_on_weapons_systems/

 

[mheslep]

I realize that it is a state of the art prototype. And the pentagon paid ten million bucks for it. With that chain saw engine running it will broadcast it's location far and wide. And that includes it's destinations at both ends of the trail. At some point common sense has to enter the equation.

Prototype meaning it would not be deployed in the current form. Even as is, it still no worse noise wise than tasking a guy to drive around in a HMMWV. Rev 2,3,etc, look for a battery in there. The soldiers love robots, trust me on this one, better the robot get shot than them. And a robot that can lug 400lbs? They'll love it.

My point was that we have spent three hundred billion dollars on weapons in recent years and no one is sure where all of that money went.

http://www.alternet.org/workplace/87843/$300_billion_down_the_tubes:_shocking_wasteful_spending_on_weapons_systems/

Agreed.

 

[turbo]

The robotic mule is a ripe target for asymmetrical warfare. Each working model will likely cost hundreds of thousands of dollars, and they can probably be taken out with a cheap .50 cal armor-piercing shell or an RPG.

Far better to use real mules with local handlers. Animals are cheap, and unless you advertise the nature of the loads they are carrying, the bad guys won't know if that handler is taking food to his village or a load of ammo. If you use robotic beasts of burden, you are advertising the fact that their loads are very expensive and important to the military in the area = target.

 

[mheslep]

The robotic mule is a ripe target for asymmetrical warfare. Each working model will likely cost hundreds of thousands of dollars, and they can probably be taken out with a cheap .50 cal armor-piercing shell or an RPG.

Maybe, but generally direct fire (vs indirect) at any kind of US unit exposes the enemy and very, very often gets the enemy killed. If the hostile could kill a US soldier first, in asymmetric warfare that might be a win for the hostiles.

...Far better to use real mules with local handlers. Animals are cheap,

No, to do what the Army needs done they are not cheap.

If the general point is that the military can overdo and gold plate technology, I agree with you. Walking robots are not going to show up on the battlefield in the near future.