Perspectives on the global economic meltdown (Jan 26 2010)

Mort Walker · Post by **Mort Walker** » 04 Sep 2010 08:18

^^^
N^3 is smart enough to realize that large scale solar farms are not cost effective. One of the best proposals somewhere in southern Cal or Arizona was to build a 600 MWe power plant covering 6000 acres. This is less than 25 W/m^2. Where solar is useful are modern photovoltaics that are more than 30% efficient on buildings and residential homes, at least in locations where there isn't severe weather with strong wind and hail. The numbers for large scale solar farms just doesn't add up.

1800 W/m^2 solar flux above atmosphere for visible wavelength light
80% efficiency due to atmospheric loss - very optimistic
80% efficiency due to to incident of light angle changes by earth moving
85% efficiency due to cloudy days
50% efficiency due to night time darkness
20% efficiency of solar cells (the best ones currently available)

This is a best case scenario:
1800 W/m^2 * 0.8 * 0.8 * 0.85 * 0.50 * 0.20 =~ 100 W/m^2

Its better to use nuclear followed by coal, natural gas, geothermal and wind. No wonder the people who finance this stuff are having cold feet.

ShivaS · Post by **ShivaS** » 04 Sep 2010 09:28

Good will is function of perception from accounting perspective good will also an asset.
Perception is creation of market, actually marketing inflates/aggrigates the perception (+ve) that has been created by the use of product and or services offered by institution or individual.

When Ciba Geigy purchased the toothpaste Binaca, from Ricket and Column (sp) Ciba refused to pay for the good will of the brand Binaca Ricket said sorry you cant use the brnd name Binaca, so Ciba went ahead and started a massive marketing campgain Binaca ab cibaca

Same with Tinopal to Ranipal (WHat is that whitens beat of all Tinopal Tinopal jingle remember)

Again same with Konica to Sakura (for film)

......

shyam · Post by **shyam** » 04 Sep 2010 10:20

Yes, Deflation's Coming, Says Morici -- Because The Government Doesn't Have The Guts To Stand Up To China
Deflation is coming. We've had it for a couple of years now in the form of shrinking economic output, and now we're going to get it in the form of falling prices. And deflation will hammer any Americans who have borrowed money, because it will be harder to pay back the debts.

Neshant · Post by **Neshant** » 04 Sep 2010 17:05

shyam wrote:Robert Prechter explains:
Robert Prechter:[/b] To begin with, the printing analogy is flawed. The Fed does not operate a press, as the government of Zimbabwe did. It creates new money only when it buys IOUs. These IOUs are the Fed’s assets, and it doesn’t want worthless assets backing its notes.

Although I like Prechter's original line of thought, I have a tough time believing his theories.

The federal reserve already has taken on worthless assets and secretly monetized tons of debt without any approval from Congress under the banner of 'independance'. So how can he believe that is not the case when it is the case.

The mandate of this federal reserve is to pass on losses of its shareholder banks to suckers namely the people slaving away in society to produce a surplus.

Just look around at prices. In spite of being in what is supposedly the greatest downturn since the great depression, prices continue to rise in everything except housing which was overpriced to begin with. Grocery prices, Medical costs, Utilities, Repair bills, Taxes, Fees... all go one way only and that's up. What's remaining stagnant or falling in real terms due to the printing and 0% interest rates are wages.

IMO the federal reserve is destroying what's left of the productive economy. It needs to be shut down and prices across the board need to fall to affordable levels.

Neshant · Post by **Neshant** » 04 Sep 2010 17:18

Hari Seldon wrote:Alrite, some good news at last. Seems one corner has been turned. "whew!"

The Nelson Rockefeller Institute reports State Tax Revenues Are Slowly Rebounding

Excerpts:
Preliminary tax collection data for the April-June quarter of 2010 show improvement in overall state tax collections as well as for personal income tax and sales tax revenue.

Nelson Rockefeller Institute? Sounds like an institute for forwarding the theories of a banking cabal.

How much of the above job creation is due to massive federal govt stimulus tearing up good roads and rebuilding it on federal debt and how much is due to the federal reserve monetizing debt and causing losses to savers under the guise of secrecy aka independance. Also how long before the federal reserve starts buying municipal bonds (if they aren't already) and forwarding printed up money under the table to these states.

shyam · Post by **shyam** » 04 Sep 2010 23:04

ShivaS · Post by **ShivaS** » 04 Sep 2010 23:59

The U.S. is headed for deflation, Morici says, because of the combination of a weak economy, suffocating government restrictions, and an overvalued currency
The dollar is too expensive relative to other critical currencies,.
Morici says--especially China and India. China is keeping its currency artificially low to make its exports cheaper and our exports (to China) more expensive. This is great for China, but lousy for us.

I have been harping on this since 2007, when ever you see oil prices go to 60+ barrel its an indication of weak dollar, when Gold prices zoom up its an indication of of even more weak dollar...
Generally in deflation commodity prices will fall, but the refugees from dollar wiil migrate to gold why? what if an alternative to dollar emerges Gold will still hold the sheen and glitter.

The example of an addict behaviour that i mentioned earlier is being expressed by author (in the above quote)
PRC wants to export but does not want dollar to be weak so that uncle can export more and PRC imports will cost more which means manufacturing may pick up again in khannate

enqyoob · Post by **enqyoob** » 05 Sep 2010 02:44

And deflation will hammer any Americans who have borrowed money, because it will be harder to pay back the debts.

How does that work pls? If I had borrowed $100 in 1990 dollars, and now I have to pay back $60 in 2011 dollars which are really worth only $20 in 1990 dollars, haven't I made out like a bandit? So isn't it the person who has paid off all his debts, that is the sucker, compared to the smart guy who never pays any debts, but, like the Fed Govt, just accumulates a deficit, knowing that it's value is going down fast, esp. with 0.01% interest rate?

