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US Economy Facing A Depression?
I am worried about our economy. I doubt anyone here thinks it’s “just fine”. I am wondering how many realize how closely our current economy resembles what was happening just before the stock market crash that heralded the Great Depression.
The US$ has been steadily declining on the world market (50% over the last seven years), international trade declining, debt increasing, and the biggy, serious uneven distribution of wealth. In the last eight years the top 1% has gained hundreds of billions while the average American family is effectively loosing 5% to 9% annually with inflation and low increase of wages (cost of living raises aren’t covering the cost of living).
Bush’s tax cuts have helped this along theorizing the trickle down of wealth as the rich spend their extra funds will stimulate the economy. Sounds good, even worked a little bit at first… but it seems even the ultra rich can run out of things to buy so now it’s just accumulating. We lower classes, of course, are spending less because we have less to spend. With the energy crisis ($100+ oil) our effective income has dropped dramatically again as prices on everything increases.
McCain’s answer, I mean after he was told there’s a problem so many times he finally had to admit there’s a problem… more of the same. Bush tax cuts x2.
If you do the same thing you will get the same results… another reason I’m supporting Obama. I don't know if he can pull us out of this but I know he will try.
My view is that no matter who gets elected, we're facing a worsening recession. If McCain gets elected, we have a good possibility of depression.
There are things playing our right now in our economy that neither candidate's policies can stop, but, they can certainly make them worse. The psychology of fear that the republicans have ruled by and will continue to rule by under McCain is one of my major concerns. I honestly am flabbergasted that none of the people who tout themselves as knowledgeable about economics among the rank and file, is sounding the alarms in the party that the fear campaign since 9/11 has crippled the economy. Yet, they say things like "this is a mental recession", but they haven't figured out that the fear mongering after 9/11 has left a huge mark on the nations/markets psychology. I just don't get how they don't see it. It's so fricking obvious.
Curious Benjamin on how you think this can be addressed. I completely agree the market is jittery right now. Any change in oil price and the market responds wildly up or down. The article in Bloomberg yesterday about a financial tsunami sent the markets into a tail spin. Good thing the news about the GSEs came after market close. The market is definitely not about fundamentals right now as many companies are being hit.
This also begs the question of how raising taxes on businesses will help the economy at this day and time? We all know that the 'cost' of these are passed through to the consumer and even the employee.
"The market is definitely not about fundamentals right now as many companies are being hit."
What you're seeing, in my opinion, is undealt with national post traumatic stress being played out. The stresses being 9/11 and the militant fear that has gripped the nation and been the SOP for the last 8 years, as well as the housing collapse and the unwinding of the credit markets in general.
This is what you get when you build your economy on credit and fear for 8 years.
"This also begs the question of how raising taxes on businesses will help the economy at this day and time?"
I've answered this very question in another thread in which you were involved, but I'll put the answer here. The markets are looking for reassurances from the US government that our economy is going to be built on the prosperity of today, that the credit cards are going to be cut back on if not put away entirely. Does more tax cuts signal that? No it does not. more tax cuts signal more of the same policy that the market has completely lost faith in.
And let's all remember, as I'm sure you always do, that there is far more than tax policies at play in this election, AND, that markets are driven by far more than tax policy, AND, that leadership is about far more than tax policy.
They say it's a recession when your neighbor loses his job and it's a depression when you lose yours.
I feel depressed.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
Assuming you don't count China as being part of the industrialized world.
I didn't point to china as someone we should emulate, only that they are the world's second largest economy and that economy is driven by industrialization, not communism, and thus, they are truly an industrialized nation.
Maybe what you meant to say was out of the "westernized" nations.
Benjamin
I agree with you, I see no way out of this recession, there are no magic answers and Obama has no magic hat. I also agree with you that McCain increases to probability of a depression dramatically.
I believe the psychology of fear is targeted to keep us, the population blind. As long as we’re looking under the bed for terrorists we aren’t watching them. I was really hoping McCain wouldn’t play the 9/11 card, I used to like him. Ok, he was never my favorite but he did seem to have some ethics, honesty. Except for the abortion issue his views were close to the center, at least not extreme. And he seemed honest. This… another example of more of the same.
I realized last night watching him… he had a lot of trouble in Annapolis because he couldn’t march to their drum… what a cadet he would make now… right in lock step.
