Where is the US economy headed?

@Krumple,

It's bound to happen. The gearing is far-out. It's when.

The bond market is not the real problem.

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@Krumple,

Krumple wrote:

You can try to strong arm the argument if you want. I'm telling you that when it bursts it's going to be unexpected for one.

I'm not trying to strong-arm the argument. I just think talk is cheap, so I'm trying to establish if you trust your analysis enough to bet your own money on it. If your analysis is correct, you can make insane amounts of money by hitting the derivatives market and investing in put options or short positions on the bond market. So to repeat my question, how much of your net worth is invested in such put options and short positions? And if your answer is "none at all"---why would you forfeit insane amounts of money?

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@Thomas,

Thomas wrote:

Krumple wrote:
You can try to strong arm the argument if you want. I'm telling you that when it bursts it's going to be unexpected for one.

I'm not trying to strong-arm the argument. I just think talk is cheap, so I'm trying to establish if you trust your analysis enough to bet your own money on it. If your analysis is correct, you can make insane amounts of money by hitting the derivatives market and investing in put options or short positions on the bond market. So to repeat my question, how much of your net worth is invested in such put options and short positions? And if your answer is "none at all"---why would you forfeit insane amounts of money?

I'm not sure what you are challenging me with here. As it sits for me, bonds right now are probably the highest risk investments you can get into. I mean anything over 10 year is in my opinion not going to pay out. So I would never get involved in them. But it is not because of the potential failure, I wouldn't get involved because of the inflation about to hit us. Think about it.

The US understates our current inflation, but just to show you what I mean I'll even use their numbers.

If you are investing in let's say 10 year and you get let's say 10% return on your investment, what is inflation going to be like? If they say right now it is at 5% and it doesn't actually change at all (which is not likely) then how much do you actually get on your return? You only get 5%. The rest of that earning is all sucked up by government taxation in the form of inflation.

Now let's go realistic here. I personalty think that inflation is probably around 15% a year. So if you take that same investment of a 10% 10 year then by the time you get your return you will be minus. Your whole investment was nothing more than a pay check to the government and you are down money. Sure when you sell you are getting cash but you are actually at a loss over those 10 years.

People rarely ever do this sort of calculation. Most always ignore the inflation rate and if you take what the government says (which is a lie) then your end earnings is probably far lower than you are believing it to be.

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@Krumple,

I'm not asking you to invest in bonds. I'm asking you to disinvest in bonds. That's what put option and short position means. If your analysis should prove correct and the bond market should tank, the value of these financial instrument would skyrocket. Therefore I'm asking you: why aren't you investing, not in the bond market, but in short positions and put options on the bond market?

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@Thomas,

Krumpie did say--

Quote:

"We had no idea this would happen." But you heard it right here, from me and it is going to happen.

What's the point of skyrocketing financial instruments when "it" happens. The thing to have then is gold or black gold and there you are using the mile down under the sea stuff before you've perfected the technology. If that's not premature ejaculation I don't know what is.

We are addicts alright. Goodstyle. There isn't even a cold turkey for this one.

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Quote:

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

http://www.nytimes.com/2010/06/28/opinion/28krugman.html?hp

Hummmm.....ANd I am the one who gets tarred as a gloomy Gus, go figure.

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Consumer confidence tanks, US stocks plummet (New York Times). With the stimulus running out and nothing in sight to boost aggregate demand in its place, I am now willing to bet that America is facing both deflation and a double-dip recession.

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@Thomas,

Thomas wrote:

Consumer confidence tanks, US stocks plummet (New York Times). With the stimulus running out and nothing in sight to boost aggregate demand in its place, I am now willing to bet that America is facing a double-dip recession.

Yes the reason this is happening is not due to consumer confidence. It has everything to do with the FED. Keeping interest rates low will continue to tank the economy. The only way to solve it is to either abolish the FED or raise interest rates so people start saving money.

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@Krumple,

Just how are rising interest rates going to help the US economy grow?

