Where is the US economy headed?

@realjohnboy,

rjb, perhaps bankruptcy would not be the end of all of the companies, but it would force real reform of how they do business, so I lean toward that myself as perhaps a more foolproof way of insuring real reform of the business model.

"Bailout" may be the wrong word for this. Unless the problems are fixed, bailout only means loaning more money to a failed business operation, which will result into bigger and bigger bailouts or eventually a bigger bankruptcy case at the end. I might agree with loaning money if certain things are stipulated, such as unloading some really bad baggage from the past, union packages, retirement packages, etc., but isn't this difficult to do without a bankruptcy proceeding?

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@okie,

I don't think we disagree, Okie, I have been in retail for 40 years. If I do something stupid, I don't expect to be bailed out.
I think that the big 3 will get a bunch of money. The government has been assisting (bailout is the shorthand) other industries, and it will happen here.
Bankruptcy filings, the big 3 claim, would be the kiss of death. Perhaps, or perhaps not. I fly regularly on airlines that are going through that.
Finally, I don't envy members of Congress who may be voting on this. I think I know what is the correct vote but...what if I am wrong.

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@realjohnboy,

I think we do agree. Not in retail, but I have run my own business now for alot of years, and let me tell you that I greatly respect anyone, including you, for success and running a business. By virtue of our experience, I believe that we probably understand what needs to be done more than most politicians, many or most of which have never run a business.

Although this is a very thorny problem, I think one could fall back onto some fool proof principles, and first and foremost unless the people figure out why their business model is failing, simply throwing more money at a failed operation is not going to fix the problem. And further, there is a principle of taking responsibility and being held accountable, and bankruptcy does that, plus it sends a message to other businesses and the unions that are also part of the problem. Perhaps a wakeup call is paramount here in the long term. If the business model was sound, then banks would in fact loan them the money instead of them having to beg the government for help. I also think the government is part of the problem, and thus they are not the best candidates to fix the problem, that they themselves helped create.

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Question for folks here, in regard to a facet of the economy, and this relates to the auto industry. Some southern states have given huge incentives, amounting to hundreds of millions in some cases, to bring in auto makers to create jobs. These manufacturing operations directly compete with existing auto manufacturing business in the country. Other factors also come into play, such union laws in some of the states, so that manufacturers can hire non-union labor, but the fact remains that the taxing has created an uneven playing field.

Now, I guess if a state chooses to not tax all business in a state, or general sectors of business such as manufacturing, that would be one issue, but when taxes are unevenly applied between one company and another, I have been totally opposed to this practice since I first noticed it a long time ago, based upon my belief that it is unethical, the taxes are not being applied fairly.

I have seen it done locally, whereas counties or cities attract a large retailer by waiving their property taxes for a period of years. Again, this is hugely unfair. I was gratified to see one city refuse to buckle under the pressure of Home Depot to grant them tax waivers for a few years, and the city council told them that it would not be fair to the existing hardware stores that had been paying lots of tax and would continue to do so. Home Depot moved into the town anyway because they wanted a store there, so I was proud of the council for not being brow beaten into essentially what would be bribery, not personal bribery, but government bribery.

So, what I am saying here is that states are free to practice their chosen rates of taxation, but that should be equally applied to all businesses or sectors of businesses throughout the state, no favoratism whatsoever to bribe a company into building a plant there. So this practice of business bribery, I am surprised this has not been declared unconstitutional? Not a lawyer here, but it would be common sense application of law in my opinion. Bottom line, free enterprise depends upon a level playing field, and favoratism between companies is a blatant case of making an uneven playing field, it is absolutely corrupt.

Another issue, unions, I believe the right to work without belonging to a union should be a basic human right that should be mandated throughout the country. There is a difference in laws between states, and this is also creating havoc in the auto industry. Has there been any court cases in this regard?

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@realjohnboy,

It also seems most the members of congress are going at this bailout of the 3 car companies like three blind mice. They use words like "hope" rather than "this is the outcome of the bailout" to give billions to companies with both feet already in the grave. "Retooling" is not the problem when all car companies are not selling cars. What are they going to "retool" for? Keep the machinists and computer programmers busy for a few months? Then what? The cars in the showrooms are not moving. That should be the major clue why this short-term bailout is worthless.

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@cicerone imposter,

cicerone imposter wrote:

It also seems most the members of congress are going at this bailout of the 3 car companies like three blind mice.

Its all about your Democrat buddies being beholden to their union thug supporters, ci. They cannot bear to allow the companies that have been run by the unions into the ground to fail, as that would be like poking a stick into the eye of their supporters, the "working class," as if union members are the only people that work. They refuse to admit the failed business model includes the failed union model of browbeating companies into unsustainable pay and compensation packages.

