Where is the US economy headed?

Quote:

Some communities around the San Francisco Bay Area are finding home sales dropping by over fifty (50) percent compared to a year ago.

watch a CNBC snippet . a couple had just purchased a "distressed house" and were very happy about their purchase .
when they interviewed some of the neighbours , they showed a great deal of unhapipness when they learned that the couple had paid about 25 % LESS than they had paid just a year ago - definetely VERY unhappy about hearing that !
hbg

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A person I know paid $538,000 for a 2 bedroom condo in the Boston area and 6 months later the assessed value of the condo had fallen to $330,000.

Shocked

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These are anecdotal, but the same story is true to millions of households today; interest rates up, and the equity dried up or decreased drastically - with mortgage payments on homes worth much less. Easy money borrowing days are over - that kept our economy buzzing for the past years of spending more than people have.

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I don't suppose that the drop in realty values (mostly Florida and California) has anything to do with having been over-valued in the first place and could be seen as a simple adjustment.

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Western economies have enjoyed an extended period of low inflation, decreasing unemployment and sustained economic growth since the arduous process of taming the excess inflation of the 1972 - 1982 period. Indeed in the United States unemployment fell well below levels that had been considered the irreducable level unattainable without accelerating inflation -- and did so at sustained, unprecedented low levels of inflation.

We now are facing the correction of what can, with equal accuracy (and inaccuracy) be called either a bubble in asset (housing) prices, or alternatively a bubble in commercial lending & credit. In addition we must consider the possibility of a cyclical reversal in the rapidly growing economies of South and East Asia, particularly China.

My opinion is that the 25 years of growth we have enjoyed are the result of prudent tax and monetary policies in the early part of that period and the accumulating effects of globalization since then. More goods have become available to more people at lower real prices than ever before, while, at the same time, our economy adjusted efficiently to the reallocations of capital and labor required in the new global economy. It is interesting to consider just what effect this, now largely complete, transition will have on the mostly empirical rules of thumb for regulating money supply and the tradeoffs between unemployment and inflation going forward. The rules and target values have veryl likely changed in yet undiscovered ways in our new situatiuon. We need to quickly master the new situation or learn the required lessons the hard way.

World equity markets have been rather 'jumpy' for the last several months. the recent Black Monday anniversary tumble in the Stock market could be merely yet another manifestation of that in a continuing bull market, or something more like the severe, but quickly resolved crash of 1987, or something worse. Hard to tell. My bet is on the second alternative, though an economic reversal in Asia (caused by any number of factors, ranging from cyclical reversals or political instability there to rising petroleum prices, could make it all worse.

The world economy is connected in many new ways now. This has already produced huge benefits for many. It also brings into play new dynamical elements in economic management that may not be well enough understood. Time will tell.

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georgeob1 wrote:

Western economies have enjoyed an extended period of low inflation, decreasing unemployment and sustained economic growth since the arduous process of taming the excess inflation of the 1972 - 1982 period. Indeed in the United States unemployment fell well below levels that had been considered the irreducable level unattainable without accelerating inflation -- and did so at sustained, unprecedented low levels of inflation.

We now are facing the correction of what can, with equal accuracy (and inaccuracy) be called either a bubble in asset (housing) prices, or alternatively a bubble in commercial lending & credit. In addition we must consider the possibility of a cyclical reversal in the rapidly growing economies of South and East Asia, particularly China.

My opinion is that the 25 years of growth we have enjoyed are the result of prudent tax and monetary policies in the early part of that period and the accumulating effects of globalization since then. More goods have become available to more people at lower real prices than ever before, while, at the same time, our economy adjusted efficiently to the reallocations of capital and labor required in the new global economy. It is interesting to consider just what effect this, now largely complete, transition will have on the mostly empirical rules of thumb for regulating money supply and the tradeoffs between unemployment and inflation going forward. The rules and target values have veryl likely changed in yet undiscovered ways in our new situatiuon. We need to quickly master the new situation or learn the required lessons the hard way.

World equity markets have been rather 'jumpy' for the last several months. the recent Black Monday anniversary tumble in the Stock market could be merely yet another manifestation of that in a continuing bull market, or something more like the severe, but quickly resolved crash of 1987, or something worse. Hard to tell. My bet is on the second alternative, though an economic reversal in Asia (caused by any number of factors, ranging from cyclical reversals or political instability there to rising petroleum prices, could make it all worse.

The world economy is connected in many new ways now. This has already produced huge benefits for many. It also brings into play new dynamical elements in economic management that may not be well enough understood. Time will tell.

