Where is the US economy headed?

cicerone imposter wrote:

Mr Gore is a hypocrite. His homes (yes, plaural) uses more energy in one day than most families uses in a year.

During my travels, I help the economies of many countries, and provide jobs to many. Many third world countries depend on tourism as their major economy.

If you learned anything, it's not much.

I think we are making progress, cicerone. Point no. 1, we agree. Point no. 2, we agree. Point no. 3, well, I admit I don't know alot, but don't you think we all fit into that category?

By the way, forget the questions I asked. I guess you don't wish to answer.

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Crossposted from the Bush supporters thread..

On tax-cuts and revenues

I happened upon some quotes..

George Bush..

Quote:

Bush hailed the dwindling deficit as a direct result of "pro-growth economic policies," particularly huge tax cuts enacted during his first term. "Tax relief fuels economic growth. And growth -- when the economy grows, more tax revenues come to Washington. And that's what's happened," Bush said.

..and John McCain..

Quote:

McCain was recently interviewed by National Review's Ramesh Ponnuru and asked if there were any circumstances, including the guarantee of spending cuts, under which he'd consider repealing the tax cuts he denounced and voted against. He replied: "No. None. None. Tax cuts, starting with Kennedy, as we all know, increase revenues."

..versus Alan D. Viard, a former Bush White House economist now at the conservative American Enterprise Institute..

Quote:

We all know that? In fact, economists know that this is not true. Conservative economists know this isn't true. Even conservative economists who work in the Bush administration have admitted this isn't true. As former Bush economist Alan Viard, now at the conservative American Enterprise Institute, said: "Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that."

Quote:

"Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that."

..and the (pre-November 2006) Congressional Research Service:

Quote:

Economists at the nonpartisan Congressional Budget Office and in the Treasury Department have reached the same conclusion. An analysis of Treasury data prepared last month by the Congressional Research Service estimates that economic growth fueled by the cuts is likely to generate revenue worth about 7 percent of the total cost of the cuts, a broad package of rate reductions and tax credits that has returned an estimated $1.1 trillion to taxpayers since 2001.

Robert Carroll, deputy assistant Treasury secretary for tax analysis, said neither the president nor anyone else in the administration is claiming that tax cuts alone produced the unexpected surge in revenue. "As a matter of principle, we do not think tax cuts pay for themselves," Carroll said.

Links:
The Washington Post (17/10/2006): Lower Deficit Sparks Debate Over Tax Cuts' Role
TNR: John McCain is like a fallen Jedi knight

The WaPo article concludes:

"Without question, the deficit is receding. [..] If growth induced by Bush's cuts doesn't explain the surge, where did all those extra tax dollars come from? The short answer is spectacularly high corporate profits and the advancing fortunes of wealthy Americans, economists said."

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7% of the tax cuts doesn't seem like a good deal for our national deficit.

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Good evening. So the stock market had a rather bad day on Tuesday. It probably isn't anything to get overly worried about, is it? Retail sales for February are looking a bit soft.
The big news affecting the market was the deliquency/defaults/foreclosures on sub-prime mortgage loans.

In plain english: a lot of money was lent to a lot of folks who bought houses that they really couldn't afford but they got great finiancing and as long as real estate kept increasing in value and interest rates stayed low, they would be fat and happy.
But the bubble is bursting in the real estate market. A lot of folks are reading the fine print in their loan documents and are discovering that they now have to pay much more than they used to pay each month. And so begins a downward spiral in real estate, retail sales and the stock market.

Can we blame it on President Bush? I don't think so.

"The fault, dear Brutus, lies not in our stars, but in ourselves..."

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realjohnboy wrote:

Good evening. So the stock market had a rather bad day on Tuesday. It probably isn't anything to get overly worried about, is it? Retail sales for February are looking a bit soft.
The big news affecting the market was the deliquency/defaults/foreclosures on sub-prime mortgage loans.

In plain english: a lot of money was lent to a lot of folks who bought houses that they really couldn't afford but they got great finiancing and as long as real estate kept increasing in value and interest rates stayed low, they would be fat and happy.
But the bubble is bursting in the real estate market. A lot of folks are reading the fine print in their loan documents and are discovering that they now have to pay much more than they used to pay each month. And so begins a downward spiral in real estate, retail sales and the stock market.

Can we blame it on President Bush? I don't think so.

"The fault, dear Brutus, lies not in our stars, but in ourselves..."

On Bush?

Well, one can say that he encouraged a rather lax regulatory environment.

The Republicans and the DLC Democrats pushed through the Bankruptcy bill a few years ago(Thanks Senator Biden!(D-MBNA). That's going to make this whole thing a lot worse.

Alan Greenspan played his role as well, encouraging the usage of Adjustable Rate Mortgages that he knew were going to blow up eventually in this fashion.