Go ahead and call me an idiot without a brain, but you know its the truth, ci.

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I heard a teaser on NPR yesterday (Monday) about the topic on Talk of the Nation: "How Much Should It Cost To Make A Car?" It seemed to promise a discussion of bad management decisions re design etc as well as labor contracts that were not sustainable. I wasn't able to hear it, but will try to do that tomorrow from their archive.

In other news, oil fell again today to $42 a barrel. The number that caught my eye was the projection (Reuters reported it) that demand is on target to drop by 50,000 a day through December. And then, in 2009, by, I thought I read, 450,000 a day. That is worldwide. Do you think, Okie, oil could break the $40 mark before the end of the year?
And this, the U.S. Treasury sold something like $57 billion in 4-week and 3-month T-Bills today that will yield the buyers 0% interest. How cool is that?
Some of it is "window-dressing" by the mutual funds. They want the month end statements to investors to show that their money is securely invested. They won't bother to mention the 0% interest until later on.

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@realjohnboy,

Quote:

4-week and 3-month T-Bills today that will yield the buyers 0% interest

this is troubling for many reasons
a) this means that capital is not out in the economy working, which is very bad for prospects of a recovery
b) WTF is the government doing issuing such short term debt? We need this debt carried for a generation, how about some long term debt vehicles while we can still get decent rates?
c) how scared are people that they will pay the government to hold their money for four months (as it was actually a neg percentage rate-not zero)??

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@realjohnboy,

some more detail on ZERO % T-bills from BUSINESSWEEK :

http://www.businessweek.com/investing/insights/blog/archives/2008/12/investors_are_e.html?chan=top+news_top+news+index+-+temp_news+%2B+analysis

from the post :

Quote:

The U.S. Treasury completed a remarkable auction of four-week Treasury bills today. No surprise that there was a ton of demand for the only investment still viewed as a safe haven " there were bids worth $120 billion for the $30 billion of bills being sold. But how low did bidders go on the yield they’d accept to own the bills? All the way down to zero. That’s right, the U.S. government just borrowed $30 billion at a cost of zero percent interest. That follows yesterday’s auction of 3-month T-bills at the microscopic rate of 0.005%, the lowest since the long-running 3-month maturity first hit the market in 1929.

According to a Bloomberg report on the bond market today, the 3-month bills are now trading at a negative yield, meaning buyers get a guaranteed loss, albeit a small one. One trader cited by Bloomberg noted that companies are eager, even desperate, to show they hold only ultra-safe T-bills on their balance sheets for fourth quarter earnings reports so they’re willing to accept the negative or zero yields.

it seems that there is quite a high demand for these zero % investments .
but perhaps it's better getting 0 % than taking a further licking in the market .
i should have taken out what little money i had in the maket a year ago . i think i'll just ride it out now . perhaps NOT acting is the worst for me to do , but ...
hbg (looking for the `silverlining` )

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a cool tool an Slate for the cost of the bailout of the economy
http://www.slate.com/id/2206356/
as of nov 25 $5.6 trillion committed

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documenting that these t-bills are trading negative

Quote:

And when investors traded their T-bills with each other, the yield sometimes went negative. That's how extreme the market anxiety is: Some are willing to give up a little of their money just to park it in a relatively safe place.

"No one wants to run the risk of any accidents," said Lou Crandall, chief economist at Wrightson ICAP, a research company that specializes in government finance.

http://biz.yahoo.com/ap/081209/meltdown_treasurys.html

Yet another sign that we are in some deep deep ****.

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@realjohnboy,

I have seen predictions for oil going yet lower, rjb, that would not surprise me now, but in the longer term it has to come back. I would be buying oil stocks, except for 2 reasons, it doesn't seem like oil stocks have fallen as far down as they might or will according to the market drop for oil and lowered expectations, and another factor, how will Obama be messing with oil companies, windfall profits, usurping their role with government programs, etc.? That is a huge uncertainty. Given the market by itself, I would be buying stock for companies that have reserves, except the political instability and Robin Hood politics being played now kills my enthusiasm for it.

If Obama is killing my enthusiasm, how is the Obama effect killing other investors enthusiasm? I am a small time investor, not much money, but wouldn't my thinking be similar to the big players?