Hey- I just had a thought… maybe the psychology of fear and the poor economy is all part of the plan. To “encourage” more young people to join the military so they don’t have to instigate the draft. Sorta like McCain voted against the GI bill recently stating it took away incentive for solders to reenlist. Before anyone flames me I am a veteran with a family history of military service. My oldest son is currently in Afghanistan and two nephews in Iraq. I make stupid jokes to cope. BTW all three “boys” joined before GW was elected. My son had just done a double reenlistment just two months before the election. His obligation will be filled in four more years.
seebeeWWII
Two houses have been foreclosed on just on my street here. Neither were sub prime loans, one was due to loss of his job, the other is an elderly lady who couldn’t afford to pay her utilities, but food and necessities, pay property taxes (which increased by 40% here to make up for federal grant cutbacks for the school system) and make her house payment. It’s very sad. I just hope we don’t wind up with the same problem. Even though we bout this house before the housing market took off with all the empty properties locally we would have to sell very short.
Me
The economy may have grown 3% but inflation grew to 9.5% and unemployment is now at a 5 year high at 6.1%. Sorta puts a damper on the good news.
I understand why a McCain backer would be fixated on taxes only, given that McCain is a one trick pony when it comes to the economy, and that trick is "cut taxes", which we all know has not worked.
There is far more to Obama's presidency than raising taxes. I'm sorry McCain doesn't have anything more to offer, I truly am, but there is more to being a good leader than having a tax policy. Obama has that more, McCain doesn't.
First of all, most software does not become obsolete just because something new comes out. In fact most upgrade cycles have to actually agressively market and drive demand in order for people to give up otherwise perfectly working software.
e.g. Microsoft Vista
Another point is that healthcare has become a huge part of our economy, and the US spends more per capita, both individually and by government, than does any other industrialize country, and for lower quality health care.
Personally I see an improvement in that area only helping the economy and not harming it. Especially when you look at the costs that businesses bear just to provide their employees with health care coverage -- many small- and medium-sized business are dropping health care coverage for their employees because of how expensive it has become and how its growth has far outstripped inflation.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
Benjamin what effects will raising taxes have? Does that not also affect American psyche? Do you not base your household decisions (saving, investing and financing) on taxes? I am sure you do in your business. Are you incentivized to worker harder so more your earned income is taxed more? Would you be able to invest more of your money into the business increasing pay and jobs?
Taxes affect behavior both negatively and positively. In this current economic climate I fail to see how raising taxes will produce desired affects. Penalizing productivity will not raise additional revenue for the government. I am betting that the purported add'l revenue has been theoretically spent and when it comes in below expectations, well you have another deficit.
In terms of the raising of taxes, and its affect on the American Psyche, Obama only propses a modest tax increase to the wealthiest 4%. Everyone else gets a tax cut that, in the average household, would amount to about a $2700 savings.
The affect on the overal psyche would be negligable at best. With the exception of those of the wealthy who would be upset due the fact that they woud have to decrease there conspicuous consumption (ie. premium vehicles, summer homes, lavish vacations, multiple boats etc.)
Whose spending do you think has carried the economy thus far?
Additionally many small business file personal income taxes and are in this top 4%. How will that affect job creation, income growth, and investing?
BTW you only reference income taxes. What about capital gains and dividends?
I'd be happy to answer things if you could explain how the tax rate has anything to do with the current economic problems.
Not sure where you are going with the question? The current monetary policy IMO is the underlying reason for the majority of economic issues couple with bursts in the RE bubble.
Raising taxes will only perpetuate these problems b/c of the disincentive to invest additional dollars. Do you think the economy can withstand decreased investment and spending even though it is not these items that put in in this position?
"Not sure where you are going with the question?"
You're focused on taxes with regards to the current state of the economy... I would just like to know what taxes have to do with the current state of the economy.
"Do you think the economy can withstand decreased investment and spending even though it is not these items that put in in this position?"
You say that as if it's a foregone conclusion. Let me ask you something, would it be beneficial to cut the tax rate to nothing? Why or why not?
I don't think I have ever advocated the tax rate to be reduced to nothing so it is silly to ask that. However is there an optimal rate (value vs benefit) of taxes to provide the needed services of gov't - and don't ask me what that is as apparently the gov't can figure that out either.