There are a lot of people to blame, but the vast majority of them are regular Americans who got in over their heads. What are we going to say to them?

Cycloptichorn

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While the honeymoon lasted when real estate values continued its upward trend, refinancing was the name of the game to take equity as cash. That's part of what kept our economy rolling along. What is happening now is that the adjustable rates are now going higher and higher, and the payments are now looking like monsters and taking away from the real needs like food and gas.

Way over their heads, because the lenders got greedy by loosening the asset/income requirements to devvy out the loans to people who should never have been buying.

Bankruptcies will be going upwards, and that's going to get a whole lot of lenders into cash problems and holding over-valued real estate to boot with no buyers.

Fun times are ahead for our economy.

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realjohnboy wrote:

Can we blame it on President Bush? I don't think so.

"The fault, dear Brutus, lies not in our stars, but in ourselves..."

I like your reasoning. There is no reason why any able bodied person cannot succeed in this country if they study, work, show up on time, in other words be responsible, don't become a drunk or drug addict, do what the boss says, don't quit a job every week, and live within their means. In other words, don't buy a $300,000 house if you should rather afford a $150,000 house, or a $90,000 house. Of course prices vary considerably from area to area, but in some areas of Oklahoma, a $100,000 house is extremely nice and roomy, probably 3 or 4 times larger than an average flat in London that may cost many times that. We have it pretty nice here, folks.

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Cycloptichorn wrote:

regular Americans who got in over their heads. What are we going to say to them?

Cycloptichorn

I would say:
Do you really need an 8,000 sq ft house on five acres? And two SUV's plus another one for each teenager who gets a driver's license?
And a flat tv on every wall and a sound system that..well, you get the idea.
I don't blame Mr Bush, the Republicans or the Democrats, or Mr Greeenspan. I repeat what Caeser said to Brutus: The fault lies in ourselves.
Many of us here on A2K are the sons and daughters of folks who grew up during the Depression era. Our parents or our grandparents knew that time. My grandmother had a box labeled "Pieces of string too small to save." And it was full of pieces of string.
We are in a country and an era of conspicuous consumption now. Can the "government" contain it? Should the "government" even try to contain it? Or should we leave it largely to the free market system, where at some point there is no bigger fool to sell to and the house of cards collapses?
Thank you for reading this. -johnboy-

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Updated:2007-03-14 09:11:46
Trade Deficit Sets Record for Fifth Year
By MARTIN CRUTSINGER
AP
WASHINGTON (March 14) - The deficit in the broadest measure of trade set a record for the fifth consecutive year even though the imbalance in the final three months of 2006 shrank, reflecting a lower foreign oil bill.

The Commerce Department reported that the imbalance in the current account jumped by 8.2 percent to $856.7 billion, representing a record 6.5 percent of the total economy. For the fourth quarter, the deficit shrank by 14.6 percent to $195.8 billion, the smallest quarterly imbalance since the summer of 2005.

Even with the fourth quarter improvement, administration critics say the soaring deficit for the whole year shows the failure of President Bush's trade policies to protect American workers. They contend that America is going into hock to foreigners at an alarming rate even though they have been more than willing so far to hold American assets in return for sales of televisions, cars and other goods to U.S. consumers.

The current account is the broadest measure of trade because it covers not only trade in goods and services but also investment flows between countries. It also represents the amount of U.S. assets that have been transferred into foreign hands to cover the gap between American exports and imports.

A deficit of $856.7 billion in 2006 meant that the United States was borrowing more than $2 billion daily to finance its trade gap. So far foreigners have been quite happy to sell to the United States and hold dollars in return, money that has been invested in U.S. Treasury securities, the stocks of American companies and other assets.

However, the concern is that if foreigners lose their appetite for U.S. investments, it could cause a big plunge in the value of the dollar, send stock prices crashing and interest rates soaring. If the adjustment were large enough, it could push the country into a recession.

While believing that the current account will have to come down in coming years, many economists also think the adjustment can be made at a more gradual pace that will not seriously disrupt the U.S. economy.

The $195.8 billion deficit in the fourth quarter was down from a third quarter deficit of $229.4 billion. The drop reflected a big decline in oil prices during the period compared to record oil prices hit last summer.

Many economists believe that America's trade deficit will start to show gradual improvement this year as long as oil prices do not surge again. Part of the optimism reflects growth in U.S. exports, which are being spurred by stronger economic growth in many of America's major markets and also a weaker dollar against such currencies as the euro.

A lower value for the dollar makes foreign trips for American tourists more expensive but it lowers the price of U.S. products on overseas markets, boosting exports.

The Bush administration has warned against a protectionist backlash in this country from the huge trade deficits. But Democrats, who gained control of both the House and Senate for the first time in 12 years, contend that the administration needs to do more to protect American workers from unfair competition from low-wage countries with lax labor and environmental regulations.