I agree that if I look around, all prices are rising, not falling, so it looks like the dollar is worth less and less every day. And interest rate is zero, and my bank where I have had free checking, free everything for many saal, now charges me $2 to show me images of the cheques with the statement, since I refuse to pay $7 per month to have internet banking. And where the First-Rate Money Market Account used to pay 15% interest in 198x, now it pays $0.00003% interest. And the gas rates are rising and the electricity rates are rising and the bus/train fares are rising.

But I still don't understand how "deflation" is different from "inflation". Seems like inflation is what we have.

Sanjay M · Post by **Sanjay M** » 05 Sep 2010 04:02

^^^ Well, it depends. If that $100 you borrowed in 1990 was put into something that grew or at least remained stable against inflation/currency-erosion, then yes, you came out ahead. But if whatever you put that money into fell in nominal terms, or even just stayed the same nominally and therefore fell along with the currency, you didn't come out ahead, and may have even lost. That could be the case for a lot of mortgage holders.

Neshant · Post by **Neshant** » 05 Sep 2010 04:25

If your job has vanish in 2011 and nobody is lending money, then coming up with $60 in 2011 will be like coming up with $160 in 1990. More so if that $60 buys you four times as much in income producing investments that are selling for cheap in 2011 but which you have to forego to pay debt. Its all about purchasing power and lost opportunities.

The federal reserve is already hard at work destroying savings thinking that's what improves an economy. In return savers, perhaps the only people who can spend in this economy, have responded by shutting down their spending to make up for non-existant interest on principle and printing.

Not sure if I buy the hyper deflation theory which is Robert Prechter's camp. But I do believe strongly in the hyper-scamming theory.

Anyone who is producing a surplus in society will have his monies taken from him and redistributed by the govt/banking cabal to prevent mass social unrest once the downturn resumes. Right now, govt/banking are quietly trying to offload losses of those underwater onto anyone productive. A couple trillion or so printed here, printed up money to rig stock markets there, a tax hike here, 0% interest there..etc in the midst of salary stagnation if not destruction.

Hence the reason I keep my hard earned bread out of reach of crooks and bad paper while the govt/banking looks around for suckers to offload on. To put it bluntly, a vast majority of hardworking, productive people who had been living within their means, not buying a mansion or fancy car, not taking vacations, not doing kitchen remodelling and running up credit card debt, making sacrifices and going without - will have to be ripped off by govt/banking. Its a mathematical certainty.

The only thing we can pray for is that financing & banking collapses suddenly leaving no time for them to take money from anyone. On that note, some encouraging news from Prechter's camp :

Prechter: Go To Cash or You're Dead
http://www.youtube.com/watch?v=OWpl0vuU44A

enqyoob · Post by **enqyoob** » 05 Sep 2010 05:47

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Neshant · Post by **Neshant** » 05 Sep 2010 08:03

We are moving to an SDR type system as a global currency. Its another worthless paper system which surely won't last more than a few years before it dawns on everyone this is the same wine in a new bottle. Its exactly as Jim Rickards predicted.

One of the key signs of this is the rebalancing of voting rights at the IMF for China. US wants China to have a bigger voting share so its willing to come onboard with the idea. This however means some other country/block of countries has to have a smaller voting share. Moves are already underfoot for Europe (which is over-represented) to give up some of its voting share - something the Europeans do not like but which will probably happen.

Hope the babus in India are alive to the situation. If they are asleep, India will be given a nothing in terms of voting shares. The last thing India needs is to be trapped in an old world order where declining powers lock the economic power structure with vague future promises of readjustment of voting rights.

Trichet calls for united EU at the IMF
http://ca.news.finance.yahoo.com/s/0409 ... u-imf.html

There have been ongoing plans to re-balance voting rights to give emerging economies more clout, with proposals including limiting the European Union to a single seat on the IMF board, and tipping the scale toward China and Brazil. (where is India???)

Jim Rickards Interview from June 14th with Eric King
http://www.kingworldnews.com/kingworldn ... 3A2010.mp3

Hari Seldon · Post by **Hari Seldon** » 05 Sep 2010 08:05

enqyoob wrote:
Are you really prepared for the 60% stock market crash?
An investment strategist in France predicts a "bloody" recession and a 60% market collapse. U.S. investors have two choices: We can take a beating or fight back. Your first step is FREE. Full details below ...

Click here for instant access to 2 FREE reports prepared
for you by a leading risk manager and forensic accountant.

LOL.

Crackpot selling his book. Could at least learn to appear genuiine - shah mehmood querishi can help with FREE tips and advice, am sure.

IN any case, there's ZERO chance the stock mkt will fall bigtime. The past 2 yrs kinda demonstrate that the equities mart is all but divorced from fundamentals as well as plain vanilla retail investors (of the voluntary variety that is, not the ones unwittingly trapped there thx to 420(K)s and what not...), has the 400% backing of the powers that be - the fed, the primary dealer cartel and the plunge protection teams at the ready.... ZERO chance of an equities crash in the next few yrs, I tell ya..../only.

nandakumar · Post by **nandakumar** » 05 Sep 2010 14:09

enquoob wrote
quote:
How does that work pls? If I had borrowed $100 in 1990 dollars, and now I have to pay back $60 in 2011 dollars which are really worth only $20 in 1990 dollars, haven't I made out like a bandit? So isn't it the person who has paid off all his debts, that is the sucker, compared to the smart guy who never pays any debts, but, like the Fed Govt, just accumulates a deficit, knowing that it's value is going down fast, esp. with 0.01% interest rate?
unquote:
let me add my two cents worth explanation to the ones already offered. under deflation the value of physical assets decline whether expressed in dollars or rupees or whatever. but the debts contracted to acquire these assets remain the same because they are expressed in nominal terms. for example, if you have borrowed rs 100 to acquire a house for the same value (no bankers lends 100 per cent of the value of house, but assume so for the sake of argument) and the house has now shrunk 50 per cent value. what this means is you borrowed money for acquiring one house but effectively are repaying loans worth two houses!
another way of looking at it is that under deflation there is a good chance that your wages go down in nominal terms as well. your employer suffers an erosion in pricing power for his goods. so what does he do? he reduces wages. but if you have run up some credit card dues during the good times, you have to repay the same amount of dollars with perhaps half your salary income.