Also what is the beneift of raising taxes when the IRS can't even collect what is owed? Billions go uncollected each year.
" don't think I have ever advocated the tax rate to be reduced to nothing so it is silly to ask that."
It's not silly to ask that, because it got you to ask this very sensible question:
"However is there an optimal rate (value vs benefit) of taxes to provide the needed services of gov't - and don't ask me what that is as apparently the gov't can figure that out either."
We don't know what the optimal rate is, you're absolutely right and I'm not about to pretend to have that answer. I have to ask you though, how do you know taxes aren't lower than their optimal rate right now?
No, I do not base my household deciscions based on taxes and I honestly don't know anyone who does. A normal person does not look at how much taxes they have to pay and then say "Gee, this is so high, I'm not going to buy anything." What normal people do is look at the bigger picture of how much money the household has to work with after all expenses, including taxes.
Normal people who run households and busineses, understand that you can live off credit forever. They understand that when you continue to increase your costs while cutting your income streams, you are setting yourself up for bigtime problems.
What is your opinion, since you mentioned households, of those who run households who live beyond their means, off of the credit cards? Would you have faith in those households to invest in them or wouldn't you rather, be a bit wary of the consequences they're heading towards?
"Are you incentivized to worker harder so more your earned income is taxed more? Would you be able to invest more of your money into the business increasing pay and jobs?"
I wish Abe were here to see this, because here it is, the freemarket playing out perfectly and predictable "What's in it for me." That is the driving force and this is proof of it. People against taxes and who tout their own patritotism want wars, want huge defense spending budgets, want wars on Americans who use drugs, want criminalization of all kinds of behavior(abortions, flag burning, etc...), subsidies for oil companies, etc. etc. etc. But what they don't want is to be the ones to have to pay for it.
The real question here isn't taxes... The real question is, which policy has a more realistic bigger picture. John McCain claims he's going to keep the failed foreign policy going, keep the strong military, and spend money in ways that his base likes, while cutting taxes. What is that going to do to our nations fundamentals and economy Jill? What is that going to do to faith in our republic's currency?
Of course the free market is what's in it for me. However, it is this and competition that should lead to better products and cheaper prices. It's not a perfect system and fails on occasion but I would rather risk it then to hand over the reigns to the gov't. Think Reagan stated something similar to that the if the best minds were in gov't businesses would have hired them away?
I completely agree about spending money you do not have. I can't live that way or refuse to swap credit for other credit to maintain. There definitely has to be a change. I believe that is based on a reduction of spending - ALL spending. I do not see how Obama's policies will result in that. Reduction of spending and firming up monetary policy to strengthen our currency is what I think needs to happen. While I am no economist I have studied and read a lot about it. I foresee no Democrat being able to do this. When have revenue projections from taxes ever equaled their receipt?
When you have to pay taxes at the end of the year after having them deducted at the highest % possible you tend to think about these things. And no I am in the 25% bracket so I am definitely not one of the 'top' earners. Taxes do affect behavior. They cause the price of an item to increase so you are more likely to not buy it. If you have less money due to taxes, does that not affect what you will spend and how you will spend?
"Think Reagan stated something similar to that the if the best minds were in gov't businesses would have hired them away?"
Unless the best minds were driven by something greater than just a paycheck. Obama could have named his job after graduation with the degree he has. I doubt anyone would dispute the free market value of his education and what type of job he could have commanded. That tells me he's driven by something more than a paycheck. We need leadership that is driven by more than a paycheck. The office of the president is not a business or a free market enterprise, it is the seat of administration of the laws of our great republic and we should put people in that seat who will seek to do administer those laws equally for the good of the people of our great republic.
"I do not see how Obama's policies will result in that."
I do not see how you could see McCain's that way either. He's offered every reason to believe that not only is this going to continue, but it's going to get worse under him.
"Reduction of spending and firming up monetary policy to strengthen our currency is what I think needs to happen."
Psychology drives all markets and marketplaces. You can reduce spending, and firm the monetary policy but if the people are continued down the path of a terrorist-is-going-to-jump-out-at-them-and-blow-them-up around-every-corner thinking, then the broken psychology we've witnessed since 9/11 will continue.
"Taxes do affect behavior. They cause the price of an item to increase so you are more likely to not buy it. If you have less money due to taxes, does that not affect what you will spend and how you will spend?"