Since when is running up record deficits "prudent tax and monetary policies?" And we might be experiencing a cyclical bull market within a secular bear market that began in 2000 and will end sometime in the next twelve years. (secular bear markets can roar up to twenty years or so)

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Roxxxanne wrote:

Since when is running up record deficits "prudent tax and monetary policies?"

He said "25 years of prudent tax and monetary policies". And he's about 75% right about the policies being prudent over this period. The monetary policy of the last 25 years as directed by Fed chairmans Paul Volcker, Alan Greenspan, and Ben Bernanke, all of whom were indeed laudable examples of prudence. Fiscal policy, on the other hand is admittedly a mixed bag. But even fiscal policy was prudent over 12 of the last 25 fiscal years. That would be the years from January 1989 to January 2001, which George H. W. Bush and Bill Clinton presided over.

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georgeob: The world economy is connected in many new ways now. This has already produced huge benefits for many. It also brings into play new dynamical elements in economic management that may not be well enough understood. Time will tell.

I agree; comparative advantage benefits all - mostly the well developed countries continue to enjoy products at lower cost from imports whose economies are growing. This same pattern was seen during the last century when we saw Japan, Germany, and the US grow from a predominantly agrarian economies to electronics, airplanes and automobiles.

China has its growing pains, not only from fixing their currency to the US dollar, but from their growth in industry that pollutes their environment.

We have seen how sensitive the world economies are tied together when the Thai bhat lost value several decades ago. With most countries now investing in foreign factories, financial institutions, and international partnerships, the world economy has become much more complex, but as georgeob has opined, time will tell.

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Thomas wrote:

Roxxxanne wrote:
Since when is running up record deficits "prudent tax and monetary policies?"

He said "25 years of prudent tax and monetary policies". And he's about 75% right about the policies being prudent over this period. The monetary policy of the last 25 years as directed by Fed chairmans Paul Volcker, Alan Greenspan, and Ben Bernanke, all of whom were indeed laudable examples of prudence. Fiscal policy, on the other hand is admittedly a mixed bag. But even fiscal policy was prudent over 12 of the last 25 fiscal years. That would be the years from January 1989 to January 2001, which George H. W. Bush and Bill Clinton presided over.

The Fed Chairman now presents the budget to Congress?

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Here is what I really wrote;

georgeob1 wrote:

My opinion is that the 25 years of growth we have enjoyed are the result of prudent tax and monetary policies in the early part of that period and the accumulating effects of globalization since then.

I believe the statement is correct exactly as written. It an unfortunate, but human trait for one to stop reading and jump to argumentation when the dialogue touches a point on which the reader's mind is closed and his ideas fixed.

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georgeob wrote:

but human trait for one to stop reading and jump to argumentation when the dialogue touches a point on which the reader's mind is closed and his ideas fixed.

or just cranky.

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Well, we certainly do know "cranky" don't we Dys?

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Roxxxanne wrote:

And we might be experiencing a cyclical bull market within a secular bear market that began in 2000 and will end sometime in the next twelve years. (secular bear markets can roar up to twenty years or so)

Interesting possibility, if you assume the collapse of the dot com bubble in 2000 was the inaugriation of a new long-term secular decline. I don't interpret the situation that way because I don't see any continuously acting trends. The continuing effects of globalization plus (in the U.S.) the stimulus of tax cuts softened the blow and gave us a recovery that started in 2004 and quickly restored markets to their previous heights. Now we can see increasing growth in a Europe that has also begun to liberalize labor markets and reduce tax burdens.

I don't deny that a long-term decline could occur sometime soon, I just don't see any connections with 2000.

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Roxxxanne wrote:

The Fed Chairman now presents the budget to Congress?

No he doesn't. But the institution he represents, the Federal Reserve Bank, decides how much money gets printed. That makes it responsible for the monetary policy George was talking about.

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Thomas wrote:

Roxxxanne wrote:
The Fed Chairman now presents the budget to Congress?

No he doesn't. But the institution he represents, the Federal Reserve Bank, decides how much money gets printed. That makes it responsible for the monetary policy George was talking about.

And the tax policy?

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georgeob1 wrote:

Roxxxanne wrote:
And we might be experiencing a cyclical bull market within a secular bear market that began in 2000 and will end sometime in the next twelve years. (secular bear markets can roar up to twenty years or so)

Interesting possibility, if you assume the collapse of the dot com bubble in 2000 was the inaugriation of a new long-term secular decline. I don't interpret the situation that way because I don't see any continuously acting trends. The continuing effects of globalization plus (in the U.S.) the stimulus of tax cuts softened the blow and gave us a recovery that started in 2004 and quickly restored markets to their previous heights. Now we can see increasing growth in a Europe that has also begun to liberalize labor markets and reduce tax burdens.

I don't deny that a long-term decline could occur sometime soon, I just don't see any connections with 2000.