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It should be noted that, hours before our stock indices in the U.S. fell by 3%, Asian markets slumped by at least as much. The Chinese market fell by 4% following a sharp downward revision in economic growth there for May (I think it was May). There is also increasing labor and, perhaps, social unrest in China. That is probably worth a thread of its own on A2K if there already isn't one.
Markets in Europe were also down sharply as doubts continued about the banking system. Loans given a year ago to troubled banks are coming due. Inflation in Great Britain seems to now be around 3.4% which is above the targeted 2%. The central bank may well increase interest rates in the next month or so. The pound rose in value yet again vs the euro.
The new consumer confidence index in the U.S. was indeed disheartening. Jobs numbers come out Friday and will probably show no improvement.

I am a player in a Federal Reserve Bank of Richmond monthly survey of retailers. Things looked a little promising a month or three ago. But now I am less optimistic.

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@Thomas,

Thomas wrote:

Just how are rising interest rates going to help the US economy grow?

Saving involves investment and when people are investing companies are researching and developing.

The problem is, the US isn't developing anything, we have absolutely NO labor and this is a problem. All our production is being done in other countries so those other countries make all the capital.

When interest rates rise, people will feel inclined to start saving money. When they save money they can afford things down the road because of their savings. If the complaint is that people buy things they can't afford would go away because saving will allow people to spend within their means.

The problem is that the US has gone down this road where they include consumer spending into GDP. But buying is not production. Spending money is not making anything or producing anything. This is the problem and if it does not change the US is going off a cliff and taking everyone except the rich with it. If you are well off chances are you have investments in other things, perhaps outside the country or in some kind of resources.

I'm getting side tracked.

Anyone who has ever taken an economic course knows that you can't maintain this equation, those bills have to come back. You can't just constantly export your debt endlessly. The only way to get those bills back is by increasing the incentive for people to save money.

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REASONS REQUIRED BY THE CONSTITUTION FOR IMPEACHMENT AND REMOVAL
http://www.archives.gov/exhibits/charters/constitution_transcript.html
Constitution Article II. Section 4.
The President, Vice President and all civil officers of the United States, shall be removed from office on impeachment for, and conviction of, treason, bribery, or other high crimes and misdemeanors.

DEFENSES AGAINST ILLEGAL ACTIONS
President Obama’s illegal actions cannot be stopped merely by electing a majority and not a two-thirds majority opposition in Congress. Previous illegal actions by the President cannot be rescinded, if President Obama vetoes all bills that attempt to rescind any of his previous actions. Also the President has issued executive orders to get what he wants when he could not get the Congress to agree to his proposals.

Impeachment is one possible defense against future illegal actions by the President, because he will run the risk of being removed by the Senate for such future actions. Impeachment of the President requires a majority of the votes of the members of the House, who are present and constitute a quorum when the vote is taken. Impeachment of a President constitutes an indictment of the President.

Removal or conviction of the President requires at least two-thirds of the votes of the members of the Senate, who are present and constitute a quorum when the vote is taken. The trial of the President, after indictment, occurs in the Senate with the Chief Justice of the Supreme Court presiding. If the Senate convicts a President, the President is removed from office.

The trial of the President can be valuable because it is required to be held in full view and hearing of the people. A public trial requires both accusers and defenders to present their arguments, in favor of and opposed to the President’s removal.

http://www.archives.gov/exhibits/charters/constitution_transcript.html
IMPEACHING THE PRESIDENT
Article I. Section 2, last paragraph:
The House of Representatives shall choose their speaker and other officers; and shall have the sole power of impeachment.

http://www.archives.gov/exhibits/charters/constitution_transcript.html
REMOVING THE PRESIDENT
Article I. Section 3, last two paragraphs:
The Senate shall have the sole power to try all impeachments. When sitting for that purpose, they shall be on oath or affirmation. When the President of the United States is tried, the Chief Justice shall preside: And no person shall be convicted without the concurrence of two thirds of the members present.
Judgment in cases of impeachment shall not extend further than to removal from office, and disqualification to hold and enjoy any office of honor, trust or profit under the United States: but the party convicted shall nevertheless be liable and subject to indictment, trial, judgment and punishment, according to law.

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@Krumple,

Krumple wrote:

Saving involves investment and when people are investing companies are researching and developing.

Sorry, this makes no sense. Right now, we have a surplus of people who want to save, and a shortage of people who spend those savings into real-world projects (research, development, factories, you name it). If you raise interest rates, fewer people will invest their money into such endeavours---because high interest rates make government bonds even more attractive compared to productive investments.

