Where is the US economy headed?

@hawkeye10,

Fiat is good at making small cars. That's about their only advantage. Also, I'm against Obama's bailout of auto companies; taxpayers who don't have the same benefits are helping pay for auto company employees to keep theirs. Not fair.

1 Reply

@cicerone imposter,

Quote:

NEW YORK, March 31 (Reuters) - Standard & Poor's on Tuesday cut its ratings on Fiat SpA (FIA.MI) to junk status and said it may cut them again, citing the auto maker's weak liquidity and upcoming debt maturities

http://www.reuters.com/article/mergersNews/idUSN3142408420090331

1 Reply

@hawkeye10,

Except for the banks, our government should not be bailing out companies with taxpayer money. Banks are necessary to save our economy. The others are businesses that also had bad management, but they will not determine whether our economy will survive or not. There are plenty of car companies in the US - even if they are foreign "ownership." They still hire Americans all along the manufacturing process including management, design, marketing, and production.

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@cicerone imposter,

Bernanke is wrong on the timing:

Quote:

Bernanke says U.S. recovery ahead, housing near bottom
By Mark Felsenthal and Alister Bull Mark Felsenthal And Alister Bull 1 hr 14 mins ago

WASHINGTON (Reuters) " Federal Reserve Chairman Ben Bernanke said on Tuesday the three-year U.S. housing bust may be near a bottom and the recession should end this year, as long as there is no relapse of the credit squeeze that has strangled the economy.

In March, Bernanke had pointed to "green shoots" of economic recovery, but in testimony to Congress on Tuesday he was more explicit in saying the pieces were in place for a rebound. Still, he acknowledged that growth would remain subdued and unemployment high even after the recession ends.

He also said "stress tests" to assess the capital needs of the 19 largest U.S. banks will provide an accurate reflection of the firms' financial positions, and he expected those which need a bigger buffer to raise the money from private sources.

"We continue to expect economic activity to bottom out, then to turn up later this year," Bernanke told the congressional Joint Economic Committee.

The housing market will not improve until we stop job losses at the current rate which translates into more foreclosures. That's fundamental economics (101).

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According to this morning's newspaper article, our county has shown a slowdown of foreclosures and price depreciation. I'm still skeptical of any recovery while thousands still lose their jobs.

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An article from Reuters today reports that traffic at fast-food places fell by 1% in the quarter ended 2/28/09. That is the 1st decline since early 2003. Traffic = Customer count, not sales revenue.
Fast-food has been largely immune to the recession as measured by traffic, as people have "traded down" from more expensive places.
Bakeries (e.g. Dunkin' Donuts), Convenience stores (7-11), Mexican (Taco Bell) and sandwich vendors (Subway) were slightly up in traffic.
Hamburger places (McD) were flat.
Pizza (Dominos) were down 2%.
Gourmet coffee (Starbucks)- down 4%.
Chicken (KFC) was the big drag; down 9%.

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@realjohnboy,

realjohnboy wrote:

(1) The year over year % increase in Non-Performing Assets (NPA). An NPA is a loan that meets a certain level of delinquency (pre-defined) such that its collection is in doubt. So if a bank had $1 in NPAs last year and $2 this year that would be a 100% increase.
(2) The year over year % increase in loan loss reserves. The idea is that the current quarter or year is matched with the period in which the loan's value or possibility of going bad took place.

(3) Loan Loss Reserve as a % of NPAs today.
(4) Loan Loss Reserve as a % of NPSs last year.

Ready for some numbers?

CITI: (1) 125% (2) 78% (3) 121% (4) 177%
BOA: (1) 255% (2) 95% (3) 121% (4) 203%
JPMorgan: (1) 188% (2) 135% (3) 241% (4) 271%
WellsFargo: (1) 100% (2) 267% (3) 255% (4) 134%

So, the Stress Test results come out tomorrow on 19 banks. Here is my take, for what it is worth:
1) The hurdle has been set pretty low. Whether or not a particular bank will run out of money is based on a worst-case scenario of continuing really high foreclosures and an unemployment rate going (yawn) much higher than 10%.
If neither of those happens, most of the banks should be okay.
2) It has already leaked out that BOA may end up needing to raise $34B. The reason? Look at my little quote above. Their portfolio of NPA's rose 255% but the money that they set aside to "fund" those losses only rose by 95%. BOA has a lot of exposure to other losses - commercial real estate and credit cards.
3) The Stress Test results have, I think, been watered down by the Fed and the banks, working together. I won't call it a total sham, but I suspect that the hope is most folks will look at the headlines and not dig any deeper. Half of the banks are "fine" and the others merely need to do some fine tuning.
I doubt anyone actually reads a post like this one, but, you know, I do kind of enjoy writing this stuff.

