Where is the US economy headed?

Glad you found it, Miller. CI, the x-axis in many of the graphs shows delineations for 5, 10, 15 and 20. I couldn't find what that was about.

as this article in BUSINESSWEEK points out , while the business default rate is still quite low , large investors are getting worried . they are concerned that more bad news are to come and this has led to a sudden rise in "default insurance" .

commentators on CNBC suggested earlier this week , that it will be well into 2009 before it is known what damge has been done . they anticipated further credit problems are still ahead .

doesn't give investors much restfull sleep , it seems .
hbg




source :
BUSINESSWEEK

hbg, Those huge financial institutions that wrote off billions from their balance sheets have seen only the beginning of more large write offs. The realty and construction business are looking at long term depression of the market that has sustained not only investors in realty, but the financing of consumer spending.

More and more people are finding themselves paying mortgages on homes worth much less than what they paid for. Even people with relatively good credit ratings are falling behind in their mortgage payments. Defaults in our area have increased by over 50 percent in some communities, and those numbers are going to increase for many months to come. Since consumer spending makes up over 70 percent of our economy, the estimates by the pundits that the housing problem will effect our economy by one percent of GDP are too conservative IMHO.

The next 12-months should reveal the depth of the current housing problem.

c.i. quoted-



Come on c.i. Do you think we can't read or something. That's pure gibberish of the first order.

And that is assuming that the assertion that the economy is "beginnig to slow" is true.

It's a rallying cry for pessimists.

in canada , mortgage lenders(banks) are reasonably well protected against mortgage defaults .
canadian home buyers buyers that CANNOT afford a minimum 25% downpayment are required to take out (and pay for) mortgage insurance .
the insurance does NOT protect the buyer but the lender , who in case of default will be paid by the insurer - and the prospective home-owner loses whatever has been invested .

so canadian lending-institution have not had a similar problem as U.S. lenders ... BUT some canadian investors(banks and others) got sucked into the U.S. maelstrom when they bought some of those U.S. "sub-prime" packaged mortgages - to their deep sorrow !
(of course they thought that they could easily make some extra money because of the higher interest rates being paid on "sub-primes" . well , it didn't work out ! NO FREE LUNCH !)
hbg

hbg, It's not only Canadian financial institutions, but many in Europe also "gambled" in buying those sub-prime loans hoping to earn a small percentage of the billions invested.

In the long run, our future is bleak, just as it is for the rest of the world. Life as we know it is built on a deck on cards.

The world is in a death spiral and politicians as well as industry are pretending this problem does not exist. We can only blame ourselves, for it is just how we have built our world over the years....too many people, living outside of natures intended balance and not an infinite supply of energy to fuel all our demands.

It would be one thing if we all reverted back to rural living, burning trees for fuel and housing and living within our comfortable means allotted to us by nature, as our ancestors did back in the day. But ten billion people can't burn the trees! (Ten billion people is a conservative estimate of world population in the not so distant future. We are at 7 people billion now.)

It seems everyone wishes to hide their heads in the sand when it comes to this subject of peak oil. We can't depend on the President to come clean with the public. All his energies are spent just trying to keep the oil flowing. He can't admit that the oil will stop in the not so distant future, no matter what we do. It is a problem beyond his as well as all of our control.

As they say in 12 Step programs - admitting you have a problem is step 1. And our country cannot admit it, after all, admitting this problem would raise hell with our retirement funds. And until we can admit it, we cannot begin on our long road to a 'semblance' of recovery.

And in the big picture, we can't fix the problem, we can only postpone the inevitable. But buying a little more time would make things much more livable in the not so distant future than the current path we are headed in.

The World Coal Institute estimates world energy reserves as follows:

"At current production levels coal will be available for at least the next 155 years compared to 41 years for oil and 65 years for gas."

http://www.worldcoal.org/pages/content/index.asp?PageID=21

Even though this was written a few years ago and it is based on 'current production and consumption' it gives the same haunting message to the generations to come.

We may not exactly see the end of our free flowing energy as we know it - but some of our descendants will in the not so distant future. This is the legacy they will inherit from us. But before the energy dries up completely massive changes in our world will have taken place.

Our population has grown to levels where it has passed the point of no return for supporting a sustainable human population as we know it today when it comes to their energy demands.

And leading the pack of over consumers is the USA.

http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption

Consumption is ingrained in us and we know no other way. And even if we wished to amend our ways, how could all our retirement funds take the hit? America is built on borrowed money, spending and consumerism.