Sure they do affect behavior, but not in and of themselves. Obama does not have tax increases in store for the working and middle class and frankly, that is where economic activity needs to be most carefully paid attention to. The rich can be taxed more and they'll still spend money. You're not going to find some guy who pulls down a million bucks a year switching to a whole grain diet and driving a used civic because he has to pay more in taxes.
The other thing, which I respectfully point out that I don't think you are paying enough attention to, is the currency valuation. You say you want strong monetary policy, but what has McCain said or more importantly done, that indicates that's even on his radar? If your currency buys half of what it used to, isn't that going to affect your spending habits? If the average pay drops for the working class, isn't that going to affect spending habits? If layoffs continue as they have, in the wake of historically low tax cuts, isn't that going to affect spending habits? If unemployment continues to shoot up, in the wake of tax cuts, isn't that going to affect spending habits?
High taxes are not the cause of the problems we're facing and therefore, the problems we're facing can not be fixed through cutting taxes.
I will have to address your points later - tailgating to do!
But one last thought:
"Taxes are not the cause of the problems we're facing and therefore, the problems we're facing can not be fixed through adjustments in taxes. "
Isn't that what Obama is predicating his economy policy on? Raising taxes in hopes of raising revenue to pay for his spending? If our economy will not be saved through adjustments then how does that affect his economic policy?
Look forward to your response - also just a thank you for a civil discussion.
oooh! tailgating! my favorite!
what's your team?
I adjusted the statement to more correctly explain the point I was making. But I'll answer this:
"Isn't that what Obama is predicating his economy policy on?"
No. Why do you say it is?
"thank you for a civil discussion."
It's a pleasure, thank you for giving me a chance to redeem myself with you. I appreciate it.
Have fun!
For the record, I don't think that taxes have any influence on my household decisions.
I'm "incentivized" to work harder because I need more money. I invest little enough that taxes make little difference.
Of course, to be fair, I pay very little in income taxes anyway. Payroll taxes, however, take a pretty big chunk out of my pay.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
AGrandmother, I understand very little about economics, but I've read what you speak of and their is a sense in the air that we're on the brink of something catastrophic.
You sound very knowledgable on the subject and you've seen a lot in your lifetime... What do you think can be done, if anything, to pull us out of this downward spiral?
Ellen… I fear we could be. I HOPE I am wrong but I predicted the housing crash 2 years before it happened and the oil crisis about 8 months before it happened. I also warned my brother in law to see his oil stock while he had time 5 days before it happened. He didn’t heed me and lost some money. The problem is my instincts seem to only be honed for disaster.
If it happens it’s going to be very bad. Imagine the great depression x10.
I think, after reading dozens of analysis, that Obama’s tax plan could prevent it. Not the recession, it will take time for that to recover, no instant answers, but it could prevent a depression by breaking the distribution of wealth factor. Obama’s plan is to increase taxes for the top 10%, not the middle class as portrayed by the McCain camp. I don’t think he will actually be able to lower middle class taxes right off but that is his eventual plan. He wants to plug holes in the windfall taxes. Currently the wealthy are actually paying an average of 17% to 20% on useable income because most of it in windfall, not earned. That needs to be corrected. This money will be used to pay off some of our national debt (which is currently somewhere around $10,000,000,000,000.00 and to provide for some of the programs he is proposing like health care. This will help break two of the legs that helped to cause the great depression. The current administration is doing what it should be doing in the stock market already, it is probably the only reason the market hasn’t crashed yet. But alone it is only smoke and mirrors. Between the three I hope it will be diverted.
But McCain’s tax cut plan is almost identical to Bush’s, it will be giving more money to the top 10% (with the largest portion to the top 1%) and big business with the same trickle down theory.Supply side economics do work they did under Reagan but failed to reach the full potential under Bush b/c of the increase in spending. The issue is spending. Tax cuts increase the incentive to work, save, and yes even spend.
What are you talking about wealthy and windfall income and subsequent taxes? Are referring to capital gain? If so that hits more people that just the 'wealthy.' Many seniors and other middle class folks would be affected. Maybe you mean restructuring terms of deferred compensation where many CEO's and other business leaders take a lower yearly salary but receive millions in deferred compensation.