Hari Seldon · Post by **Hari Seldon** » 05 Sep 2010 18:35

Urban Plight: Vanishing Upward Mobility

What characterized great cities such as Amsterdam—and, later, places such as London, New York , Chicago, and Tokyo—was the size of their property-owning middle class. This was a class whose roots, for the most part, lay in the peasantry or artisan class, and later among industrial workers. Their ascension into the ranks of the bourgeoisie, petit or haute, epitomized the opportunities for social advancement created uniquely by cities.

In the twenty-first century—the first in which the majority of people will live in cities—this unique link between urbanism and upward mobility is under threat. Urban boosters still maintain that big cities remain unique centers for social uplift, but evidence suggests this is increasingly no longer the case.

Balanced and well written piece. Good read, IMHO.

Also, points to a truth that afflicts not just the khanate but paschim in general - the lack of upward mobility in stagnating societies can be felt not just seen. Of course, once people reach a certain threshold in social safety and living standards, perhaps it doesn't matter overmuch, eh?

But still, somehow, the energy, drive, dynamism, verve and hustle-bustle that comes from growing sdre cities in Asia still has a comforting tinge to it, almost.

The emerging class conflict in the great global cities ultimately could have many ill effects. Persistently high unemployment and underemployment in British metropolitan areas, for example, has spurred nativist sentiment and intolerance towards immigrants. This is true in America today as well. But views towards immigrants generally soften as an economy improves. Broad-based prosperity is a good antidote for intolerance.

Attacking the class gap requires a redefinition of current views about the overused term “sustainability.” This concept needs to be expanded beyond its conventional environmental definition to reflect broader social and economic values as well.

Aha. Welcome to the brave new world.

This pattern does not reflect perverse conditions unique to the United States, as many academics and progressive pundits often suggest. Between 1970 and 2001, the percentage of middle-income neighborhoods in Toronto dropped from two-thirds to one-third, while poor districts had more than doubled to 41 percent. According to the University of Toronto, by 2020, middle-class neighborhoods could account for barely less than 10 percent of the population, with the balance made up of both affluent and poor residents.

To a large extent, urban poverty in Berlin and other European megacities is concentrated among Muslim immigrants.
Similarly, Tokyo, once widely seen as an exemplar of egalitarianism, is transforming. The city’s post–World War II boom yielded a thriving middle class and remarkable social mobility. That is now giving way to a society where wealth is increasingly concentrated. The poverty rate, including some 15,000 homeless people, has risen steadily to the highest level in decades.

Much the same process can be seen in great social democratic havens of Europe. In Berlin, Germany’s largest city, unemployment has remained far higher than the national average, with rates at around 15 percent. Some 36 percent of children are poor; many of them are from other countries. The city, notes one left-wing activist, has emerged as “the capital of poverty and the working poor in Germany.”

Now, here, the article articulates well a central tenet of the current crisis and its aftermath:

It is one thing to consider how, in an era dominated by dispersed work, core cities might still attract those elite workers needing direct “face-to-face contact.” It is quite another to develop strategies so that the vast majority will be able to find work doing anything other than servicing the needs of the upper echelons.

In turning away from the fundamental issues of economic growth and upward mobility, these cities are in danger of permanently undermining the very thing that has made great cities so attractive over the centuries. The ultimate worth of urbanity lies in its ability to deliver a better life, not only to the established affluent and the most skilled, but to that broader population who, like others over the millennia, come to a big city to create a better life.

Yup, before janta jump in to pose rejoinders and reminders, India's SDRE cities are in terrible shape and utterly unable to handle the influx of migrants and problems only.

Added later:
More excerpts from the article, worth posting and pondering over:

To a large extent, urban poverty in Berlin and other European megacities is concentrated among Muslim immigrants. Muslims constitute at least 25 percent of the population of Marseilles and Rotterdam, 20 percent of Malmo, 15 percent of Birmingham, and 10 percent or more of London, Paris, and Copenhagen. Over the next few decades, according to a recent Pew Research Center study, Muslims will constitute a majority of the population in several of these European cities.

Jai ho. May you reap what you have sown, oiro hypocritters. DDM will by then be around to report on your mistreatment of stone-pelting and car-burning unemployed 'youth' in your principal cities only. Jaiki karni, waisi bharni.

enqyoob · Post by **enqyoob** » 05 Sep 2010 19:07

Oh, Thank A****! May your goats be well-behaved, Hari, and thx for the explanation of deflation, Nandakumar. Now I can ZZZZZZ a LOT better.

So deflation seems to be bad mostly if you were rich enough / comfy enough to borrow big in good times, and were driving a leased Beamer or an Acura MDX bought on home equity loan that gets recalled because the lender doesn't believe the equity on ur condo in Miami is worth $250K any more. Not a problem for moi, by the grace of ATM and the natural poverty and miserliness of the Mullah classes.

And Hari, thx especially. That Chicken Little article came from the MOTLEY FOOL newsletter, BTW, which I have learned to generally disregard as hyped-up hype.

Now comes one from the other extreme: No copyright issue, this is from unsolicited email, but anyway, from "Investment U"

Jeremy Siegel: Treasury Bonds Today Are a Sucker Bet
by Alexander Green, Chief Investment Strategist
Monday, August 30, 2010: Issue #1334

The investment advisory industry is full of gurus – and various charlatans – claiming that they made incredible stock market calls.

But Wharton Professor Dr. Jeremy Siegel made perhaps the greatest call of all time at the right moment and for the right reasons. Those who listened to him saved themselves many thousands of dollars – and untold agony.

Now Dr. Siegel is making another bold prediction. You can only ignore it at your peril. Here’s why…

Siegel Shocks the Market

On March 13, 2000, The Wall Street Journal ran an op-ed piece from Dr. Siegel entitled “Big-Cap Stocks Are a Sucker Bet.” The column shocked the investment community.

Here was the man, author of the investment classic Stocks for the Long Run and who provided the intellectual underpinnings of the greatest bull market in history, claiming that the greatest stock market darlings weren’t just overvalued. They were a “sucker bet.”