And what does all that consumerism lead to?

It leads to the mess we are in now and the bigger mess the world will be in once India and China pick up momentum to copycat the envious lifestyle that they have held in high esteem as the 'American Dream'

You see, the problem is not with the earth having enough land for all its people - the problem is with earth providing ad infinitum for all the needs the people crave.

The more people born, the more heat is produced from their life and all their cravings, As such, the warmer and more polluted the earth gets and the more energy they all use and the earths resources are depleted.

Fueling the problem of consumption is the games the Federal and World banks play with interest rates. They manage the economies in ways to fuel consumption and mask the real trend. Witness the recent cries for Federal bankers to lower interest rates...so the stock market can go up...fueled by spending of the consumer.

It is drug habit that Greenspan got us hooked on and we just can't get away from.

Our economy is not based on sustainable health - it is based low interest credit to encourage compulsive spending, debt and living a life of constant consumption with a 'disposable mentality' when it comes to durable goods.

All this consumption to artificially fuel our economy to make our retirement funds only go up contributes to more and more global warming and the depletion of our natural resources. Then the governments juggle the numbers to make the inflation figures seem artificially low, so everyone's retirement portfolio will make them happy so they will continue to buy and consume more...and on it goes....IT IS ALL WE KNOW

You see, no other animal destroys its environment except mankind. We are the only ones that do not accept and live within our comfortable means. We not only debt with our finances we debt with our environment. What we are borrowing in terms of petroleum, coal and natural gas takes millions of years for nature to make. Yet we are using it all up in just a few hundred years...we can never pay it back.

I think our countries future will be....'America...a Democratic, Communist Nation Under God.'

And maybe I am using the wrong word with communism? Maybe it should be Nationalism? Socialism? I don't know since I have little interest in politics.

As far for what I means, it could be compared somewhat to Plato's Republic. Where the republic came first and people came second. But with the US, the injection of Democratic values as well as a spiritual foundation that supports our country would 'hopefully' separate us from the atheist based communists that have been run as dictatorships.

Without energy our country is open for takeover ... no jets...no tanks...no transport on the ground or in the air. Luckily we will still have nuclear powered submarines and aircraft carriers as long as the uranium holds out. But the jets on the flattop all use jet fuel. All the supplies for those subs and carriers petroleum dependent. So long before the crude dries up the government must 'secure a supply' of crude for it own needs.

Other countries such as Russia that have a good supply of crude may not be so kind to keep on selling it to us and we need a 'local and continual' source somewhat within our borders. You see, jet fuel as well as gasoline deteriorates and cannot be stored indefinitely. So we must always be producing some of it to replace the stale stuff to supply the military. But, that's why we elect politicians to deal with these troubles

As our world changes and our drug supply dries up, things will only get worse. And the bigger the city - the bigger the hellhole it will become. And this time RIGHT NOW is the defining moment as to whether most of our population will die off or not in the crisis that awaits us in the not so distant future.

When it comes to the future, I see people living in miniature houses (the lucky ones that survive that is, after all most of the population died off long ago from starvation, freezing to death or from the riots) with roofs shingled completely with solar material.

They drive up to their house on an electric scooter that is recharged from their solar roof. If they are higher up the totem pole they may have a solar golf cart. But in either case, luck must still be on their side for without the sun shinning to charge it, their transportation sits idle. (Not much lead left to build big batteries...China gobbled it all up, so we have to make due with very small storage cells.)

They work for the government and in exchange the government feeds and clothes them from their warehouses. You see, we have become a sort of 'Communist Democracy' for without that bold leap and a desire 'to put our country first' Russia or China would have stepped in to acquire some new real estate.

The warehouses are fed from government owned coal fired steam locomotives. Diesel dried up long ago, so it was either wood or coal to fuel the trains. It did not take our government long to realize this. the electric plants only had to shut down sporadically for 8 months so until they could build the first of a large fleet of steam locomotives.

This was a 'slight' government oversight. They never figured that the coal fired power plants were fed with 'diesel powered' locomotives. They kept concentrated on the prediction that we had a hundred of years of coal left, but were oblivious as to how that coal is delivered to the power plant. But all these changes have some bright spots in them. As the coal producers were able to hire many more workers to manually mine coal, as the diesel powered mining equipment sit idle from lack of diesel fuel.

Now some of the states or bigger cities had the foresight to build one or two electric rail trolleys for public transport. Your only problem is getting to the main road to catch the trolley and then it is a straight ride to the government warehouse.