I find it odd that McCain wants to change the GSE's business models b/c of the utter failure to adhere to sound debt ratios. Refusal to deal with this issue by the leading Democrats on the Senate Banking Committee left taxpayers on the hook. Why would Democrats suddenly listen to Obama's call for new regulation when they have ignored the writing on the wall for the past several years?
Exactly! I heard Thom Hartmann arguing with a "Conservative" about this topic and Thom's response was something to the effect of "Supply Side economics only works if you MAKE ANYTHING! And the U.S. doesn't We went from the largest manufacturer and exporter of goods to the largest importer of good."
Exactly. Our society is based on consumption more than on production. The two have to balance out.
In fact, one of the causes of the Great Depression was over-production and under-consumption. Kind of the opposite of what we see today.
It's one of the first lessons you learn in economics: the opportunity cost between producing consumer goods vs. producing capital goods.
BTW, the industry that I worked in for the last eight years produced capital goods, and it was outsourced because most of our customers were located in Asia anyway. What does that tell you about opportunity cost and the tradeoff between consumer and capital goods?
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
Curious to your thoughts on why investment is leaving the US? Cost, taxes, lack of employee base? What incentive is so great that business wants to move part of all of its operations elsewhere?
I think that labor cost is probably the single biggest issue. When you can employe skilled workers for MacDonald's wages. Of course, they get only slightly better than MacDonald's quality too.
More later if you have more comments -- I can't spend too much time this morning catching up.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
This is just the beginning. Hold onto your hats, loved ones, or anything else you can think of because the ride is going to get really bumpy and a lot of Americans are going suffer from what I call the fleecing of America.
I have started to restructure my assets and have started investing in precious metals as a hedge against the worse - hyperinflation and I am socking away as much cash as I can as a hedge against what some experts think will be a bad period of deflation. No one is sure which way it will go but I am not taking any chances. My wife and I are batting down the hatches and praying for a soft landing.
Here is an excellent presentation I found that spells things out clearly in an easy to understand and enjoyable way.
I really hope and pray things do not become as bad as many people think but I am not taking any chances. I ask you all to please take the time to research the following:
Fiat monetary systems
Economic Depression
Economic Recession
Hyperinflation
Deflation
The true CPI and not the one the government massages before reporting
The true Unemployment figure and not the one the government massages before reporting
Consumer Debt
Federal Debt
Federal Deficit
Future liabilities as baby boomers retire
Please take the time to google each of these topics and learn as much as you can. The canary may well be dying in the coalmine and it is not getting the attention it deserves by Washington or the MSM. I am not usually prone to the sky is falling kind of rhetoric but if you read and saw all of the videos, reports, books etc... on where things are today and where they are heading in the next 5-20 years that I have, you would understand my urgent plea.
Many of you already know about this and many are just learning. All I ask is that you take the time to investigate further and draw your own conclusions. I know I have and I am taking what I think are the appropriate actions for the security of my family.Yeah, I don't think we're facing a depression on the scale of the Great Depression, and definitely nowhere near 10x as bad.
We're going through a correction where certain goods and services (housing, oil) have gone through an unprecedented inflationary period which was caused in no small part by constant speculation and the expectation that those items' prices would continue to outstrip their actual value. And then it all fell down.
The Great Depression was marked by a period of deflationary pressures, though, not inflationary.
But every economic downturn has its own unique set of variables and I'm not an economist so I don't know how much more I can comment on it.
I don't think that a "soak the rich" policy will work, but the American citizenry in general and the wealthy in particular need to get used to the fact that we all need to pay our fair share to get along, and that after a certain point politicians just can no longer deliver on constant promises of tax cuts.
Even Barack Obama.
Oh, and "steady as she goes" is still a pretty good policy: one of the reactions the government had in the beginning of the Great Depression was to raise tariffs and taxes which may also have contributed to the worsening situation.
The whole problem with the world is that fools and fanatics are always so certain of themselves, & wiser people so full of doubts.
-- Bertrand Russel
OLD people will prevent a Depression.
Sound nuts?
Not when you think about it. Back in the '30s, there were few elderly people who held much wealth.
In today's economy, older people help stabilize things with their steady incomes --- Social Security, Pensions, IRAs and retirement holdings --- which keeps temporary fluctuations from becoming extreme and tends to level-out periodic recessions.
Of course there are other modern stabilizing factors such as unemployment payments too.