Siegel focused on the 33 largest firms based on market capitalization – those with values greater than $85 billion. Of these, 18 were technology stocks. He noted that their market-weighted P/E equaled 126. What’s more, he pointed out that half of the large-cap technology stocks had P/Es over 100. For these stocks, the market-weighted P/E was 208.

These prices were totally unjustifiable. There was no way that these companies could grow fast enough to support such insane valuations.{Boo! N^3 Investment Advice Newsletter (N3-INANE) also warned on Pee-Aref that Yahoo! shares were only worth $2, not $496, way back in 2000, but failed to act on own advice. It did go down near $2. }

Are You Heeding Siegel’s Current Warning?

That month, the Nasdaq – home to these tech giants – hit its all-time high of 5,132. From there, it imploded. Many of the stocks he singled out in the column – like Yahoo! (Nasdaq: YHOO) and JDS Uniphase (Nasdaq: JDSU) – plunged over 99%.

Even today – more than 10 years later – the Nasdaq is 60% below its high.

It’s great when a knowledgeable analyst like this rings a clear warning bell at the top. So understand that he’s doing it again today.

Earlier this month, he wrote another Wall Street Journal op-ed piece. This one is called “The Great American Bond Bubble.”

Siegel says: “What is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic.”

As a result, they’re plowing money into Treasuries and Treasury mutual funds.

This will almost certainly end badly.

Unless we have a full-blown deflationary depression, these bonds are a horrible bet, offering minuscule yields and huge downside risk. Many investors don’t realize how badly they can get clobbered in super-safe Treasuries when the bond market turns down. (And those holding leveraged bond funds could see 40% or more of their principal vanish in a matter of months.)

As Siegel concludes: “Those who are now crowding into bonds and bond funds are courting disaster… The possibility of substantial capital losses looms large.”

What does Siegel propose that income investors hold instead?

Don’t Be a Sucker: Invest in This Asset Class Instead

Large-cap dividend stocks.

He points out that the 10 largest dividend payers in the United States are:

AT&T (NYSE: T)

Exxon Mobil (NYSE: XOM)

Chevron (NYSE: CVX)

Procter & Gamble (NYSE: PG)

Johnson & Johnson (NYSE: JNJ)

Verizon (NYSE: VZ)

Phillip Morris (NYSE: PM)

Pfizer (NYSE: PFE)

General Electric (NYSE: GE)

Merck (NYSE: MRK)

And together…

* They sport an average dividend yield of 4%, substantially more than what 10-year Treasuries are paying.
* Their average P/E ratio is 11.7 versus 13 for the S&P 500.
* Aside from the mountain of cash they’re sitting on, their prospective earnings will cover their dividends by more than 2 to 1.

Despite fears of another stock market dip, income investors are wise to switch from Treasuries to high-dividend stocks. It might not feel like the right thing to do, but neither did buying stocks at the market low 17 months ago.

In short, I couldn’t agree with Dr. Siegel more. Treasury bonds today are a sucker bet.

Good investing,

Alexander Green
Related Investment U Articles:

* Long-Term Treasury Bonds: Consider Yourself Warned…
* Jeremy Siegel: S&P’s Earnings Wrong
* Bond Market’s Glimpse Into 2009

This all sounds fine and dandy, but then, why are Equity-Income Mutual Funds (see Fidelity or T.Rowe Price) so beaten-down for the past 2 years even when there has been a decent recovery? Also, International and Blue-Chip Value Funds? In this respect, my prediction model has not been successful - or am I just being too impatient?

Sanjay M · Post by **Sanjay M** » 05 Sep 2010 19:48

Listen to Robert Reich's propaganda:

http://www.nytimes.com/2010/09/03/opinion/03reich.html

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

Heh, so now those who don't spend more are "robbing" everyone else.

enqyoob · Post by **enqyoob** » 05 Sep 2010 20:14

Actually, Reich's article says a lot more than that selective quote, and is based on a fairly long-term perspective. His point is that income disparity has become aggravated past the tipping point where the majority of the people cannot buy the stuff that their labor generates. His proposed solutions are all taxes, however, and will not get through the next election, however sensible they may be.

What I don't agree with, is the notion that tweaking the tax code can provide viable solutions.

IMO, American wealth over the past 2 centuries came from (a) ripping out the natural resources of the North American continent and showing others how to rip out natural resources elsewhere, and (b) somehow channeling the wealth from this into generating new wealth through mechanized agriculture, mechanized industry for transportation, mass production, construction, and a fabulous education/R&D system to fuel innovation. These are what made the average worker so productive compared to others across the world, that the per-worker wealth generation rose to unprecedented levels.

Now, the natural resources have not been exhausted, but they alone cannot sustain individual income. The Services Industry which operated on trickle-down e-Khanomics has been shown to be unsustainable, because a lot of that can be outsourced at much lower cost. Mass manufacturing does not pay because the mechanisation has been exported to places where the workers get paid a lot less.

So there has to be a return to the best features - the investment in innovation, not just in derivative financials, or new over-priced drugs, but into the unsolved Big Problems, like space solar power, conversion to a hydrogen e-Khanomy, re-doing the infrastructure to be energy-efficient and modern, etc. These would be real advances with real wealth generation, and fix real problems.

What Reich says, is alarmingly true about India today - I walk around Dera Enqyoob in Mallostan, and look at the procession of cars, all younger than 5 years old, most less than 2 years old, all muddling along at 5 mph, with well-fed, expensively-clothed Malloos inside with $350 cellphones or $600 Blackberries stuck between their ears, and remember that there is little heavy industry, or light industry, or IT industry, or resource-mining, in the whole of Malloostan. The State Product is still comprised of coconuts, rubber, fish and Expatriates - and the main source of local wealth are real estate speculation and retailing of luxury goods - both aimed at the $$ brought in by the expats. The IT InfoPark generated $600 million in exports last year, which sounds big, but is not nearly enough to explain any of this wealth. How is this economic model going to survive in the long term?