What happened to Private industry & Money?

Money is nothing more than stored energy. But since the crude dried up, the 'real energy' behind the money has vanished...and so did private industry. What about the coal mines...all government owned. If you want to eat you work..it is that simple.

So, what is money good for nowadays...to wipe your ass?

Not really, the government supplied toilet paper works better than that.

Martha Stewart syndrome died out long ago, now people are happy to eat rice and beans and get a clean glass of water to drink.

After all, the government can't afford to fool around decorating everyone's house, they can hardly produce enough food to keep a fraction of the population alive. Yes, tractors, reapers and farming is very crude intensive...but no one bothered to think about that as they continued to squander the worlds petroleum resources.

On a positive note, since most of the population died off from 'natural causes', the government does not have to worry about passing 'population control' any longer. They tried to get that universally opposed program passed for many years, but the public just would not go for it...too UN-American...goes against our religious upbringings...too controversial and all of the rest. We can still hear the cries now...Communist!...Atheist!...Baby Killer....Hitler....Impeach the President!!!!

Such objections are only subjective and prejudicial states of mind. As such, all problems related to 'controversial subjects' such as this are problems created in the mind...the mind of ego based, prejudicial man. If you find yourself being distracted with such thoughts as 'too controversial' just ask yourself if the proposed controversy is true, false or I don't know?

This introspective method may help you become truth based and not ego based. You will have made a 'choice divorced of need'...you wont 'need your ego' to support the truth...the truth will be able to stand on its own.

But nature helped us humans out with that hard decision - for nature does not discriminate nor find the truth too controversial or provocative or opinionated to be true. And in the end, nature settled the dispute of population control with even handed justice of 75% of our population dying off, ever reminding us all that nature does not bow to man...it is always man that bows to nature.

But, people hold no grudges against nature and are more in harmony with nature and enjoy a simpler life nowadays. People pick pine needles from trees to make their tea, since there is no jet fuel to import any Darjeeling tea or coffee. Once in a while people are able to kill a bird, a rat or cat to supplement their diet - so we still can find a place of gratitude in our life for such gifts.

Of course one problem still haunts the world?

The last remaining buckets of crude will soon be gone and they have still not found out how to make the tires for the solar powered golf carts and scooters without that critical ingredient of crude oil?

Add it all together and you have 'America...a Democratic, Communist Nation Under God.' as the 'best fit ' equation.

And for dessert add 'politics as usual' and we can see nothing substantive will be done in the US to fix our energy woes until it is too late. (Really it can't be fixed, we can only slowed down the inevitable at this point.)

See:

http://en.wikipedia.org/wiki/Who_Killed_the_Electric_Car%3F


BTW, do I like communism?

No, I like things EXACTLY as they are. But what I like doesn't matter...neither does what you like matter. That's the point, for the US to survive, we must put 'what matters to our country' on the front burner. And as our country survives so do we survive.

Alan Watts used to say, it doesn't matter what you think, it doesn't matter what you like, it doesn't matter what you hope for...all that really matters is what IS.

Sure we keep our treasured paper money, our guns, and what have you. The atheists can still be atheists and the Christians, Muslims and Jews can still worship as they like...that is why we would be a free democracy...of sorts.

But the difference is, instead of the ego based decisions that politicians and the titans of business get sucked into, they will put the long term viability as top priority over personal profit. We must all pull together and stop pulling in counterproductive directions.

The gov needs to cut the fat and stop all this foolish sickness that they are addicted to in Washington. Hire yourself some truth based philosophers and futurists as Socrates suggested in the Republic as an oversight committee to keep you guys on track.

One important thing would be to add an addendum to the constitution or bill of rights or whatever other documents that outlines what we are 'now' all about...something that is clear advice that we can all look to and not the 1000 page BS that politician use to hide their sickness.

And yes,...hiding behavior is a signpost of die-ease.

And put it right upfront in the addendum as to why things changed...we were energy whores and had no other choice.

But realize this, throughout history many great nations that once were are not around any longer. Hopefully the US will understand this and start accepting the truth that something has to give and it can't be business as usual...it doesn't matter what you like...it doesn't matter what you hope for...all that really matters is what is.



Take care,


V (Male)

Agnostic Freethinker
Practical Philosopher
Futurist

vfr: But realize this, throughout history many great nations that once were are not around any longer. Hopefully the US will understand this and start accepting the truth that something has to give and it can't be business as usual...it doesn't matter what you like...it doesn't matter what you hope for...all that really matters is what is.