Over 37 million Americans are over 65, just over 12 percent of the population.
Their steady stream of consumer spending--and investment---provides a significant cushion that prevents a depression.
So not to worry Grandma----your generation will keep the U.S. afloat during tough times !!
I did think long and hard about it and I disagree with your assessment and if you would please bear with me a moment I will explain my perspective.
Though what happened in the 1930's is similar to the financial climate we find today, there are differences in the effect the current conditions will have as compared to the great depression era. Please read below some of the information I have gathered from doing my research and some of the conclusions I have drawn. I ask that you bear with me because this is a little long winded and I hope you do not find yourself nodding off while reading it.
I ask anyone to respond with your perspective in all this. Any information and insight is appreciated because I truly believe we are at a critical time in America's history that will test all of us in the days and years to come.
The reason that in the "30's few elderly people held much wealth" was because in the 1920's the largest share of wealth in American history was held by the fewest people and was a strong contributing factor in the stock market crash of 1929 and the beginning of the great depression. The same great depression that was an underlying cause of WWII but that would take different thread to dissect so I will leave that for a later time.
Anyway, one thing that many Americans missed was that like a domino the stock market crash set off a series of bank collapses that deflated monetary supply by more than a third over three years from 1930 to 1933. It was so bad that the Federal Government under FDR stepped in and sold control of the gold supply which backed American currency at that time to the Federal Reserve, a banking cabal given its power by the Federal Government through mandate to take over control of the monetary supply in 1913.
The Fed was formed in response to the banking collapse of 1907 and was intended to prevent such a collapse from ever happening again. They tried in the 1930's but were over whelmed by the size of the collapse. Many ask to this day if FDR did the right thing but he had to do something to get the country moving again. The money was still backed by Gold; it was just controlled by the Fed Res is all. Plus a dollar saved was still a dollar earned with out having to make "investments" to stay ahead of inflation.
That is one difference between the 1930's and today. Money back then was still backed by gold, which is an important distinction.
"Older people help stabilize things with their steady incomes - Social Security, Pensions, IRAs and retirement holdings - which keeps fluctuations from becoming extreme and tends to level out periodic recessions."
I agree with this in small part in the sense that for current retires including my parents and my wife's parents they should be secure in their retirement, but I do not think this is the case for baby boomers and especially not the case for the two generations following them. I read a very interesting book back in the early 90's called the "Great Boom Ahead", which accurately predicted wealth creation as a generational phenomena including the boom we experienced for the past 16 or so years. Paraphrasing the author's premise, who's name escapes me at the moment, America would see huge growth because baby boomers were entering their prime purchasing power phase of their lives from the age of around 35 to 50.
This is when a generation is at the height of their earning while needing to spend the most money on large ticket items. As a generation gets older though they may have many assets like those you mention above but they slow way down on their spending which causes a down turn in the economy. As the baby boomers retire, a huge portion of our population will consume less and less while drawing more and more from government services like Soc. Sec., Medicaid, and Medicare. This will cause a huge drain on resources that are already stretch very thing due huge private and public debt, an inflated monetary supply, falling home prices, and future liabilities already owed by future generations before they even take their first breath in this world.
I will briefly touch on each of these items that I liken to the perfect storm.
Private debt is currently estimated at around 46 trillion dollars in America give or a take a few trillion. That number is staggering to me. A whole lot of this debt is tied up in non-secure debt and some in mortgages.
The mortgage debt is a real pickle because at this time housing values are falling. This is bad because a lot of retires have a large portion of their wealth built up in their homes. So they are losing money hand over fist as values fall, in some cases by as much as 30%, but are of an age that they cannot wait 20 years for the prices to come back.
In addition, the stock market has lost a similar percentage in value in just the past year. Correct me if I am wrong with this figure but I think something like 30% has been lost since its peak. Americans who are near retirement are rightfully concerned about this which will cause baby boomers to accelerate their move from their high consumption phase of their life to the organization phase of their life where they hoard assets for retirement. This is especially true today given rising life expectancy compared to the 1930's and the concern over rising health care costs and having enough money for medical care.
Public debt is completely out of control also. We all know about the 9 trillion dollar debt but what many Americans are not told by their government is that the annual deficit that is reported actually has the surplus revenue from Soc. Sec. included in this figure, which makes no sense what so ever given that the money has already been spent in current and future obligations to retiring Americans. Therefore, the annual deficit is actually higher than reported. Correct me if I wrong about this but I read that the money spent on the Iraq war is not included in the annual deficit figure either, which means the number is even higher than most Americans think.