Here is an interesting video from back in July with guys talking about the potential "Obama Market Effect." At that particular time, the DOW was about 12,300, and that was the point at which Obama had sewn up the nomination. We see the Obama Effect has now helped suppress the market all the way down to about 65% of the value at that point. I say, "helped," and I sincerely think it has "helped" drive the market down along with other factors, as instability and uncertainty is rampant. We have a guy elected that investors wonder if he actually believes in the free market, and that is huge, that is a monstrous black cloud hanging over the market. Now if once he gets in, if he acts to gradually restore some confidence, it could rebound to some extent, that is iffy in my opinion, but if he has any brains at all, he will do what he instinctively doesn't want to do, and that would be to allow business to do what they do unfettered.

http://www.truveo.com/Obama-Market-Effect/id/1083318478

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@hawkeye10,

I am not arguing with you, hawkeye, but here is a bit of a spin on the 0% thing. We here in Cville/Albemarle had to pay our semi-annual real estate taxes by December 5th. In my case it was $20,000 all combined. Many millions amongst property owners in the area. That money can't be left lying around the office or even in a bank. Instead it will be invested in T-bills until it is needed to pay the cops and teachers etc over the next few months. It is safe and available as needed over the short-term. That is why the Treasury offers such short maturities. Safe and liquid, but at the moment yielding zip in interest.

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@realjohnboy,

rjb, You are correct; t-bills are still very safe even with its low interest rates. Our monetary system is the only tool we have for our economy to operate and remain viable. If our money system goes, so does all the economies of the world.

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@realjohnboy,

the feds should not be structuring the debt to suit the best interest of the holders of capital, it should suit the best interest of the taxpayers. we can sell 30 year notes at 3% right now, we should have all of our long term debt in long term notes. This does not happen however, the Government has been criticized for as long as I can remember for having way too much short term debt. This is an unnecessary risk. The more short term debt we have the more power we hand over to China, the oil states and the other heavy hitters, as they have a huge say in the cost of rolling over US short term debt. It is not beyond the moral constitution of our bankers to attempt to dictate terms, as in America must do x or else money will not be invested into America.

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Quote:

Dire Forecast for Global Economy and Trade

By MARK LANDLER
Published: December 9, 2008
WASHINGTON " The world economy is on the brink of a rare global recession, the World Bank said in a forecast released Tuesday, with world trade projected to fall next year for the first time since 1982 and capital flows to developing countries predicted to plunge 50 percent.

The projections are among the most dire in a litany of recent gloomy forecasts for the world economy, and officials at the World Bank warned that if they proved accurate, the downturn could throw many developing countries into crisis and keep tens of millions of people in poverty.

Even more troubling, several economists said, there is no obvious engine to drive a recovery.

American consumers are unlikely to return to their old spending habits, even after the United States climbs out of its current financial crisis. With growth in China slowing sharply, consumers there are not about to pick up the slack from the Americans. The collapse in oil prices " a side effect of the crisis " has knocked the wind out of consumers in oil-exporting countries.

http://www.nytimes.com/2008/12/10/business/worldbusiness/10global.html?hp

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@okie,

[quote="okie"

Here is an interesting video from back in July with guys talking about the potential "Obama Market Effect." At that particular time, the DOW was about 12,300, and that was the point at which Obama had sewn up the nomination. We see the Obama Effect has now helped suppress the market all the way down to about 65% of the value at that point.
[/quote]

Oh, come now, Okie, Back in July Obama had the primaries and the general election wrapped up (really?) and THAT caused the Dow to go from 12,000 to 9,000? Nothing attributable to the collapse of Fannie, Freddie, a few banks and insurance companies. Nothing about staggering home foreclosures and mortgage deliquincies. Massive layoffs throughtout the ecomomy from blue collar workers to white collar workers throughout the country.
It is the Obama Effect, huh?

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@realjohnboy,

You may be right, blaming the entire drop on the Obama Market Effect, is a bit partisan, but remember I said it was only part. True, Fannie and Freddie, banks, and insurance companies are the bulk of it to the election, however you must remember the days immediately following the election, it was the largest post election drop of the DOW in American history, rjb. I know the media has not been repeating this, but there is no doubt at all that an Obama chill continues to trouble investors. I have never claimed that was the only factor, or even the primary factor, but I do believe it to be a valid factor in the mix. And the video I posted clearly recognized the existence of this factor, the Obama Market Effect. This is merely another thing the main stream media chooses to ignore, but it is an elephant in the room with every acquaintance with money that I have talked to.

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I am thinking, Okie, that this auto-bailout will happen. But I would never bet on it. Never. The House may vote yes, but the Senate is another matter where there is bail-out fatigue and displeasure with the unions.
I thought a congressman from SC had a cool line today (which I may or may not agree with): The auto companies have "...the barnacles of unionism wrapped around their necks." Great, if not plausible, imagery.

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@realjohnboy,

considering that even as of two weeks ago Congress had bail-out fatigue, and add to this that it is now known that the financial sector bailout money has not been used as Congress had intended it to be (http://www.washingtonpost.com/wp-dyn/content/article/2008/12/10/AR2008121001024.html?hpid=topnews), I would not hold my breath expecting an auto industry bail-out.

1 Reply

Where is the US economy headed?

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