Where is the US economy headed?

U.S. jobs report jolts markets
The numbers raised fresh fears of a recession and suggested that the damage from the recent turmoil in financial markets could be spreading.
http://www.iht.com/articles/2007/09/07/business/webecon.php?WT.mc_id=newsalert

au, Your article confirms what I've been saying early on; that the subprime debacle is going to spread into our total economy in a negative way. How deep and how long is the question. With our long-term government and private debts, our negative balance of trade, and the use of the US currency around the world will have long-term negative effects on all economies.

8.6 percent drop in home sales predicted 1 hour, 4 minutes ago



WASHINGTON - Sales of existing homes in 2007 are forecast to drop 8.6 percent from the previous year, a trade group for real estate agents said Tuesday.

The National Association of Realtors' revised monthly prediction calls for U.S. existing home sales of 5.9 million in 2007, down from 6.5 million last year. The forecast was below last month's prediction of a 6.8 percent drop.

This year's sales would be the lowest since 2002, when sales hit 5.6 million. Home sale prices this year are forecast to drop 1.7 percent to a median of $218,200.

Aw, C'mon CI.. you know that DEFICITS dont matter... thats what half the politicians and economists have been telling us for years.. YEAH RIGHT!....[major sarcasm]

Time to pay the piper me thinks.. hold on

Richard, But government and consumer debt is important, because they must be paid sometime in the future.

Look at the subprime loans; when people stop paying on their debt, those who have invested their money takes the loss. The assets that once backed up those loans become devalued, and exacerbates an oversupply that will further hurt prices. It ends up impacting everybody sooner or later. There's no free lunch.

As for government debt, the increasing interest payments take away from supporting our infrastructure and social services. This also impacts everybody - eventually.

The Wall Street Journal, a shrill liberal mainstream media publication, is cautiously pessimistic about where the US economy is headed.



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Thank God those credit card companies got the changes they wanted to the bankruptcy laws. Otherwise they could be hemorrhaging money in the next couple of years.

We may well see the effects of the new bankruptcy law following on the heels of the mortgage and credit card crisis. Consumer spending may have a hard time with an increase if consumers that declare bankruptcy but still have jobs are forced to pay off existing debt instead of buying new items.

I think thats a good thing, don't you?

Dollar plumbs new lows against euro

Bloomberg News, The Associated PressPublished: September 12, 2007






BERLIN: The dollar breached a new low against major currencies Wednesday as investors bet that the Federal Reserve would soon cut interest rates and after a warning from the U.S. Treasury secretary that turbulence in financial markets might linger.

The currency of the 13-nation euro zone rose to $1.3905 in 4 p.m. New York trading from 1.3835 late Tuesday. Earlier, the euro hit a record $1.3914, topping its previous record of $1.3852, reached July 24. The dollar also continued a prolonged fall against the pound and the yen.

The Federal Reserve is expected to reduce borrowing costs next week as the credit crunch that recently roiled financial markets threatens to slow the world's largest economy.

At the same time, inflation pressures appear to be mounting, as the price of oil and other commodities rise amid a continued increase in demand, especially from growing economies like China.

On Wednesday, the price of crude oil futures closed at a record $79.91 a barrel, up $1.68, after hitting $80.18 a barrel during the day in New York after a report showed that supplies dropped the most this year. A decision Tuesday by the Organization for Petroleum Exporting Countries to increase production by 500,000 barrels a day failed to cap prices. Analysts said the increase was less than expected.

http://www.iht.com/articles/2007/09/12/business/econ.php?WT.mc_id=newsalert

All the signals in our economy shows a downturn. The subprime loans exacerbated an already weak economy; there is no way to sustain the debt levels of the past - using future earnings to buy today. All the unemployment figures provided by government is a shell game; most mortgage lenders are laying off workers by the thousands, and that's still not reflected in the unemployment rates. I remember when we were told a few years ago that our economy needed to create 250,000 new jobs every month to meet demand. Recently, we were told it was 150,000 new jobs. It's obvious we're losing more jobs today than creating them, but the pundits are saying our economy will still grow. Where are these people getting their crystal ball predictions from? They're all liars! The world is gonna suffer.

Rama, That's what I've been saying for the past several years, and the conservatives keep telling us our economy is still doing well for them and their friends. It seems they all belong to that one percent at the top; or else, they're so stuck in their politics that they're blind to the obvious falling apart all around them. Amazing - to say the least.

Cicerone
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review
And here is his comment about the US Economy

"When US companies offshore their production for US markets, the consequences for the US economy are highly detrimental. One consequence is that foreign labor is substituted for US labor, resulting in a shriveling of career opportunities and income growth in the US. Another is that US Gross Domestic Product is turned into imports. By turning US brand names into imports, offshoring has a double whammy on the US trade deficit. Simultaneously, imports rise by the amount of offshored production, and the supply of exportable manufactured goods declines by the same amount.
The US now has a trade deficit with every part of the world. In 2006 (the latest annual data), the US had a trade deficit totaling $838,271,000,000.