Pensions are a tenuous source of wealth given that many have been pirated from American citizens when large companies go bankrupt. More importantly many pensions are an obligation owed by government bodies and are at high risk. This would include teacher pensions, fire, police etc...Many municipalities are having a hard time meeting current obligations as it is but with shrinking tax revenues, poor management/investment of the funds, and in some cases just bad decisions on the amount of money committed based on current village prosperity. I read in Newsweek or a similar publication that in some states retired fire fighters get as much as 100,000.00 per year per their pension plan. Those villages are struggling to meet these obligations and they will have to do something including cutting services, cutting benefits, or in some cases declare bankruptcy. This is hidden drain on the local level of government that will have a huge impact on Americans.
Future liabilities add up to trillions and trillions of dollars that is coming due sooner and sooner as baby boomers retire. The government, given it's current debt, deficit spending, and tax code cannot meet these obligations. So again, something will have to be done including cutting Medicaid and Medicare, cutting spending, or find new revenue sources.
New revenue will be difficult to come by in the coming years for the reasons stated above and also because such a large portion, something like 70%, is generated by consumption. Consumption that is fueled by debt. Its really a viscous circle when you think about it.
This really pisses me off given the fact that my government was complicit in selling off a large portion of Americas manufacturing base, but that requires another thread to really get to the heart of. I am in agreement with Pat Buchanan when it comes to his position on manufacturing.
Because of the federal debt and future obligations, do not expect them to be of much help. The Federal Reserve, whose job is to manage the monetary supply and inflation, is doing nothing but making matters worse. If you look at current international monetary supply, it is way over inflated. The Fed just keeps interest rates low and loans billions and billions of dollars into existence every day. So much money that the value of the dollar is practically in free fall, causing ever rising inflation that, by the way, is much higher than what is being reported by the Federal Government. They have their reasons for doing this but once again, that would take a completely different thread.
Inflation is the real devil in this perfect storm. Always eating away at the value of the dollar, relentlessly, and with no remorse for the current or future assets of retires. When you think about it, it could be no other way since Nixon took our monetary system of the gold standard and America went to a constitutionally illegal monetary system. I am a big fan of Ron Paul regarding this.
Under our current fiat monetary system, debt is the name of the game. If managed properly this is fine but as we all know this has not been the case so we get inflation and more inflation slowly eroding wealth. I find the rule of 70 fascinating when calculating the cost of goods over time adjusted for inflation. It really is a sick fascination given the projections that are facing us in the future.
So given this perfect storm laid out above the question I have and need to come up with an answer to is as follows:
Will the Federal Reserve grow a set and raise interest rates to restrict the monetary supply which may cause deflation or will they continue to print money increasing the monetary supply risking inflation and possibly hyper-inflation?
What will the Federal Government do about all this? Do they have the balls to tell the American people the truth and drastically cut spending, raise taxes, or conduct business as usual? I am not sure but I am not holding my breath.
Right now many experts think we are at the point of no return and hyperinflation or deflation is inevitable and the sooner we take our lumps the sooner we can recover.
There is one other little tidbit in all this and that is the fact that the dollar is the standard currency of the world and all other currency is measured and traded against, including commodities like oil. What happens if the dollar continues to collapse due to inflation? What are the ramifications to the American Economy if the Euro becomes the monetary standard in the world? How will this effect America's future, her influence, and security.
I am ever searching for answers to these questions and my perspective in this election is economics. So far to me Barack Obama is most sensible choice regarding the issues listed above and is why he has my full support.
I agree about the Fed, and it's widely acknowledged that the Great Depression was largely the fault of the Federal Reserve---which allowed the stock of money in the U.S. to drop by 1/3. This poorly thought policy precipitated the downward cycle and cascaded right down to the consumer level.
i recall my dad telling me that "money was so tight" back then that teachers, firemen and other public employees were paid in what was known as "script," a sort of privately issued currency in the form of a promissory note.
Today we seem to have the opposite problem----there's too much money flooding the economy in the form of credit and debt.