Krumple wrote:

The problem is that the US has gone down this road where they include consumer spending into GDP. But buying is not production. Spending money is not making anything or producing anything.

Because every sale is also a purchase, consumption and production are normally just opposite sides of the same coin. At the moment, though the abnormality is a lack of consumption, not a lack of production. Productivity is growing in America (Source: Bureau of Labor Statistics). Indeed, it's been eight years since the last year it grew faster. For now, it's the spending side that America has problems on. It should run huge deficits for the next two to three years, and only then raise taxes and cut spending to balance the budget.

Krumple wrote:

Anyone who has ever taken an economic course knows that you can't maintain this equation, those bills have to come back. You can't just constantly export your debt endlessly.

Nobody wants to run deficits endlessly. The suggestion is to run them until the recession is over and inflation is back at 2-3% so the Fed can raise interest rates again.

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@Krumple,

Krumple, In some ways you are correct that spending is not production; but it still represents the greatest portion of our GDP.

Our high productivity during the past ten or so years were high because of cheap labor that US companies use for many of our goods and services.

However, without consumer spending, our economy could not survive even at current GDP rates.

The other big issue most people are missing are the deficit spending by our government that produces no real consumer goods; just look at how much the US spends on defense.

Future inflation is guaranteed.

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@cicerone imposter,

Quote:

Future inflation is guaranteed.

our current problem is deflation, deflation of income and asset values. I see no indication that this is changing anytime soon.

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@Thomas,

Thomas wrote:

Krumple wrote:
Saving involves investment and when people are investing companies are researching and developing.

Sorry, this makes no sense. Right now, we have a surplus of people who want to save, and a shortage of people who spend those savings into real-world projects (research, development, factories, you name it). If you raise interest rates, fewer people will invest their money into such endeavours---because high interest rates make government bonds even more attractive compared to productive investments.

Krumple wrote:
The problem is that the US has gone down this road where they include consumer spending into GDP. But buying is not production. Spending money is not making anything or producing anything.

Because every sale is also a purchase, consumption and production are normally just opposite sides of the same coin. At the moment, though the abnormality is a lack of consumption, not a lack of production. Productivity is growing in America (Source: Bureau of Labor Statistics). Indeed, it's been eight years since the last year it grew faster. For now, it's the spending side that America has problems on. It should run huge deficits for the next two to three years, and only then raise taxes and cut spending to balance the budget.

Krumple wrote:
Anyone who has ever taken an economic course knows that you can't maintain this equation, those bills have to come back. You can't just constantly export your debt endlessly.

Nobody wants to run deficits endlessly. The suggestion is to run them until the recession is over and inflation is back at 2-3% so the Fed can raise interest rates again.

Thomas, you might understand other topics quite well but you have absolutely NO understanding of economics. This is not your realm.

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@Krumple,

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@Krumple,

Krumple wrote:

Thomas, you might understand other topics quite well but you have absolutely NO understanding of economics. This is not your realm.

It's possible, of course. But by the standards you appear to be setting, the 2008 Nobel Prize winner in economics also has absolutely no understanding of economics. He, too, thinks the American economy is suffering from a lack of demand. He, too, wants America to run massive budget deficits for the next couple of years. Only after that does he want tax increases and spending cuts to balance the budget.

Ah, those economic know-nothings! They're everywhere---even among the Nobel-Prize-winning economists.

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@Krumple,

Krumple wrote:

Thomas, you might understand other topics quite well but you have absolutely NO understanding of economics. This is not your realm.

That made me laugh out loud.

It's good to start one's day with a laugh. Thanks.

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@hawkeye10,

I made it very clear and said "future" inflation...

By all levels of government spending more than income increases the flow of money without it being backed by marketable goods and services. What do you think will be the final result?

China and Japan holds the greatest portion of our bonds; what do you think will happen if they sold these in the open market?

Do you have any understanding of macro-economics?

Why do you think the richest of Euro countries are trying to help Greece with their huge deficit? How and why do you think Spain, Portugal, and Italy are also having problems?

Have you noticed the effect on the Euro this year? Why do you think the value of the Euro is losing value?

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Where is the US economy headed?

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