The US trade deficit with Europe was $142,538,000,000. With Canada the deficit was $75,085,000,000. With Latin America it was $112,579,000,000 (of which $67,303,000,000 was with Mexico). The deficit with Asia and Pacific was $409,765,000,000 (of which $233,087,000,000 was with China and $90,966,000,000 was with Japan). With the Middle East the deficit was $36,112,000,000, and with Africa the US trade deficit was $62,192,000,000.

The US "superpower" even has a deficit in capital goods, including machinery, electric generating machinery, machine tools, computers, and telecommunications equipment.
What does it mean that the US has a $800 billion trade deficit?
It means that Americans are consuming $800 billion more than they are producing.
How do Americans pay for it?

http://www.counterpunch.org/roberts09122007.html

It's almost funny that other countries continue to let us buy on credit when our GNP is about 12 trillion dollars. Talk about mortgaging our future; it's insane.

ANALYSIS OF A SOCIETY THAT FORCES YOU INTO DEBT
Thursday, 13 September 2007
By DR. HOUSING BUBBLE

http://carolynbaker.net/site/content/view/125/

I'm sure many of you have seen the current spin of advertising. Have you seen the commercials where anyone paying with cash at the mall, fast food store, or ball game is seen as some slow scumbag? The subconscious message is this, "hey, you are a lowlife if you carry infectious cash, pay with a credit card and GET IN LINE!" So what if you want to pay with cash. In fact, you should get kudos for doing this since it demonstrates that you are paying with real world money instead of mortgaging your future for a cup of espresso.

Rama, That's not true either! The world is flooded with US dollars; more than the US can produce in goods in services for many years. We're actually using monnopoly money, and the world still accepts it as legal tender. Go figure?

MOBS MESSIAHS AND MARKETS
C I

Americans are still borrowing money, in other words - even at higher rates and on stiffer terms.

This is hardly good news. It can hold an economy together for a while, we guess - but not for very long.

Not that the feds aren't determined to hold off the much-needed correction - in the worst possible way. What is the worst possible way to postpone a correction caused by too much debt? Give them more credit, of course!

So far, the central banks have cut the discount rate...and word on the street is that they'll probably cut the key Fed funds rate the next time they meet. And here comes Senator Charles Schumer of New York with more flim-flam - a bill to allow Fannie Mae (NYSE: FNM ) and Freddie Mac (NYSE: FRE ) to buy larger mortgages. Fannie and Freddie were set up to help people of modest means buy houses, by taking the credit risk off the hands of those who deserve it and spreading it out among investors and taxpayers. But we live in an age of Marxism for everyone. So now the rich, too, will get more credit from the taxpayers. That is the real genius of the present bubble - it allows buyers to buy what they don't need with money they don't have...while the financial intermediaries - lenders and speculators - are able to make their fees and pass along the risks to pensioners, investors, and taxpayers.

What a glorious system! It's really too bad that it may now be coming apart...it has been so much fun to watch.

http://carolynbaker.net/site/content/view/123/

What you say is true, but credit is what our economy relies on. Consumer buying represents 70 percent of our economy. Without credit, our economy will take a nose-dive very quickly rather than the slow pain scenario we are now in - similar to a small leak in a big ship. Eventually, everybody is going to drown.

c i

""Credit booms do not end in inflation as most people believe. Credit booms ARE inflation that end in deflation. This credit boom is no different." --Mike Shedlock, "Mish's Global Economic Trend Analysis"

The days of the dollar as the world's "reserve currency" may be drawing to a close. In August, foreign central banks and governments dumped a whopping 3.8 percent of their holdings of US debt. Rising unemployment and the ongoing housing slump have triggered fears of a recession sending wary foreign investors running for the exits.


After years of abuse under Greenspan -- an $800 billion current account deficit, a $9 billion per month war, and a 13 percent yearly increase in the money supply -- the poor dollar has run out of wiggle-room. If the Fed slashes rates, the mighty greenback will be a dead duck.

Professor Nouriel Roubini summed it up best in a recent blog-entry, The Coming US Hard Landing: "Indeed, the forthcoming easing of monetary policy by the Fed will not rescue the economy and financial markets from a hard landing as it will be too little too late. The Fed underestimated the severity of the housing recession, its spillovers to other sectors, and the contagion of the subprime carnage to other mortgage markets and to the overall financial markets. Fed easing will not work for several reasons: the Fed will cut rates too slowly as it is still worried about inflation and about the moral hazard of perceptions of rescuing reckless investors and lenders; we have a glut of housing, autos and consumer durables and the demand for these goods becomes relatively interest rate insensitive once you have a glut that requires years to work out; serious credit problems and insolvencies cannot be resolved by monetary policy alone; and the liquidity injections by the Fed are being stashed in excess reserves by the banks, not aimed at the parts of the financial markets where the liquidity crunch is most severe and worsening."

It'll take years to dig our way out of this mess. In the meantime, we need to close ranks and prepare ourselves for tougher times ahead. The dollar will weaken, housing prices will fall, and economic conditions will continue to deteriorate. We can either organize and meet the challenges we face head-on or form a line and wait for the soup kitchens to open
http://onlinejournal.com/artman/publish/article_2412.shtml

I believe everything your last post indicates; the feds propensity to reduce interest rates as their next action is the wrong move, but should increase rates by at least 50 basis points.

Loose credit is worse for our economy; it only exacerbates an already over-extended economy.