Do you remember the DOT.COM bubble burst of the 90s? People were buying things from other people who had nothing to sell. Cardboard companies that never produced a thing issued IPOs and garnered millions through investment capital simply on a promise of "things to come" that never materialized. Vaporware.
What's really disturbing to me is that the U.S. has a negative savings rate. I think this is a very dangerous condition for the country.
The government encourages people to spend, not save, so we now have an economy floating precariously on a balloon of debt.
Some people here may be old enough to remember "Christmas Club Accounts" the banks offered to encourage savings for holiday treats. Folks would throw a few dollars in there every pay period to have spending money for seasonal purchases.
Not anymore. Now they just slap it on Visa.
As one can imagine, "0" money-down purchases are attractive to people who have nothing saved.
Seems like nowadays, if I talk with most people about savings, they look at me like I'm from Mars.
OK, I'm old-fashioned.
Or, maybe it's my Scottish heritage. :--)
When you lose buying power due to irresponsible fiscal policy, like "cut tax and spend" that is a stealth tax on ALL asset classes. Have you sat down and done any math on just how much money people have lost in the last 8 years in the form of lost buying power? Take the time to do it, then realize that's the tax rate to pay for cut tax and spend policies.
I have concerns about spending done under any administration. One area that gives me hope regarding the Obama plan is that his plan will re-instate the Pay-Go rules in Washington.
"The PAYGO or pay-as-you-go rule compels new spending or tax changes to not add to the federal deficit.
New proposals must either be "budget neutral" or offset with savings derived from existing funds." C-SPAN
When I listen to Barack and Joe at town hall meetings answer questions about the economy and how will they pay for their plans. They answer the question directly. So far I have not heard many straight answers or any answers at all from McCain.
Reduced taxes for 95% of Americans
Allowing the Bush Tax cut to expire and return to Clinton Administration levels thus increasing revenue.
Implementing the Pay-Go rules and getting out of Iraq saving a part of the billions of dollars being spent there.
Is this enough to balance the budget while still being able to make the kind of investments that they propose?
I am not sure but it is a lot more information than I receive from McCain and at least they have considered some forms of fiscal discipline. I always get confused about Democratic spending being a problem when during my life time Democrats are the only party that has shown any fiscal discipline at all when compared to Republicans. Which pisses me off because I believed all the Republican hype about smaller government and balanced budgets etc.. but when it comes time to step up to the plate - nothing. They are all talk and no action. I will not buy into this until they earn my trust back. Talk the Talk you need to Walk the Walk. Which they don't.
One side benefit to Barack's that most people miss is that his form of spending is more beneficial to America over the long term. What I mean is his plans for renewed investment in infrastructure, education, and research and development. These are long term capital investments that America gets a big return on over time. When you spend money on an imperialistic occupation of another sovereign nation, that money is down the drain and America will see nothing but negative returns on this money. To compound matters it was done while racking up the largest deficits in American history.
I'm not sure why you don't think that... The last time we were paying down our debt, we had a democrat president in the whitehouse, one who at the time, I did not like either. There was fiscal restraint and responsibility during that era. Far more than anything we've seen under any republican president since Reagan, and even Reagan ran HUGE deficits.
But the hope his leadership brought to the forefront of the nation, the belief that not only should we not live in fear of the challenges of our day, but that we should move forward in faith, knowing that if we stand on our principles of being a free and open society, we would not only be safe from those seeking to to take freedom from us and the world, we would defeat them. That's leadership. McCain don't have it, Obama does. THAT type of leadership inspires confidence in markets more than anything else.
Generational wisdom has it figured out.
Seniors have tax advantages, including a larger standard deduction. Many pay no income tax at all.
With sound financial advice, assets can be sheltered in annuities and other instruments where there is little, if any tax liability.
For example, Mrs. Horace Dodge (she lived to 100)---one of the wealthiest women in the world---never paid a dime of income tax in her life. Why? Because her accountants invested her entire fortune in tax-free municipal bonds.
Wealth preservation seminars are conducted all over the country to help retirees squirrel away their savings and investments for the best tax advantages.
So "tax free" dividends are.....um....well....tax free.
Of course not everybody is in that category, but many are or have found other ways. And those that are very wealthy can afford good accountants. :-)
I referenced a web site with an economic presentation called "The Crash Course". Has anyone taken the time to go through it. I am interested in what your thoughts are about it.