Quotation Of The Day: The Global Economy

Comment by Bocopro, who typed in the following to this post at Western Hero and particularly appropriate now that Greece has defaulted on a 1.6 billion euros debt payment to the IMF and has rejected the European Union's bailout offer:

Greece, Portugal, Ireland, Puerto Rico . . . these are the rumblings of what before long will be a great global Vesuviusing, with nationally fatal pyroclastic flows, intercontinental ashfall, planetary climate disruption, mass migrations, riots, starvation, hysteria, disease, and unending strife.

China, Russia, Europe, South America, and the US will flounder and drown in the morass of debt in the gazillions while their GDPs barely make it to the brazilians. Hurricanes of speeches and tons of promises won’t prevent a single balloon payment or cancel an ounce of debt.

Debts are like bastard children, begot in pleasure of the flesh, then brought forth in great pain and handicap. To promise fabulous socialist entitlements based on flawed arithmetic is to enslave the next generation who will inherit the budget shortfalls. And interest on debts grows without nourishment or watering.

The US central government seems to believe that a day will come when all debts are forgiven and everyone will live in some kind of utopia where self-replicating, self-repairing machines provide us with all our needs sans cost, where exactly-the-right-size Levis suddenly appear on shrubberies and meatball sandwiches flow from giant cornucopias in converted supermarkets.

At seven-point-five decades, I may already be safely under ground when the debt tsunami hits, but my grandkritters and their lot will be forced to pay for the mismanagement of thousands of politicians who tried to run cities on splenda, states on saccharine, and nations on nutrasweet.

Our entitlement systems, whether the leftistas choose to believe it or not, are not sustainable unless we discover the trick to turning hot air into gold. As Hamlet tells us: “I eat the air, promise-crammed. You cannot feed capons so.”

Meanwhile in China: BROKERAGES ANNOUNCE PLAN TO PROP UP SHARES.

Also see this (Click directly on the graphic to enlarge it):

The Failed Trade Deal?

Who here at IBA can explain to me what the free-trade initiative entailed?

I keep hearing the phrase "displaced workers." To whom does that term refer? Which displaced workers?

Fifty States?

The United States still consists of fifty states, but they no longer have fiscal independence (hat tip to Asylum Watch):

Percent of budget coming from the feds went from 37% in 2001 to 45% in 2012. Federal money per person went from $1,352 in 2001 to $2,603 in 2012.  The darker the color, the more federal monies the state receives.

For more details, please scrutinize this. The graphic is interactive; see the legend at the bottom of the graphic.

At Asylum Watch, Jim writes the following:

Our nation, as constitutionally formed, is The Republic of the United State of America. In theory, a republic is where the supreme power is vested in the citizens who elect people to represent them. Do you feel that we are living in a republic? Do our elected officials really represent their electorate? And, what about the words: United States? Are we, a constitutional union of states, where all power rest with the states except for the enumerated powers constitutionally assigned to the federal government? Our nation may have started out as The Republic of The United States of America but it has evolved into something quite different. Some of the changes came about through constitutional amendments and, thereby, the citizens of each state did have a voice in those changes. Most changes, in my opinion, have come about by either judicial fiat or by congress passing laws that no one asked for or by Executive Orders of a sitting president. The laws passed by congress have often created federal programs, which states must implement with partial or full funding from the federal government. When states accept those funds, the find they must comply with the strings, which are firmly attached. Those federal funds and the attached strings have given the federal government much power over the states that was never envisaged in our constitution.

[...]

...Louisiana receives 44% of their budget from Washington and New Mexico 37% and Idaho 35%....

So much for the principles of federalism!

Who Will Do The Driving?

For decades, as both children and adults, the Baby Boomers drove our economy:

Almost exactly nine months after World War II ended, “the cry of the baby was heard across the land,” as historian Landon Jones later described the trend. More babies were born in 1946 than ever before: 3.4 million, 20 percent more than in 1945. This was the beginning of the so-called “baby boom.” In 1947, another 3.8 million babies were born; 3.9 million were born in 1952; and more than 4 million were born every year from 1954 until 1964, when the boom finally tapered off. By then, there were 76.4 million “baby boomers” in the United States. They made up almost 40 percent of the nation’s population....

Consider the situation today.

Read the rest at Always On Watch.

Warning To U.S. Banks

An exclusive from Reuters, dated August 10, 2012:

U.S. regulators directed five of the country's biggest banks, including Bank of America Corp and Goldman Sachs Group Inc, to develop plans for staving off collapse if they faced serious problems, emphasizing that the banks could not count on government help.