ShivaS · Post by **ShivaS** » 05 Sep 2010 20:56

There are three things that inhibit the rich.

1) Insuffcient returns on their investment (growth)

2) Tax implications on incomes and return on investments (like capital gains etc)

3) How much can one consume beyond a point {except our Kalmadis, YSR sons and goons, Stalin captalists, lallus fodder }

Earlier the rich used to finance brick and mortar ventures to make money grow, now since brick and mortar has all gone to PRC and consumption is still in US, for a while the US corporations fooled US public saying that 1.5 Billion middle class is going to buy American products, alas the Chinese commies are not dumb like USSR commies, they plagerized everything and not a cent of profit has come to US companies in PRC, meanwhile Middle class wages and consumption have gone south and have become muddle class....

***
The economic model will survive because the mallus who you saw have fathers who are rich but frugal and toiling away in gulfistan under a whip so that sons of the day soil can enjoy.

India is currently running on mercantilism which excessively depends and is strongly coupled to Western countries... only when local consumption driven by local earnings ie through employment not speculation and looting govt land at 10Rs per acre and then selling 180 sq yards at 50 Lakhs...
Generally Robert Richie columns used to resonate with me feelings but now I dont have that much access to NPR...

Labor seceratary is usually right.

Sanjay M · Post by **Sanjay M** » 05 Sep 2010 21:16

Enqyoob - it wasn't that long ago that most Chinese could not afford to buy most of the products they make. So how did they acquire the ability to? By exporting to the outside world. India is now doing that. Reich seems to be deliberately ignoring the idea of America exporting to others to raise purchasing power at home. He seems to be deliberately portraying the economy as a zero-sum game, which fits conveniently with his party's socialist agenda.

svinayak · Post by **svinayak** » 05 Sep 2010 22:58

5 Doomsday Scenarios for the U.S. Economy
by Derek Thompson, Daniel Indiviglio
Saturday, September 4, 2010
http://finance.yahoo.com/family-home/ar ... us-economy

It's been a brutal summer for the economy. The housing sector, like a balloon batted in the air one last time by the government credit, resumed its inevitable fall. Economic growth slowed to a lead-footed 1.6 percent, and job growth is even more anemic. Meanwhile, consumers are cranky, the trade gap is gaping.

Most signs point to a slow and steady recovery, but what if the pessimists are right, again? What if the United States isn't in the slow-lane to recovery, but rather on the precipice of another decline -- a double dip?

To see where this re-recession might begin, my colleague Dan Indiviglio and I imagined five financial earthquakes, each with a single epicenter: housing, consumers, toxic assets, Europe, and the debt. The following five scenarios are listed in order of likelihood.

1. Housing's Mini-Bubble Pops

Perhaps nothing poses as a big of a concern to the U.S. economy as its housing market. It's unclear how the government's efforts to stabilize the market through a buyer credit, ultra-low mortgage rates, and mortgage modification programs will pan out. Did it just create another mini-bubble that's beginning to pop now that the support has been withdrawn?

Here's the scenario. Weak home sales and continuing foreclosures result in climbing real estate inventory. This has two effects. First, it makes new homes even less attractive which further reduces construction jobs. Second, it puts downward pressure on home prices, which makes it harder for struggling homeowners to sell their home to avoid foreclosure and also keeps strategic default rates high, exacerbating the problem. Lower home values encourage Americans to save more and spend less, since their wealth is effectively reduced. The Dow drops and credit markets tighten even further, suffocating private investment just as homeowners bunker down and slash spending. Growth turns negative.

2. You Break the Economy

You, the American consumer, are reloading savings after a debt-fueled decade. But as any general will tell you, when an entire squad reloads at once, it leaves everybody vulnerable. It's the same with the economy.

Here's the scenario. Consumer sentiment continues to fall slowly, and spending turns negative again. Small businesses hold off to replenish their inventories or add new workers. Wages and hours freeze, and unemployment takes a leap toward 10 percent in October. Congress is paralyzed, because it's only weeks away from the mid-terms. The stock market sees business revenue trending flat, joblessness rising and Congress doing nothing, and it sparks a 300-point sell-off. Americans frightful for their savings cut back spending even more the next month, and overall growth turns negative.

3. Toxic Assets Return

If you closely followed the bank bailout, then you know it wasn't originally billed as simply throwing money at the banks. Instead, the Treasury intended to purchase the toxic assets from banks, which were the source of investors' uncertainty concerning bank stability. But the Treasury couldn't figure out a way to do this quickly enough to make it effective. As a result, the banks were largely stuck with these bad assets. We just don't know how bad, yet.

Here's the scenario. The residential real estate market's problems continue. Even once foreclosures begin to decline, we see waves of defaults, as modification program participants re-default at rates of 30% to 50%. Commercial mortgage-backed securities continue to deteriorate, as some businesses struggle with weak consumer demand. Home and commercial real estate values keep declining, and so do the value of the assets that back them. Banks with exposure to these toxic securities see another round of losses, and investors question their stability. The market plummets, credit freezes, and growth turns negative.

4. Europe Falls Apart

Europe seems to have avoided an all-out collapse of confidence in its ability to pay back its debt. But things can change, and fast fast. Indeed, the Greek debt crisis went from ignorable wire stories to front page news in a matter of days.

Here's the scenario. Slow growth in weak Eurozone states like Greece, Spain, and Italy turns negative and spooks investors, who demand higher returns on government debt. Europe's bond rates spike. Countries announce further austerity -- tax increases and spending cuts -- which strangles our biggest export market. The EU central bank responds by announcing a plan to write down troubled debt, which dings some Americans banks.

In a flight to quality debt, the dollar appreciates. This hurts our exports even more. As the trade deficit gapes open and manufacturing's good run dead ends, the stock market plummets, taking household wealth down with it. Families looking to restore balance sheets cut back on spending, and the American producer loses the American consumer and the European buyer. Growth turns negative.

5. Debt Finally Catches Up to Us

Interest rates on U.S. debt are low today for one big reason. Investors trust the United States, at least more than they trust other countries. If the people giving us money suddenly have as little faith in America as Americans, that could change, and quickly.