1 Reply

@realjohnboy,

rjb, I've been reading all of your posts, and agree with their conclusions.

The stress test looks at worst case scenarios, so the report is based on a almost conservative standard.

With the recent positive reports on foreclosures and job losses, we may just be turning the corner, but I'm still a skeptic about our total economy recovering any time soon.

As you are probably aware by now, I challenge opinions when I have any disagreement with them. However, I find your analysis spot on!

1 Reply

@cicerone imposter,

I pay close attention to his and Thomas' posts. The others, well, sometimes.

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http://www.businessinsider.com/feds-give-bofa-and-citi-30-days-to-fire-their-ceos-2009-5

Vikram Pandit and Ken Lewis better get the **** out of dodge before they are forced out.

Cycloptichorn

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@cicerone imposter,

cicerone imposter wrote:

There are plenty of car companies in the US - even if they are foreign "ownership." They still hire Americans all along the manufacturing process including management, design, marketing, and production.

Not true. Corporations, particularly foreign ones, will always seek the lowest labor costs and tax structure they can find. The basic laws of economics will punish any which don't do this. Higher labor costs can be sustained only if there are associated higher levels of productivity or other ancillary benefits to the value structure the company creates -- ideas that are completely rejected by American labor unions. The recent actions of the Obama administration to start taxing the unrepatriated foreign profits of U.S. corporations will simply lead many of them to move their headquarters to other countries - along with their back office and manufacturing operations..

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@georgeob1,

The ancillary benefits you speak of: It's called quality.

You use the typical conservative mantra called "use of fear." It's simply not true; if most American companies move their offices offshore to foreign countries, they will only hurt themselves, because the US is the best market for most products. If they export their companies to overseas bases, American workers will not have the income to buy anything, because they will destroy their consumption base. No job, no income, no consumption. What will they gain?

I'm sure you understand the concept of comparative advantage; it's up to us to continue developing products and services that will benefit Americans economically. That is the key to economic survival.

1 Reply

@georgeob1,

georgeob1 wrote:

cicerone imposter wrote:

There are plenty of car companies in the US - even if they are foreign "ownership." They still hire Americans all along the manufacturing process including management, design, marketing, and production.

Not true. Corporations, particularly foreign ones, will always seek the lowest labor costs and tax structure they can find. The basic laws of economics will punish any which don't do this. Higher labor costs can be sustained only if there are associated higher levels of productivity or other ancillary benefits to the value structure the company creates -- ideas that are completely rejected by American labor unions. The recent actions of the Obama administration to start taxing the unrepatriated foreign profits of U.S. corporations will simply lead many of them to move their headquarters to other countries - along with their back office and manufacturing operations..

See ya, Corporations! If you don't like it here b/c we force you to pay taxes, leave. I'm sure all the employees will enjoy living in other countries.

It's an empty threat. There are benefits to living and operating in the US which you are not accounting for. I'll believe in massive corporate flight when I see it.

Cycloptichorn

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@cicerone imposter,

Perhaps you should consider the former U.S. textile industry. High labor costs drove it offshore, first to Mexico and Central America, and later to Malaysia and Indonesia. The quality of most products has not suffered. Americans continue to buy these foreign-made goods even more than they did previously.

No "conservative mantra" or "fear" at all -- only facts and history.

I understand competitive advantage very well. For example the work rules and productivity of U.S. non-union workers in Honda and Volvo automobile plants in Kentucky are vastly superior to those of UAW workers in Chrysler and GM plants in the midwest. The UAW is the principal competitive disadvantage of American automobile manufacturers. In nature and biology, intelligent well adapted parasites don't kill their hosts. Labor unions are rather stupid and primitive parasites.

We are also creating a tax structure on corporations that will magnify these follies.

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@Cycloptichorn,

Cycloptichorn wrote:

See ya, Corporations! If you don't like it here b/c we force you to pay taxes, leave. I'm sure all the employees will enjoy living in other countries.