The two-year-old program, which has been largely secret until now, is in addition to the "living wills" the banks crafted to help regulators dismantle them if they actually do fail....

More at the above link.  Read it all.

This is not a recession. This is a DEPRESSION!

The Great Depression And Today's Ailing Economy

In the January 2012 edition of Vanity Fair, Joseph E. Stiglitz writes the following:

...For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy’s underlying weakness. The breakdown of the banking system didn’t culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity.

At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume.

[...]

The parallels between the story of the origin of the Great Depression and that of our Long Slump are strong. Back then we were moving from agriculture to manufacturing. Today we are moving from manufacturing to a service economy. The decline in manufacturing jobs has been dramatic—from about a third of the workforce 60 years ago to less than a tenth of it today. The pace has quickened markedly during the past decade. There are two reasons for the decline. One is greater productivity—the same dynamic that revolutionized agriculture and forced a majority of American farmers to look for work elsewhere. The other is globalization, which has sent millions of jobs overseas, to low-wage countries or those that have been investing more in infrastructure or technology. (As Greenwald has pointed out, most of the job loss in the 1990s was related to productivity increases, not to globalization.) Whatever the specific cause, the inevitable result is precisely the same as it was 80 years ago: a decline in income and jobs. The millions of jobless former factory workers once employed in cities such as Youngstown and Birmingham and Gary and Detroit are the modern-day equivalent of the Depression’s doomed farmers....

I do not agree with all of Stiglitz's conclusions, particularly in the final section of the article.

But I do think that he's largely correct and onto something that we have been desperately ignoring during this time of our ailing economy.

The coming damage will indeed be huge, and recovery as we want to think of it isn't going to happen.

In other words, for a very long time, if ever, Americans will not return to the standard of living that we had prior to this 21st Century depression (Yes, depression and not recession). And the present generation will not enjoy the same upward mobility and standard of living as previous generations have partaken of since World War Two.

Please take time to read the article. In my view, the article offers an important and ugly reality check: America will not again be what she was. Not in my lifetime. No matter who wins in November 2012.

I'm glad that I'm as old as I am.

Euro-Bomb!

The financial kind of bomb.

Click directly on the image to enlarge it:


From Doug Ross @ Journal (citing this source, which is worth your time to read):

There is no way to push the repricing genie back in the bottle, and so there is no way to roll over this debt and add to it--and to support the high-cost structure of Euroland's welfare-state governments and their astounding debt, then debt must be added, and in staggering quantities.

Grim!

Worst Wall Street Thanksgiving Week Since The Great Depression

With a hat tip to Randy's Roundtable:

Yep, the worst Thanksgiving week since the Great Depression.

This debacle is not all Obama's fault, of course. But he DOES own this debacle. The blame-Bush meme is finished. And the blame-the-GOP meme is wearing thinner and thinner.

Continuing Down The Road To Serfdom

Today from CNBC:

No Rise in Home Prices Until 2020: Bankers

Home prices are unlikely to recover before 2020 and mortgage defaults will persist for years, says a survey of bank risk managers out Friday.

The survey conducted by the Professional Risk Managers’ International Association for FICO, found that 49 percent of respondents do not expect housing prices to rise back to 2007 levels for another nine years. Only 21 percent of respondents said they would.

The findings, which authors called “a decidedly pessimistic outlook”, are a sharp reversal from cautious optimism the survey respondents expressed late last year and in early 2011.

In addition, 73 percent of surveyed bankers say they expect mortgage defaults to remain elevated for at least another five years. And 46 percent believe mortgage delinquencies will increase over the next six months.

Only 15 percent of respondents expect mortgage delinquencies to decline during that period.

“While the housing sector will almost certainly gain strength during the next nine years, many bankers clearly believe prices will remain depressed for half a generation,” said Andrew Jennings, chief analytics officer at FICO.

Bankers concerns spread beyond the housing market.

A large number of respondents says they also expect to see an uptick in delinquencies on auto loans, credit cards and student loans....

Let's see....The GDP is in the sewer. And so is the housing market, a primary driver of the American economy.

The Great Contraction

So says Ezra Klein. Some of what he writes does make sense:

...Recessions...imply a very particular economic phenomena: a business-cycle recession, in which the drop is quick, and the recovery is usually similarly swift. That is not what we’re in. That is not what financial crises are. And mistaking one for the other has, in his opinion, cost us a fortune.