Here's the scenario. The IMF recently said the United States has a 25 percent chance of seeing dramatically higher interest rates in the near future. But the bond market can strike without warning, as it did in Europe earlier this year. If uncertainty with our political process gets reflected in our interest rate, we'll have a harder time affording debt, 55% of which has to be rolled over in the next three years. Pension and mutual funds with government debt would be written down, causing Americans to save even more of their paychecks. We'd be left with two bad choices: tax cuts to juice consumption or tax hikes to please our lenders. But at that point, it would be too late to avoid a double dip.

svinayak · Post by **svinayak** » 06 Sep 2010 02:21

5 Reasons Why the Economy Will Be Alright, Eventually
SEP 2 2010, 4:33 PM ET |
http://www.theatlantic.com/business/arc ... ally/62457

Here are five ways we could enter a recession, again. And here, via Neil Irwin, are five reasons why that will never, ever happen, knock on wood.

1. Savings. We're reloading our wallets now, as we should. In the short term, that's bad for a consumer-fueled recovery. In the long run, it's good for a healthy and sustainable consumer-fueled recovery.

2. Credit. Banks are easing their lending standards, which presages a recovery for businesses, large and small.

3. Manufacturing. A steadily growing industrial sector is getting some help from healthy global demand. Also, Americans have to start buying more cars eventually. Right?

4. Housing. "With housing starts at such a low level, there's just not much more room for it to hurt growth," Irwin argues. And if you look at a map and put one hand over Florida and another over California, Arizona and Nevada, you're looking at a country that isn't terribly underwater.

5. Trade. Had there been no trade deficit last quarter, GDP growth would have come in at a healthy 5 percent annual rate, Irwin points out. Most analysts expect it to improve next quarter, along with GDP.

vina · Post by **vina** » 06 Sep 2010 04:28

The State Product is still comprised of coconuts, rubber, fish and Expatriates - and the main source of local wealth are real estate speculation and retailing of luxury goods - both aimed at the $$ brought in by the expats. The IT InfoPark generated $600 million in exports last year, which sounds big, but is not nearly enough to explain any of this wealth. How is this economic model going to survive in the long term

The key to Malloostan has always been the mobility of it's population and the resulting "money order economy". That is the way it has been for the past 100 years upwards and that is the way it will continue to be so. No secret there. Behind all Malloostan's glittering social indices as boosted by Amartya Sen lies this simple fact. The social indices are not supported by a local economic base, but rathar Bumbai or Mudras or other parts of India before independence and "Gelf" from the 60s/70s

Dileep · Post by **Dileep** » 06 Sep 2010 06:53

Like my semi literate mom used to ask, "is it written somewhere" (എവിടെയെങ്കിലും എഴുതി വെച്ചിട്ടുണ്ടോ?) that wealth creation must be done within certain geographical boundaries? What is wrong with the so called 'money order economy'?, other than the question 'what happens when gelf fires all the mallus?'

For a moment let us assume that big conglomerates like Flakiance, BaBa, Libra etc are running hundreds of mega factories in Dera Parasurama, and every Menon, Ramachandran and Muhammadali are working there, getting good salaries, and their kids are driving around in Swifts and Palios, crowding the roads of Dera Mahabali.

How THAT is different from today, except we don't have all those pollution?

enqyoob · Post by **enqyoob** » 06 Sep 2010 06:58

That is the way it has been for the past 100 years upwards and that is the way it will continue to be so.

I wonder. Expatriates expatriated because opportunity was nearly non-existent in the matrubhoomi, either due to social barriers or plain economic stagnation, or they didn't want to be fighting all the other lobsters in the barrel. If the cost and standard of living in the desh become so high, I wonder how the expatriate boom will continue. Already it's getting pretty hard to justify going to AmirKhana or Bilayat for instance, where one has to pay taxes etc. unlike Gelf. Besides, rural schools have been closing for lack of brats in Malloostan for a couple of decades now.

Dileep · Post by **Dileep** » 06 Sep 2010 07:15

enqyoob wrote: I wonder. Expatriates expatriated because opportunity was nearly non-existent in the matrubhoomi, either due to social barriers or plain economic stagnation, or they didn't want to be fighting all the other lobsters in the barrel. If the cost and standard of living in the desh become so high, I wonder how the expatriate boom will continue. Already it's getting pretty hard to justify going to AmirKhana or Bilayat for instance, where one has to pay taxes etc. unlike Gelf. Besides, rural schools have been closing for lack of brats in Malloostan for a couple of decades now.

There is no strict need that the expat boom should continue. The only need is for some way to generate money. If the boyz here find it easier to row out in a rubber boat and rob ships, they would just do that. Going to Gelf used to be THE option for some time. Joining Infy/TCS, or starting tourism business is some today. Maybe doing jeehard also.

And about the first point. I believe we mallus are a crazy mix of utter lazy folk, to TFTA industrious risk takers. When the lazy folk are in majority and in power, the industrious have no way other than to go out.

Neshant · Post by **Neshant** » 06 Sep 2010 07:27

Sanjay M wrote:it wasn't that long ago that most Chinese could not afford to buy most of the products they make. So how did they acquire the ability to? By exporting to the outside world.

China is fortunate in that it is geographically close to Japan, South Korea, Hong Kong, Taiwan and South East Asia. All countries with surplus capital and easy access to western technology which then gets funneled in via the backdoor to China. Eventually Taiwan`s semiconductor industry - itself taken from the US - will migrate to China along with South Korean auto and aerospace manufacturing. Plus China is close to a natural resource base in Siberia.

India by comparison has a pretty sh&tty neighbourhood full of basket cases & terrorist nations. Not a single one of India's neighbours is not in turmoil or creating turmoil. Geographically speaking, one has to go as far afield as UAE or Singapore before you see an economy which isn't a basket case and which has surplus capital which can complement India's economy.

Its a bad neighbourhood.