"What is" doesn't look well for the US; we are using natural resources like oil as if there's no tomorrow, the average consumer and federal government is up to their/our eyeballs in debt, the value of the US dollar continues to decline, and Bush wants to continue the war in Iraq that spends 2.7 billion every week while the US infrastructure continues to deteriorate.

The final punch in the head is the sub-prime loan debacle that put the last nail in the coffin; the housing industry and all those related industries like appliance manufacturers, real estate workers, financial institution workers, and raw material providers are being laid off by huge numbers that outstrips any new job creation.

The downturn is for real; and the world's economy is shaking from this storm.

That the US stock market hasn't reacted properly to this environment is a mystery of all time; we're up over nine (9) percent for the year.

The imports from China continue to escalate wildly while their workers are exposed to toxins and unhealthy work environments - just so we can buy on the cheap. They are polluting their own environment to maintain their ten percent annual GDP growth. That's going to catch up with them and us sooner or later.

It's a crazy world where up is down, and down is .....

The basis of the problem is greedy, little people trying to get rich by riding the real estate market and have no other equity. They're now paupers and heading for the pauper sewer.

You, of course mean as a whole...But some individual stocks have taken and are still taking big hits.

Focus on the individual company and forget tangential crap and you'll end up being a wise investor.

Also...diversify...diversify...diversify....

CI:

I have long held the hypothesis that the constant and considerable amount of money being "forced" into the stock market as a result of 401k investing has driven the stock market from an "investment" market into a "commodity" market. i.e. there is a LOT of money chasing a limited amount of stock. The price of that "Commodity" HAS to go ever upward to meet demand.

You can see this effect with an IPO of any stock. The price goes crazy!

I'm interested to see if the 80 million "baby boomers" retiring over the next 15 years will have a serious effect on the "buy" pressure the current market exhibits. Since the "boomers" are the most "serious players" with 401ks as a group, removing that influx of money into the market SHOULD have a negative effect on the market overall.

Put that in context of a general downturn overall..... I doesn't look pretty IMHO.

Halfback

Halfback, I have read articles on the very subject of 401k's and how the market will react when the baby-boomers begin to retire and begin withdrawing their investments. It's a whole new ballgame when that begins to happen, and 401k investments begin to shrink.

The real problem may show up when those institutions do not have enough cash flow to pay off those withdrawals; more cash going out than coming in.

I'll probably be gone from this world when that begins to happen.

Another interesting issue about a drop in interest rates.

How a Fed rate cut raises oil prices
Expect even higher crude prices if the central bank cuts interest rates Wednesday.
By Steve Hargreaves, CNNMoney.com staff writer
October 30 2007: 8:02 AM EDT

NEW YORK (CNNMoney.com) -- If you think oil prices are high now, wait till Wednesday.

Oil prices seen rising if the Fed cuts interest rates.


"If the Fed cuts rates, it will probably push oil prices higher," said Adam Sieminski, chief energy economist at Deutsche Bank.

There are a couple of reasons lower interest rates usually cause higher oil prices. The first is lower interest rates are designed to spur economic growth by making money for investment cheaper to borrow. Stronger economic growth usually entails using more energy, so traders bid up oil prices on the expectation of higher demand.

CI:

For investment houses, there is not the question of cash flow.... the only exception is when a "seller" wants to cash in and there is no buyer. In that case, your investment is worth exactly zero. i.e. Customer sells off stock for 500k, no matter what was paid for that stock, it is only going to get you 500k today.

I often hear potential retirees telling me how they have 150k, 200k, whatever, salted away for retirement. No, they do not, except for the "paper valuation" at this particular moment in time.

I remember quite well customers of my bank telling me how they lost 30k or whatever in the "minor" market adjustment of the late 80's.

It all works the same way, if your entire holdings are in "the market" your potential for gain is (historically) high, but your potential for loss is equally high. What your investment is worth is only worth talking about the day you draw it out in dollars. It's what we call "paper worth".

Halfback

My brother-in-law had his dental practice before I even graduated college, and we're the same age. My working career was 30-years long, and he just retired two years ago. He lost a bundle when the tech bust hit his retirement funds; our investments were diversified, so we lost some, but not enough to impact our total much, since most years we were gaining over 20 percent/year.

I keep track of our retirement funds regularly; weekly (every Friday), Monthly, year-to-date, 24-months, and 36-months. Our past three year average increase has been over ten percent - even after our spending.