Financial crises are not about the business cycle falling out of whack. They’re about debt. Lots of it. And that’s why they’re so resistant to efforts to speed a recovery. Whereas you normally get out of a recession by lowering interest rates and persuading consumers to spend, the period after a financial crisis is marked by consumers trying to dig out from under a mountain of borrowed money. You can accelerate that process, but it’s hard to do. But first you must correctly diagnose the problem.

Rogoff has suggested we call this period the “Great Contraction” in order to distinguish it from more normal recessions. You may or may not like the name, but consider this: When we talk about double-dip recessions, that implies, as the National Bureau of Economic Research has said, that the recession ended in summer 2009, and we’ve been recovering ever since. The Great Contraction, conversely, suggests we have been, and remain, mired in an ongoing financial crisis. Which better describes the economy you see?...

Read the entire essay HERE. I'm no fan of Klein's, but I think that he has some valid points in that essay.

Of course, what we call this disastrous economic situation doesn't matter. But how our so-called leaders analyze it DOES matter because the economic policy for addressing a recession and a depression is different.

Clearly, what Obamanomics has done is not the proper way to address the depression we're in.

I keep referring to the term "depression" because, in my view, we are indeed in a great depression and not a recession.

If our policy makers cannot use the "d" word, then let them use the term "contraction." I, for one, am sick and tired of hearing the words "recession" (or whatever euphemism the Obama regime is using) and "shared sacrifice."

What If The United States Defaulted On National Debt?

From AOL News:

The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire economy, eventually affecting nearly every American, and rocking global markets in the process....

[...]

Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities.

[...]

At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers' paychecks.

A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit "a recovery-ending event." U.S. stock markets would likely tank - devastating roughly half of U.S. households that own stocks, either individually or through 401(k) type retirement programs.

Eventually, the cost of most credit would rise - from business and consumer loans to home mortgages, auto financing and credit cards.

Continued stalemate could also further depress the value of the dollar and challenge the greenback's status as the world's prime "reserve currency."...

Such a default would make the Great Depression look like a minuscule blip on the radar screen of economic history.

Frankly, I see no way to prepare as individuals for such a default on the part of the United States.

Our individual fates are in the hands of politicians in Washington, D.C. Isn't that comforting? **snerk**

Deficit, Debt, and Debt Interest

If the video below is accurate, how long before total economic collapse?



Thanks to Z for emailing me the link to the above video.

The China Bubble

Ghost towns in China? Apparently so. Note this photo of Zhengzhou New District. The photo shows huge and numerous public buildings that have never been used (Click directly on the image to enlarge it):


From Dinocrat.com, via THE ASTUTE BLOGGERS:

Of the 35 major cities surveyed, property prices in eleven including Beijing and Shanghai were between 30 and 50 per cent above their market value, the China Daily said, citing the Chinese Academy of Social Sciences. Prices in Fuzhou, capital of the southeastern province of Fujian, had the worst property bubble with average house prices more than 70 per cent higher than their market value…

According to research carried out by Time magazine, fixed-asset investment in the Asian country accounted for more than 90 per cent of its overall growth — with residential and commercial real estate investment making up nearly a quarter of that. Regional governments across China have been building massive real estate projects, including Kangbashi in Inner Mongolia and Zhengzhou New District, which have remained empty…

Regional governments across China have been building massive real estate projects…Kangbashi, which was built in just five years, was meant to be the urban centre for Ordos City — a wealthy coal-mining hub home to 1.5 million people. It was filled with office towers, administrative centres, museums, theatres and sports facilities as well as thousands of homes, but remains virtually deserted.

Read the rest at Always On Watch.

For Discussion: Deficit Reduction

HERE in the Washington Post you can read the highlights of the deficit-reduction proposals. The include the following:

-Overhaul individual income taxes and corporate taxes. For individuals and families, eliminate a host of popular tax credits and deductions, including the child tax credit and the mortgage interest deduction. Significantly reduce income tax rates, with the top rate dropping to 23 percent from 35 percent.

-Reduce the corporate income tax rate to 26 percent from 35 percent, and stop taxing the overseas profits of U.S.-based multinational corporations.

-Increase the gas tax by 15 cents a gallon to fund transportation programs.

Read this link to see the entire list.

There is a hot-button issue for every American I know. Maybe more than one hot button.

No matter how we look at this problem, the solution is going to be painful:

Voters who last week sent Washington a message to wrestle the spiraling debt under control have gotten a message back from the leaders of a White House budget commission: It'll hurt.