If you study the market, there are clearly recognizable secular trends, bear and bull, without a doubt, year 2000 (it wasn't just the dot.com bubble, the previous secular bull preceded that and other factors ended it)

So my question to you is when did the last secular bear market end? If we are still around a few years from now, we can see if you prove to be right.

Do you listen to Money Talk, Bob Brinker on KGO BTW? With his help and my own intuition, I was able to double and even triple some of the little bit of money I had over the last ten years and I never bought a single stock.

(I had quite a few shares of T, that I had in my 401k, that I sold out at the top in 2000 while my associates lost up to 80% of their 401k portfolio.)

I was largely out of the market on 9/11, then got back in right after (QQQQ, VTSMX) then got back out recently, again near the top.

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Oops, hit the quote instead of the edit button, better get another cup of coffee...

georgeob1 wrote:

Roxxxanne wrote:
And we might be experiencing a cyclical bull market within a secular bear market that began in 2000 and will end sometime in the next twelve years. (secular bear markets can roar up to twenty years or so)

Interesting possibility, if you assume the collapse of the dot com bubble in 2000 was the inaugriation of a new long-term secular decline. I don't interpret the situation that way because I don't see any continuously acting trends. The continuing effects of globalization plus (in the U.S.) the stimulus of tax cuts softened the blow and gave us a recovery that started in 2004 and quickly restored markets to their previous heights. Now we can see increasing growth in a Europe that has also begun to liberalize labor markets and reduce tax burdens.

I don't deny that a long-term decline could occur sometime soon, I just don't see any connections with 2000.

If you study the market, there are clearly recognizable secular trends, bear and bull, without a doubt, year 2000 (it wasn't just the dot.com bubble, the previous secular bull preceded that and other factors ended it) was the beginning of the the current or last secular bull market.

So my question to you is when did the last secular bear market end? If we are still around a few years from now, we can see if you prove to be right.

Do you listen to Money Talk, Bob Brinker on KGO BTW? With his help and my own intuition, I was able to double and even triple some of the little bit of money I had over the last ten years and I never bought a single stock.

(I had quite a few shares of T, that I had in my 401k, that I sold out at the top in 2000 while my associates lost up to 80% of their 401k portfolio.)

I was largely out of the market on 9/11, then got back in right after (QQQQ, VTSMX) then got back out recently, again near the top.

I am astounded that you herald spending money that we don't have to stimulate the economy:

Quote:

the stimulus of tax cuts softened the blow and gave us a recovery that started in 2004

The quails will come home to roost. This secular bear ain't done yet. Stay tuned.

http://www.gold-eagle.com/editorials_05/images/alexander022005a.gif

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I generally don't follow the market talk shows, mostly because they have a lot of time to fill and the content is so replete with the bull/bear, left/right confrontation and antagonism that lately passes for reasoned discourse. I find it far more distracting than illuminating.

I guess I don't know exactly what you mean by secular bear markets and how they are illustrated by the graph of price/resource ratios (what prices, what resources?) you posted. The vertical dashed lines that apparently divide the era into the named distinct phases, don't generally conform to my understanding of the various meaningful divides in economic phases. For example the depression era of our economic life was surely over by 1939 or 1940 as food exports and prewar military expenditures raised industrial and construction activities to near capacity and reducing unemployment to near zero, Wartime price controls and rationing of consumer goods masked the effect in consumer prices, but contributed to the explosion in consumption that soom followed.

I agree that a new cycle of sorts began in 1982 with the end of the many follies of the Carter Administration and the firm correction to inflation that accompanied it. However, I can't think of any fundamental change in our economy that occured in 2000, apart from the collapse of an overheated dot.com. market. The subsequent tax cuts softened the downturn, and the increasingly profligate spending of the Bush Administration probably helped too; however the current judgement of economists appears to be that the monetary policy of central banks has probably been a bit too loose for the past 20 years as the accelerating effects of globalization, particularly of credit markets, has changed the empirical benchmarks they have relied on, often in hard-to-discover ways.

I suspect the long-term cycles you are considering may be evident only in retrospect.

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Roxxxanne wrote:

Do you listen to Money Talk, Bob Brinker on KGO [/img]

Bob Brinker is a horse's ass, who doesn't know the difference between the terms "long term" and "short term". If he's your source of financial advice, you need to change radio stations, pretty dam fast... Embarrassed

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Miller wrote:

Roxxxanne wrote:

Do you listen to Money Talk, Bob Brinker on KGO [/img]

Bob Brinker is a horse's ass, who doesn't know the difference between the terms "long term" and "short term". If he's your source of financial advice, you need to change radio stations, pretty dam fast...

Spot on!

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Where is the US economy headed?

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