It's an empty threat. There are benefits to living and operating in the US which you are not accounting for. I'll believe in massive corporate flight when I see it.

Cycloptichorn

Really? I closed a 50 person engineering office in Concord and moved it to Reno to escape California taxes and labor laws. We are doing fine and enjoy the services of a better motivated and more flexible work force. The same thing has happened on a much larger scale internationally. IT companies on the penninsula are busily transferring their software development overseas as you read this. The former U.S. textile industry I noted above is but an example. Cicerone was right about at least one thing - this is called competitive advantage.

1 Reply

@Cycloptichorn,

It's never about taxation, but conservatives like to use that issue to argue their points. All we need to do is look at all the big companies that have existed during high and low taxation rates to see that they're still around.

Off-shoring by foreign companies to the US is very common today; if they feared our taxes, they wouldn't have come here in the first place.

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@georgeob1,

georgeob, That's because you're looking backwards to a time when most developing countries had textile and clothing factories. That's the natural death of industries where comparative advantage is at work. If you have observed the economy of Japan, you would see the same progress made by their country from "cheap" products, fabrics, and clothing, to high tech, auto, and the entertainment industries.

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@georgeob1,

You speak about the auto industry as if that wins your argument; it doesn't. Many people have bought higher priced Japanese-made autos like Lexus and Acura, because they have quality built into them, and consumers know the up-front cost pays for itself in the long run. It's never about pricing alone; it's about quality and dependability. GM, Ford, and Chrysler all ignored what was important, and they all lost the race.

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@georgeob1,

georgeob1 wrote:

Cycloptichorn wrote:

See ya, Corporations! If you don't like it here b/c we force you to pay taxes, leave. I'm sure all the employees will enjoy living in other countries.

It's an empty threat. There are benefits to living and operating in the US which you are not accounting for. I'll believe in massive corporate flight when I see it.

Cycloptichorn

Really? I closed a 50 person engineering office in Concord and moved it to Reno to escape California taxes and labor laws. We are doing fine and enjoy the services of a better motivated and more flexible work force. The same thing has happened on a much larger scale internationally. IT companies on the penninsula are busily transferring their software development overseas as you read this. The former U.S. textile industry I noted above is but an example. Cicerone was right about at least one thing - this is called competitive advantage.

So, let me ask you - why relocate to Reno? Why didn't you just go right out of the country? After all, Reno tax and labor laws are amazingly high and restrictive compared to other countries. So what stopped you?

Software development is one thing - code can be written anywhere, even on an island in the South Pacific. It's just not the same as manufacture of physical goods.

If your company decided that they could make more money by relocating to another country completely, would you support this?

If the alternative to poor working conditions and low wages is to see industries go overseas, then let them go. It is not worth keeping shitty jobs.

Cycloptichorn

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Interesting story here. Can we conclude from this that the unions will have huge clout and complete say over what cost cutting measures anybody will be able to utilize to reduce budgetary red ink? Or is it just the SEIU?

Quote:

U.S. threatens to rescind stimulus money over wage cuts
The Obama administration threatens to rescind billions in stimulus money if Gov. Schwarzenegger and lawmakers do not restore wage cuts to unionized home healthcare workers.
By Evan Halper
May 8, 2009

Reporting from Sacramento -- The Obama administration is threatening to rescind billions of dollars in federal stimulus money if Gov. Arnold Schwarzenegger and state lawmakers do not restore wage cuts to unionized home healthcare workers approved in February as part of the budget.

Schwarzenegger's office was advised this week by federal health officials that the wage reduction, which will save California $74 million, violates provisions of the American Recovery and Reinvestment Act. Failure to revoke the scheduled wage cut before it takes effect July 1 could cost California $6.8 billion in stimulus money, according to state officials.

Los Angeles water projects to get... Local governments' stimulus money may...The news comes as state lawmakers are already facing a severe cash crisis, with the state at risk of running out of money in July.

The wages at issue involve workers who care for some 440,000 low-income disabled and elderly Californians. The workers, who collectively contribute millions of dollars in dues each month to the influential Service Employees International Union and the United Domestic Workers, will see the state's contribution to their wages cut from a maximum of $12.10 per hour to a maximum of $10.10.

The SEIU said in a statement that it had asked the Obama administration for the ruling.
http://www.latimes.com/news/local/la-me-health-cuts8-2009may08,0,4592200.story

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Where is the US economy headed?

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