A proposal released Wednesday by the bipartisan leaders of President Barack Obama's deficit commission suggested cuts to Social Security benefits, deep reductions in federal spending and higher taxes for millions of Americans to stem a flood of red ink that they said threatens the nation's very future.

Interest groups on the right and the left squealed, predictably, about the plan, which would cut total deficits by as much as $4 trillion over the next decade - much of it from programs long considered all but sacred.

Besides Social Security, Medicare spending would be curtailed. Tax breaks for many health care plans, too. And the Pentagon's budget as well in a plan that attaches $3 in spending cuts to every $1 in tax increases.

For all the pain, the deficit still would approach $400 billion in 2015 under the proposal...

Surely, we all realize that something must be done about our deficit! If nothing is done, our entire economy will collapse.


Here's my primary question....If several of the proposed reductions do not happen, just how are we going to reduce that deficit?

In my view, no one single proposal will accomplish what needs to be done. We're way beyond the point that trimming wasteful spending at the government level will make enough of a dent in that huge deficit.

What the hell is America up against with this economic disaster? What are we, as individuals, up against here?

Is there any real recovery possible?

Obama Sees Advantages In The Decline Of America As An Economic Power

From the Times of India:

...The fact of the matter is that for most of my lifetime and I'll turn 50 next year - the US was such an enormously dominant economic power, we were such a large market, our industry, our technology, our manufacturing was so significant that we always met the rest of the world economically on our terms. And now because of the incredible rise of India and China and Brazil and other countries, the US remains the largest economy and the largest market, but there is real competition."

"This will keep America on its toes. America is going to have to compete. There is going to be a tug-of-war within the US between those who see globalisation as a threat and those who accept we live in a open integrated world, which has challenges and opportunities."...

[...]

...Going by media reports in the US of his first day in India, his focus on jobs and investments was well received.

[...]

In the context of his efforts to revive the US economy, the president clearly sees, as he wrote in an article, India and China as key drivers of economic growth.

Competition is fine.

But just how is competition within the present globalization framework going to help the U.S. economy to recover and bring jobs here to the States?

And how is the competitive field going to be level if more and more jobs which should be based here in the United States are outsourced to nations that pay workers $1 a day?

Watch the video at the beginning of this post. BHO seems downright pleased with his admission about the economic decline of America.

Would he dare to say these same things in his next State of the Union Message?

The We're-Not-Europe Party

From this op-ed at WSJ (hat tip to Hard Astarboard:

One of the constant criticisms of Barack Obama's first year is that he's making us "more like Europe." But that's hard to define and lacks broad political appeal. Until now.

Any U.S. politician purporting to run the presidency of the United States should be asked why the economic policies he or she is proposing won't take us where Europe arrived this week.

In an astounding moment, to avoid the failure of little, indulgent, profligate Greece, the European Union this week pledged nearly $1 trillion to inject green blood into Europe's economic vampires.

For Americans, this has been a two-week cram course in what not to be if you hope to have a vibrant future. What was once an unfocused criticism of Mr. Obama and the Democrats, that they are nudging America toward a European-style social-market economy, came to awful life in the panicked, stricken faces of Europe's leadership: Merkel, Sarkozy, Brown, Papandreou. They look like that because Europe has just seen the bond-market devil.

[...]

In the German legend, Faust was a scholar who sold his soul to the devil many years hence in return for a life now of intellectual brilliance and physical comfort. In our version of the legend, Europe's governments told the devil that, more than anything, they wanted a life of social protection and income fairness no matter the cost. Life was good. A fortnight ago, the bond devil arrived and asked for his money.

[...]

After Europe's abject humiliation, the chance is at hand for the Republicans to do some useful self-definition. They should make clear to the American people that the GOP is "The We're Not Europe Party." Their Democratic opposition could not attempt such a claim because they do not wish to.

[...]

A We're-Not-Europe Party would promise the American people to avoid and oppose any policy that makes us more like them and less like us.

My good friend Seth of Hard Astarboard commented:

Hmmmm, looks sorta’ like this “let’s be just like Europe” trip the lefties among us have been on for the last several years is coming back to bite them where the moon don’t shine, what with them trying to push us into the same barrel of socialism, in full view of the voting public, that’s dragging Old Europe’s collective economy down a deep, deep drain.

Good, let it bite ‘em hard and deep this November.

Now, can the GOP actually make the case so as to convince the electorate?