The US Economy

No bargains in Orange County on real estate -- it's priced through the roof and poised for a bust. The heated up buying is obviously due to the interest rates, not because the property is any bargain. Hopefully, this will all balance out without anymore ripples or, Heaven forbid, another downturn. Predicting the economy is like predicting earthquakes. You're not real sure unless the ground stands still or it begins to shake.

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Really interesting analysis on NPR just now -- David Brooks and EJ Dionne on the economy. They seem to agree about the following, which makes great sense to me:

The economy is doing pretty badly in some areas and pretty well in others. The areas where it is doing well are Bush-supporting states. Conversely, the areas where it's doing badly are those which didn't support Bush. No one mentioned intentionality -- that wasn't the point they made. Rather, they feel that the increasing divide in the country may be regional as well as political, thanks to the state of the economy.

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LW, There was an interesting article in our local paper last weekend about how most buyers of homes today are over-extending themselves with much higher mortgages than in our day. It said something to the effect that when we purchased our homes, the mortgage represented less than 30 percent of our salaries, but now it's closer to 50 percent - and sometimes 60 percent. They are qualifying buyers who really can't afford to be paying those high mortgages in relation to their income, but the mortgage banks are extending the loans. This represents a big change in home ownership on the positive side, but most are living from paycheck to paycheck, and lost jobs will result in foreclosures. I just hope this economy keeps plugging along on the positive side for the future, because once more jobs are lost, more families will be homeless.

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That's interesting because that's what sunk the Savings and Loans! I think what we need is for all these willy-nilly financial practices to go full steam ahead, unregulated so that they fail and the taxpayer gets stuck with the bill. Deja vu.

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(They taxpayer has already bailed out the airlines who were allowed to relax security to save some more precious bucks for their executives to buy mansions and drive eight cars).

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Tartarin wrote:

Really interesting analysis on NPR just now -- David Brooks and EJ Dionne on the economy. They seem to agree about the following, which makes great sense to me:

The economy is doing pretty badly in some areas and pretty well in others. The areas where it is doing well are Bush-supporting states. Conversely, the areas where it's doing badly are those which didn't support Bush. No one mentioned intentionality -- that wasn't the point they made. Rather, they feel that the increasing divide in the country may be regional as well as political, thanks to the state of the economy.

I find this very interesting, and wonder whether they offered any pointers to data supporting this claim. There's a lot of ways to define "doing well" and "doing badly", which means there are a lot of ways one could massage the available data to have it make a case you wanted to make.

That's not to say that this isn't true, I just can't think why it would be, and being a skeptic, would need to consider their reasoning and thereby the data they looked at before I could decide whether I think their claim is valid or is not.

But again, a very interesting claim.

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One of the stocks we bought just after 9/11 was IBM so I am not sad.

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About 45 years ago, we owned one share of IBM, but it was worth over $1,000 back then. We sold it in a couple of years. With 20/20 hinde site, we should have hung onto it; probably worth a couple million today. Wink

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Sorta hard to figure, but the original $1000 would have increased several thousand percent over 45 yearts, adjusting for splits and dividends.

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cicerone imposter wrote:

LW, There was an interesting article in our local paper last weekend about how most buyers of homes today are over-extending themselves with much higher mortgages than in our day. It said something to the effect that when we purchased our homes, the mortgage represented less than 30 percent of our salaries, but now it's closer to 50 percent - and sometimes 60 percent. They are qualifying buyers who really can't afford to be paying those high mortgages in relation to their income, but the mortgage banks are extending the loans. This represents a big change in home ownership on the positive side, but most are living from paycheck to paycheck, and lost jobs will result in foreclosures. I just hope this economy keeps plugging along on the positive side for the future, because once more jobs are lost, more families will be homeless.

If I'm not mistaken, the average price of a house in the US is 250K, and the average size is 2300sqft. Those figures give the impression we live in a rich country, in reality it's more a country of debt as you suggest.