$200 thousand isn't all that much for retirement, when one considers you must have enough in retirement to cover 70-percent of pre-retirement income to live at the same standard.

The way I look at the market today is very simple: they're all in Vanguard funds except for our cash in savings accounts, CDs, and checking. The ratio of investments is 40/60 with equity/bond funds.

I transferred most of our institutional investments and consolidated them into Vanguard, because I do not wish to "manage" anything during my remaining years and to just enjoy life.

Finally, I honestly feel that we must have "some" faith in our economy and the stock market; otherwise, everybody in this country will be suffering. I doubt very much that extreme is in the books during my lifetime, although things will certain get worse during the next few years while the sub-prime debacle gets cleaned out from the balance sheets.

I've sold 87 percent of our year-to-date gains when the market hit close to 14,100, so it doesn't matter much what the market does for the rest of this year.

The market seems to be faltering now days to see what Bernanke does to interest rates, and how some companies are doing with their bottom line.

I'll stick with our Vanguard Funds. Not too bad for a guy who almost flunked out of high school; my wife's retirement should be a breeze.

You have done exactly what a Certified Financial Advisor would have advised for someone your age.

I know, I was one once!

Halfback

Playing the stock market is one of my pleasures. It's play money and not something I have to rely on.

BTW I came across this;

I should pay more tax, says US billionaire Warren Buffett
Andrew Clark in New York
Wednesday October 31, 2007

Guardian

The United States' second-richest man has delivered a blunt message to the Bush administration: he wants to pay more tax.
Warren Buffett, the famous investor known as the "Sage of Omaha", has complained that he pays a lower rate of tax than any of his staff - including his receptionist. Mr Buffett, who is worth an estimated $52bn (£25bn), said: "The taxation system has tilted towards the rich and away from the middle class in the last 10 years. It's dramatic; I don't think it's appreciated and I think it should be addressed."

During an interview with NBC television, Mr Buffett brandished an informal survey of 15 of his 18 office staff at his Berkshire Hathaway empire. The billionaire said he was paying 17.7% payroll and income tax, compared with an average in the office of 32.9%.

"There wasn't anyone in the office, from the receptionist up, who paid as low a tax rate and I have no tax planning; I don't have an accountant or use tax shelters. I just follow what the US Congress tells me to do," he said.

Mr Buffett also took a pot shot at hedge fund managers. He said: "Hedge fund operators have spent a record amount lobbying in the last few months - they give money to the political campaigns. Who represents the cleaning lady?"

His intervention comes amid an increasingly rancorous debate on Capitol Hill about tax. Shortly after taking office, President Bush pushed through $2 trillion in temporary tax cuts, including sharp reductions for high-earners. These expire at the end of 2010 and the White House wants to renew them.

A leading Democrat, the Harlem congressman Charlie Rangel, published alternative plans this week that would impose a 4% surcharge on people earning more than $200,000 a year, while delivering tax relief to 90 million working families.

Republicans say the net effect would be a $2 trillion tax increase that would hurt small businesses and farmers. Meanwhile, Mr Buffett's remarks drew a robust response from the US Chamber of Commerce, which said the top 1% of US earners accounted for 39% of tax revenue - and the highest earning 25% of the population delivered 86% of the tax-take.

The chamber's chief economist, Martin Regalia, said: "Mr Buffett has made an awful lot of money and if he wants to pay more taxes, I think that's fine. But I think he should get his facts straight."

He added: "There's no question in my mind: if you were to impose [the Democrats'] tax increases, you would see the US go into a recession."

http://business.guardian.co.uk/story/0,,2202020,00.html

Do you suppose this Buffet guy might be one of those terrorist loving communist?

The rich pay more taxes?

God forbid.

No.

He understand that he has derived his fortune as a result of the freedoms provided by the US and he understands his Patriotic Duty to re-distribute SOME of his wealth downward. He understand the danger of a "FAIR TAX" and how it will ultimately lead to an aristocracy. He understands that his HEIRS have no RIGHTS to his property and supports a continuance of the Estate Tax.

Touts like Forbes, Romney and all the others who call for either "FAIR TAX" or abolishment of the Estate Tax are the dangerous people in this Nation.

You are basing your assumptions it would seem that as these people retire the flow of $'s into 401 K's will abruptly cease. Nonsence, it will continue with the nexrt generation of "baby boomers" or whatever they are called. In fact as companies continue to drop pension plans it will IMO increase.