Bade · Post by **Bade** » 06 Sep 2010 07:34

It is a mistake to assume the gelf 3rd generation is same as gelf 2nd, who indulged in the vices back home while the 1st generation toiled hard abroad. I see a different trend nowadays, more so in the last decade. The boys are now into professional education and are back in the gelf doing jobs better than what the parents did. So the expat gelf population at least in Kerala is doing well by all means. Yes, the gelf boom can disappear, but so can the IT boom turning bust make Blr over built and over-priced.

Sanjay M · Post by **Sanjay M** » 06 Sep 2010 09:29

Should the US Housing Market Be Allowed to Crash?

g.sarkar · Post by **g.sarkar** » 06 Sep 2010 09:45

enqyoob wrote: IMO, American wealth over the past 2 centuries came from (a) ripping out the natural resources of the North American continent and showing others how to rip out natural resources elsewhere, and (b) somehow channeling the wealth from this into generating new wealth through mechanized agriculture, mechanized industry for transportation, mass production, construction, and a fabulous education/R&D system to fuel innovation.

Sirji Enqyoobji,
Namaskaram. While US America has a great deal of natural resources, but its wealth (and power) did not come due to a and b as you point out. I can not agree, so solly. The causes are deeper and we really need to look at this with a very clear mind. Please peruse the book India Today by Rajani Palme Dutt. He was a comrade, so do not accept his theories without proper analysis, but accept the figures he gives. You will see how India was systematically looted by the British. Laws and taxation were placed, that caused money to flow out for generations, and this was the same for other colonies in Africa, Australia and Ireland. China was also exploited. The surplus wealth was invested in the US. The US in the 18th and 19th century was a backward and isolated country, and needed a huge amount of capital to bring it out of its backwardness. This is the part that no one talks about. Remember, the ruling class of both the US and England were (and are) the same. There was a tradition of the poor British noble class to marry rich Americans. (And the poor British migrated out to the States for work). They have the same background, same religion, and the same language. Even the India hater Churchill belonged to this group. Then came the two events that favoured the US immensely. The First and the Second World Wars, where Europe was destroyed and the USA made money from it. And the US has ever been able to attract the best talents, from first the ravaged European nations, then the whole world. This put the US on top emerging from its isolationist past. But if you look, there is nothing that the US did that you can say they deserve to be on top. It is a mere accident of history, that both World Wars caused a huge loss of manpower by the Europeans, that eclipsed these peoples. Americans did not have the talent that the Europeans had, nor the rigorous education. Look at the number of German scientists that won the Nobel Prize during this period. Look at the foreign scientists in the Manhattan Project. Even today, the cutting edge research done in the US has numerous foreign born scientists. You will rarely see this in Europe. The world views of the British Imperialists seem to be well thought out even by today's measure, with hind sight against that of the US that seem to be naive and immature. So, they have always had to import talents to stay at the top.
Regards,
Gautam

Hari Seldon · Post by **Hari Seldon** » 06 Sep 2010 10:00

Sanjay M wrote:Should the US Housing Market Be Allowed to Crash?

Yes and No.

Sanjay M · Post by **Sanjay M** » 06 Sep 2010 11:07

^^^ Care to clarify?

kmkraoind · Post by **kmkraoind** » 06 Sep 2010 12:24

Hari Seldon wrote:
Sanjay M wrote:Should the US Housing Market Be Allowed to Crash?
Yes and No.

Slightly OT, Hari Seldon garu, congratulations on joining Oldies club. You are one of posters that drags me to BRF to gain valuable knowledge. Hope one day your Oldie tag is replaced by Forum Administrator.

Neshant · Post by **Neshant** » 06 Sep 2010 13:24

Gold plated public sector pensions and unions are a huge drain on the private sector taxpayer all throughout north america. Its a ripoff of epic proportions getting the private sector worker to fund a very lavish public sector salary & retirement package.

The best thing that could happen is for all states to declare bankruptcy and turn these overly generous taxpayer backstopped & guaranteed pension handouts into 401K type non-defined plans. The alternative outcome is the impovrishment of the private sector worker and a huge disparity in living standards between private vs public sector workers.

Time for public sector to get real
Every year, tens of billions of taxpayer dollars fund public-sector pensions

Read more: http://opinion.financialpost.com/2010/0 ... z0yjetw9B7
http://opinion.financialpost.com/2010/0 ... -get-real/

Neshant · Post by **Neshant** » 06 Sep 2010 13:34

Attention all suckers, bailout hounds need your money.

Keep working hard to fund some govt employee's retirement. Does not matter if you have no pension in the private sector, they need your paycheck.

------------------
Pensions apartheid: public comfort and private poverty

Unfunded public sector pensions are a Ponzi scheme or fraud on future taxpayers, yet another think tank has decided, but the outlook for older savers outside these final salary plans is deteriorating here and now. Rising numbers are banking on their homes to fund retirement...

The Public Sector Pensions Commission reckons twice as much would have to be paid into the average civil servant’s pension to fund benefits promised to them.

Public sector pensioners can only hope that our children will be happy to pay higher taxes to fund their parents’ retirement.

http://blogs.telegraph.co.uk/finance/ia ... e-poverty/

ShivaS · Post by **ShivaS** » 06 Sep 2010 14:01

It is already suffered mini crash, and eroding the equity built into by prinicipal, thats erosion of wealth. That in itself will drag people into poverty at retirement who will come into employment seekng population. In adition such a crash (further) will stop any budding construction activity.

The only way out is if PRC folks and Indians are allowed to buy with their disposable incomes. Its cheaper to buy in Ohio than in Hyderabad.

Christopher Sidor · Post by **Christopher Sidor** » 06 Sep 2010 14:49

Neshant wrote:Gold plated public sector pensions and unions are a huge drain on the private sector taxpayer all throughout north america. Its a ripoff of epic proportions getting the private sector worker to fund a very lavish public sector salary & retirement package.

The best thing that could happen is for all states to declare bankruptcy and turn these overly generous taxpayer backstopped & guaranteed pension handouts into 401K type non-defined plans. The alternative outcome is the impovrishment of the private sector worker and a huge disparity in living standards between private vs public sector workers.