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So then the interest rates go up and in those parts of the country where people aren't yet doing well....

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Tartar, Not necessarily. What happened in Japan during the boom times were that their real estate values skyrocketed, and people were taking out mortgages for over 100 years which meant that their children were also binded by those mortgage. When the economy went bust, Japan's interest rates did not go up. For many years, they had negative interest in Japan, so many people kept their money at the post office as their bank. Real estate values ofcoarse came down, but in places like Tokyo and Osaka, it's still pretty pricey.

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http://images.ucomics.com/comics/gm/2003/gm031104.gif

Quote:

Jobless claims plunge, lowest since early 2001USA Today

Quote:

Business

Posted on Thu, Nov. 06, 2003

Economy looks up in valley and U.S.

By David A. Sylvester
Mercury News

For the first time in two years, both the national and Silicon Valley economy appear poised to grow faster than expected, primarily fueled by the most massive government stimulus in the postwar era.

Even in Silicon Valley, it gets harder to deny (though the sceptical author of the piece urges caution, terming the clear recovery numbers "unexpected")

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timber, Included in that article is the following paragraph that is important. " One-quarter of the gain in gross domestic product has come from a surge of spending by governments that may be trimmed later. During the past two years, $145 billion of the $610.8 billion gain in real GDP came from an increase in government spending, largely by the federal government. In 1991 to 1993, none of the gain came from the government because government spending actually fell slightly, adjusted for inflation."
We must remember that "government spending" during a time of deficit must be paid later at higher cost to taxpayers. We're not out of the woods yet; it would depend greatly upon our ability to maintain and exceed current job creation for the long term.

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No one suggests "We're out of the woods yet", c.i. ; there is a recovery underway, not a recovery accomplished. It is to be expected that increased tax revenue derived from increased corporate profits will whittle The Deficit somewhat more rapidly than some realize will be the case, thus inconveniencing yet another of The Democrats' talking points. It should be noted too that inflation is not a characteristic of this recovery, in contrast to previous recoveries, most of which have been accompanied both by inflation and rising interest rates. Given the historic lows of both current interest rates and current inflation, only improbable, abberationally large increases of either would have any negative impact on continuing expansion. Inventory levels are down. capital investment is up, Machine Tool Orders are up, hiring is increasing, layoffs are slowing ... all pointing toward substantial jobs growth over the coming quarters. By Election Time, The Economy will be squarely in The Current Administration's corner.

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timber, Inflation will be controlled as long as consumer spending remains at the current levels. It's when too many dollars chases a limited amount of goods and services is when inflation will peek it's ugly head. We're not there yet, but infusing too many dollars by goverment will have the same impact. So long as production keeps up, we should see no problem with inflation. Another concern is too much dollars generated by our government to stimulate our economy will endanger the higher cost of the dollar to the world markets, so it's never "free." A good balance is difficult to maintain. That's one of the reasons why the EU countries are complaining about both Germany and France, because their national debt exceeds the limits they have all agreed to.

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I think we can't ignore that the politicians and economists haven't figured out how to correct a bust and boom economy. They tweak the machine and proclaim that they've been successful only to find the machine grinding its gears and getting too close to breaking down altogether. Predicting the the economy will benefit one party or another in an election is a fool's game. Play on -- Monopoly would likely be as rewarding.

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You hit a nail on the head with your observation that no one seems able to prevent the recurring "Boom-Bust-Boom" cycles, LW. That is the real isue which must be addressed. Clearly, it remains the core problem.

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Agree with both of you wholeheartedly, CI and Timber. Two things need to happen: the average citizen needs to inform him/herself economic matters much more attentively and corporations and regulatory agencies need to be held to a much higher standard The two are related.

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That's right, LW. Economics has always been an art and not a science. That's the reason why so many economists disagree on any one issue. Frankly, we're all playing a guessing game - even the "experts."

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