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au, This is exactly the reason why the federal reseerves plays with the short term interest rates is malarky. The reality is there's too much dollars floating out there without anything to back it up. That alone is inflationary. The governments stats telling us that inflatioin is only two or three percent per year is a bunch of BS.

Simply put, if there's $1,000 for every conceivable product that now cost $10, the real cost should be closer to $1,000. It's economics 101; supply and demand. Too many dollars chasing too few goods and services.

I see the US dollar losing value against all currencies, because we're the only country with too much consumer and government debt. People are spending borrowed money; money with nothing to back it up. In other words, monopoly money.

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I'm actually starting to get pretty worried. The mortgage market is worse than I had anticipated.

I read a great comment earlier today, that we're still in an Expansionary period. If we enter a recession, with the mortgage problems we have today... people are going to lose their shirts left and right.

Cycloptichorn

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Cyclo, That's right! The default on mortgage loans are skyrocketing. People need to understand that those loans are provided from investments made by "average" Ameriacns. When defaults increase, the finance company has no way of converting the real estate into money, because there are less buyers and more sellers.

Real estate values will come down, because those same finance companies can't afford to just hold assets that doesn't produce income. Many sub-prime lending companies have already went bankrupt. More will come as people default on their loans.

This will spiral into our economy, and recession will be the result. This is a given, becaues our productive capacity of two to three percent growth per year is very fragile, and cannot be maintained when equity can't be converted into cash to be spent by the consumer.

Hang onto your hats; the storm is coming soon.

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Negative Equity and the Bankruptcy Bill mean that we won't be able to get out from under the problem easily, either.

Quote:

$1,300...$2,000...there goes your mortgage
When they bought their home in 2004, the Sanons had a feeling they were getting in over their heads - they were right.

By Ellen Florian Kratz, Fortune writer
March 14 2007: 10:47 AM EDT

NEW YORK (Fortune) -- Jemima and Ricardo Sanon, 30 and 29, saw the possibility of trouble before they ever signed their mortgage documents in 2004.

The Sanons had diligently saved $5,000 in preparation to buy their first home, but the sum was just enough to cover the closing costs. So to finance the $290,000 purchase price of a Waltham, Mass home, they took one loan for $232,000 and also a piggyback loan for $58,000, both from New Century Financial, a subprime lender.

The smaller of the two mortgages didn't worry them. The terms were fixed for 30 years at 10.7 percent, and the monthly payment of $538 was something they felt they could handle.

But the larger loan was fixed for just two years. After that, the rate would adjust every six months, which is typical for subprime borrowers.

"I worried about how we would make payments when they increased," said Jemima, a medical assistant. "The mortgage broker [at New Century] told us we could refinance." A spokeswoman for New Century declined to comment on the specifics of the Sanon's case citing privacy issues, but she did issue this statement: "New Century is offering special programs that are designed exclusively for current New Century borrowers who are most susceptible to payment shock at the reset of their loans."

Fast forward a couple of years, and the Sanons, like so many other subprime borrowers today, are struggling to keep their heads above water. As the housing market boomed, refinancing or selling your home was a simple solution for borrowers who had trouble making the mortgage payment. Now that the housing market has stalled, subprime borrowers are stuck with loans they really couldn't afford in the first place.

Defaults and foreclosures are rising, and the industry is roiling as lenders face the consequences after years of handing out money irresponsibly. Says Bruce Marks, CEO of Neighborhood Assistance Corporation of America, a non-profit that is trying to help the Sanons and other subprime borrowers refinance into sensible mortgages: "Lenders knew these loans were structured to fail."

For the Sanons, the initial monthly payment on the larger loan was some $1,300. Two years later, that payment jumped to over $1,800.

As a result of the sticker shock, the couple fell behind on their credit cards and student loans.

In November, Jemima had to leave her job for several months because of a difficult pregnancy, which put them even further behind on the bills. She recently returned to work. But not in time to stay current with the mortgage; in February, the Sanons paid late. Now the March payments are due, and the latest adjustment has pushed the sum on the larger loan to over $2,000.

After the first adjustment, Ricardo called Litton Loan Servicing (the company currently servicing the mortgage) to try to work something out. "They threatened us," he says. "They said, 'If you don't make your payment, we'll foreclose.'"

Says Larry Litton Jr., CEO of Litton: "Tell them to call my office. If they can show us through their financial statements that they're going to have problems affording the escalated payment, we will be more than happy to modify that loan that day because the last thing we want is that house back."

Ricardo says, No thanks. He's working with Marks' organization to try to get into a loan that makes sense.