Time for public sector to get real
Every year, tens of billions of taxpayer dollars fund public-sector pensions

Read more: http://opinion.financialpost.com/2010/0 ... z0yjetw9B7
http://opinion.financialpost.com/2010/0 ... -get-real/

These Gold-plated pensions, like the American Social Security, are there for a very good reason. They help the wage-earners and salaried to concentrate on consumption, without worrying about old-age support. Without these pensions and the medical/health support that the americans/canadians/europeans/australians/etc are entitled to, the wage-earners would not consume so much. In fact, in their absence, quite a significant amount of their wages and salaries would go into savings. This would be a disaster, as the american/canadian/european/australian/etc economies are consumer led. Not manufacturing oriented.
Also if the above mentioned "consumers" stop buying goods, India and other developing countries will be impacted in a very very negative way.

It is true that these pensions and health care benefits are a drain on the budgets of their respective countries but this has more to do with the structure of these schemes rather than the spirit of these schemes. These schemes are dependent on one generation paying for its preceding one. With falling birth rates and other factors they are no longer sustainable. But this does not mean that these schemes are bad. In fact they are pretty good provided they are organized in a sustainable manner.

As far as Social Security is concerned, its roots like in the great depression that america went through. That is a story for another post. Also, I have used the term Europeans and European in a generic sense. There are wide variation within Europe itself as far as pension and health care benefits go.

Hari Seldon · Post by **Hari Seldon** » 06 Sep 2010 16:46

kmkraoind wrote:Slightly OT, Hari Seldon garu, congratulations on joining Oldies club. You are one of posters that drags me to BRF to gain valuable knowledge. Hope one day your Oldie tag is replaced by Forum Administrator.

Thx for the kind words kmk. Didn't notice the oldie thing till you pointed out. Yay!
And no, being admin is not fun. Loads of responsibility and obligation only.

Hari Seldon · Post by **Hari Seldon** » 06 Sep 2010 18:49

OK, none of this is new. But this bears repeating. And HAMMERING. This lesson, if forgotten again, will again take a huge toll on living, breathing people - esp on those who have little or no voice at present - children, the elderly, the medically ill, the debt ridden.

Top 1 Percent of Americans Reaped Two-Thirds of Income Gains in Last Economic Expansion. Income Concentration in 2007 Was at Highest Level Since 1928, New Analysis Shows

Disparity outside bounds of reasonableness is the root cause of systemic misery leading to breakdown. Or so is the lesson emerging, something tells me. The median income graph is the single most important one, IMO. It should NEVER be too divorced from the GDP graph, else regulatory capture, state capture and freedom capture are round the corner, be sure.

Two-thirds of the nation's total income gains from 2002 to 2007 flowed to the top 1 percent of U.S. households, and that top 1 percent held a larger share of income in 2007 than at any time since 1928, according to an analysis of newly released IRS data by economists Thomas Piketty and Emmanuel Saez.[1]

During those years, the Piketty-Saez data also show, the inflation-adjusted income of the top 1 percent of households grew more than ten times faster than the income of the bottom 90 percent of households.

The last economic expansion began in November 2001 and ended in December 2007, according to the National Bureau of Economic Research, which means the Piketty-Saez data essentially cover that expansion. The last time such a large share of the income gain during an expansion went to the top 1 percent of households -- and such a small share went to the bottom 90 percent of households -- was in the 1920s (see Figure 1). [2]

I know, all these 1928 comparisons may well be overblown. Or maybe not, who knows?

link to the PDF report

Read it all. Only.

enqyoob · Post by **enqyoob** » 06 Sep 2010 20:11

Namaskaram. While US America has a great deal of natural resources, but its wealth (and power) did not come due to a and b as you point out. I can not agree, so solly. The causes are deeper and we really need to look at this with a very clear mind. Please peruse the book India Today by Rajani Palme Dutt. He was a comrade, so do not accept his theories without proper analysis, but accept the figures he gives. You will see how India was systematically looted by the British. Laws and taxation were placed, that caused money to flow out for generations, and this was the same for other colonies in Africa, Australia and Ireland. China was also exploited. The surplus wealth was invested in the US. The US in the 18th and 19th century was a backward and isolated country, and needed a huge amount of capital to bring it out of its backwardness. This is the part that no one talks about. Remember, the ruling class of both the US and England were (and are) the same. There was a tradition of the poor British noble class to marry rich Americans. (And the poor British migrated out to the States for work). They have the same background, same religion, and the same language. Even the India hater Churchill belonged to this group. Then came the two events that favoured the US immensely. The First and the Second World Wars, where Europe was destroyed and the USA made money from it. And the US has ever been able to attract the best talents, from first the ravaged European nations, then the whole world. This put the US on top emerging from its isolationist past. But if you look, there is nothing that the US did that you can say they deserve to be on top. It is a mere accident of history, that both World Wars caused a huge loss of manpower by the Europeans, that eclipsed these peoples. Americans did not have the talent that the Europeans had, nor the rigorous education. Look at the number of German scientists that won the Nobel Prize during this period. Look at the foreign scientists in the Manhattan Project. Even today, the cutting edge research done in the US has numerous foreign born scientists. You will rarely see this in Europe. The world views of the British Imperialists seem to be well thought out even by today's measure, with hind sight against that of the US that seem to be naive and immature. So, they have always had to import talents to stay at the top.
Regards,
Gautam

Ah! thank you for that brilliant treatise and the education imparted, gautamji. But I note that you post from Stockton, California, US of A. So I am glad that the US has indeed FINALLY imported some real talent, and so there is hope for US idiots who have so far survived on sheer undeserved luck for the past century or more, as the leading nation in a world of brilliant (but mutually thieving and murderous, what can they do???) Oiropeans and highly Deserving (but mutually thieving and murdering, what can we do??) Asians and even more victimized (but mutually thieving and murdering, poor things!!) Africans and criminal Australians.

LUCK has saved US again, with your kind presence in Stockton, CA. Alla* B Praised!!