In the meantime, he has been logging seven days a week at the drug store where he is employed as an assistant manager to keep up with the house payment. With their newly blemished credit record, the couple hasn't yet been able to refinance out.

"We want to keep our house," says Jemima. "But we can't do it with the mortgage we have right now."

Multiply times a million, and that's the problem we face.

The problem is easily summed up -

"Lenders knew these loans were structured to fail."

Cycloptichorn

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I will agree that lenders nowadays are unscrupulous. Also include credit card issuers; they hand them out like candy these days. Of course they make money on huge interest rates off of cards, with no regard to stupid irresponsible people, and home lenders can take back the houses and repeat the process. The only way for people to smarten up and avoid being taken advantage of, is to just be smarter than the banks. Never pay any interest on credit cards, and don't buy the biggest house the real estate agent will tell them they can afford.

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okie wrote:

I will agree that lenders nowadays are unscrupulous. Also include credit card issuers; they hand them out like candy these days. Of course they make money on huge interest rates off of cards, with no regard to stupid irresponsible people, and home lenders can take back the houses and repeat the process. The only way for people to smarten up and avoid being taken advantage of, is to just be smarter than the banks. Never pay any interest on credit cards, and don't buy the biggest house the real estate agent will tell them they can afford.

I agree completely.

Part of the problem we face is that fact that banks and mortgage lenders used to assume much more risk when they loaned money than they do today. Thanks for that, Senator Biden(D-MBNA)!

Cycloptichorn

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Cycloptichorn wrote:

I agree completely.
Cycloptichorn

Wonders never cease. Have a good evening, cyclops.

Even snood agreed with me pretty much completely on something the other day.

Maybe theres hope yet?

I even agree with cicerone once in a great while! It is rare I have to admit, but it does happen once in a great while.

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Cycloptichorn wrote:

"Lenders knew these loans were structured to fail."

Cycloptichorn

But did they realize that? Or did they simply not care? Their bonuses for 2004 were based on how many loans they closed.that year. By the time the **** hits the fan in 2007 or 2008, they will be long gone. And if the sub-prime lender ends up with a bunch of over-priced houses, no problem. Go bankrupt and some Wall Street bank will end up taking the hit. But the persdn at Goldman Sachs got his bonus for 2004 and has also moved on.

(ps: Isn't it nice to be nice to each other? I would post a few of those f*@king smiley faces, but I can't stand them).

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realjohnboy wrote:

Cycloptichorn wrote:

"Lenders knew these loans were structured to fail."

Cycloptichorn

But did they realize that? Or did they simply not care? Their bonuses for 2004 were based on how many loans they closed.that year. By the time the **** hits the fan in 2007 or 2008, they will be long gone. And if the sub-prime lender ends up with a bunch of over-priced houses, no problem. Go bankrupt and some Wall Street bank will end up taking the hit. But the persdn at Goldman Sachs got his bonus for 2004 and has also moved on.

(ps: Isn't it nice to be nice to each other? I would post a few of those f*@king smiley faces, but I can't stand them).

I've always found it to be nice to be nice to you, RJB. You are reality-based.

I think that they absolutely did realize how bad it would get, yes. In fact, I think that much of their business model has come to resemble banks and credit cards, who make ALL their profit off of late fees.

Cycloptichorn

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A CAT IS CRAWLING UP MY PANTS
We all are aware that there is an underground economy in the US. A cash economy, where goods or services are exchanged for cash.

Many of the exchanges are repugnant to us: prostitution or drug dealing, for example. The income earned is, obviously, never reported to the IRS.
But I suspect that all of us have broken the law. We paid the neighbor kid to shovel our walk of snow ($20 in cash), or the baby sitter ($30 in cash), or we may have won $100 in the office pool. None of this stuff ends up on anyone's tax return.

How big is the underground economy- the off the books economy, in the US? I suspect it is huge.

The title to this little essay came from a NYC reporter who bent over a newstand and he heard his pants rip. The vendor directed him to a nearby shop with the instruction to say the headline here. He went to this tiny shop but was, after he muttered the phrase, led through a door and there he saw dozens of folks sewing. It was, as he discovered later, a totally off the books business, They bought materials for cash, they paid the workers in cash, and they sold for cash.

That is probably beyond the pale of the gray area of moral acceptibility for most of us who see nothing wrong with paying the neighbor kid to clean our rain gutters. Are those people in the back room being exploited? They have no recourse to anyone.
People work at cleaning, babysitting, filling out forms for people who can't, fixing cars or making and selling box lunches for construction workers. All done with cash changing hands that never gets reported to the IRS as income.

How do yall feel about that?

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Quote:

How big is the underground economy- the off the books economy, in the US? I suspect it is huge.

It's as big as the regular economy. At least.

And there's nothing wrong with a healthy black market, either.

Cycloptichorn

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Where is the US economy headed?

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