Where is the US economy headed?

@cicerone imposter,

I an see, C.I., getting out of bonds ahead of a possible default - or fears thereof. But don't you think equities will also suffer?

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@hawkeye10,

The school kids could teach them a thing or two about basic economics hawk.

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@cicerone imposter,

Quote:

On June 30, I transferred $75k of bonds into equity, because interest rates are going to increase on US treasuries when they default on their loan. This has happened to Greece, and the same will happen to Portugal. That means prices on bonds are going to nose-dive into new territory.
If you know anything about bonds, principal and interest work in opposite directions.

My reading on what the corporate class is doing is that cash is where it is at until and unless hyper inflation hits. I dont think it matters if your paper says "stock" or if it says "bond" when the crash hits, all paper will be worth little. Remember that it was just in 08 that many people realized that the old mantra that diversification counter acts risk was wrong, because everything went down. There is no where to hide, but those with cash will at least be able to pick up tangible assets for a song. THese guys who have been running around picking up houses in foreclosure actions with cash and then renting them out are going to look like very smart fellows shortly, they buy cheap and own something that they can actually put their hands on.

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@spendius,

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His gold bubble bursting prediction made at $1495 is not even remotely accurate. It hit about $1590 today. He really ought to be destitute but he didn't bet on it. He just advised A2Kers to do.

That should scare the **** out of everyone....the price of gold.

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@realjohnboy,

Equities will also suffer, but if you look at the long-term outlook of equities during big bears, they usually recoup their losses.

Another way I look at investments is this. If our whole economy goes to pot - as well as the worlds, there's not much any one person can do. We still have to have some faith (although very slim at the moment), in our economy, because that's the only game in town.

The multiplier effect on bonds is already past the "look pa" stage.

If you remember 2008 when the stock market started to tank, not many made the move to do anything. The best advisers tell us "do something," to show you are aware of what's going on. Just sitting and watching is the worst way to treat your life's savings.

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@cicerone imposter,

Recent event at the capitol.

Quote:

WASHINGTON (MarketWatch) -- President Barack Obama stormed out of a meeting over the debt ceiling, House Majority Leader Eric Cantor told reporters, according to multiple press reports. "Don't call my bluff," Obama reportedly told Cantor after the Virginia Republican said he'd consider pursuing a short-term debt-ceiling increase. The House Democratic Whip, Steny Hoyer, meanwhile said he'll try to get Democrats to vote against a Republican balanced-budget amendment. The $14.3 trillion debt ceiling is due to be reached by Aug. 2, at which point the U.S. risks defaulting on its obligations.

Once the US defaults on its obligations, I wonder where interest rates are going to end up? It will surely cost the US treasury more in interest payments at a time when every few $billion$ impacts everything else in our economy.

Last year, Greece was paying six (6) percent on seven year paper - even though the Euro zone interest rate is one (1) percent.

If the US ends up defaulting on our loans, they will be paying a much higher interest rate on all future borrowings.

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@cicerone imposter,

Quote:

If the US ends up defaulting on our loans, they will be paying a much higher interest rate on all future borrowings.

Remind us what the number was......1% increase in interest cost $274 billion a year....something like that?

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@hawkeye10,

I'm not sure about your number, but from what I've read, about 40% of revenues is spent towards the national debt. That's better than most developed countries in today's world, but not a good place to be when our economy is shrinking along with the world economy. Revenues will continue to shrink, but the interest payment on the debt will necessarily become a larger portion of revenues. This cannot be sustained. The only way to solve this problem is to rework social security and Medicare - and defense spending.

Unfortunately, the GOP will not negotiate with Obama to a) cut spending, and b) approve the debt ceiling if there is any tax increase.

It doesn't take a rocket scientist to figure out that the on-going federal expense cannot be sustained - and it will only get worse if revenue is not increased. We're already cutting education and our infrastructure - both necessary for the long-term survival of our economy.

When we elect political extremists into Washington, we deserve everything they screw up. The GOP is playing chicken with the well being of our country; I hope they win! I want everybody to feel the pain - which we brought upon ourselves.

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@cicerone imposter,

Quote:

I'm not sure about your number, but from what I've read, about 40% of revenues is spent towards the national debt

40% of the money Uncle Sam spends is borrowed money, the cost of debt payments is currently less than that, but keeps rising, and we have no control over that because we cant control the interest rate. The whole scheme is wildly unsustainable, this is one of those places in history were school kids will learn what happened in the early 21st century and will wonder WTF we were thinking.

Quote:

Unfortunately, the GOP will not negotiate with Obama to a) cut spending, and b) approve the debt ceiling if there is any tax increase.

Also unfortunately it seems Obama is insisting on continuing his practice of getting in gratuitous tweaking of the Republicans.

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@hawkeye10,

I disagree; he had the balls to walk out after a republican had the gall to bring up a short term funding that Obama said he will not negotiate. He's finally showing some backbone, and I'm okay with that. After all, Obama also brought up social security and Medicare as on the table; both issues the GOP claimed they wanted to cut in 2010 when they campaigned for the November election.

Now, they're saying no. The No Party is at it in their attempts to discredit Obama. This one is going to backfire on them when everybody begins to feel the pain with no debt ceiling increase. This is hard ball time.

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By Neal Boortz

From the discussion in DC and in the media you would think that the only way to reduce our debt is either to raise taxes or to cut spending. How, as I pointed out above, how about growing the economy? That's the way we balanced the budget the last time --- the dot-com economy. I got out my ObamaCalculator – the calculator that goes up to $99,999,999,999,999 and started crunching numbers. In 2010 our economy was about $14.7 trillion. If we were to grow that economy by 5% this year, we would have $734 billion in economic growth. Historically our federal government consumes about 18% of the DBP through taxes. That would mean another $131 billion in tax revenues without tax increases.

Now … let’s use the magic of compounding. If we were to grow our economy by 5% per year for just 10 years it would yield $1.72 TRILLION in additional tax revenue ... again, without raising rates or eliminating any deductions. Compare this to Dear Ruler’s increased taxes on corporate jet owners. That would yield $3 billion over the next ten years. That's .17% of what we could get with a simple 5% increase in the GDP. If Brazil’s economy can grow that fast, so can ours --- though perhaps not with a dedicated anti-capitalist in charge.

But wait! What about getting rid of the “Bush tax cuts” for the evil rich? Those hideous people earning over $250,000 a year? How much money would that bring in? Again --- if the high-achievers don’t change their behavior with an increase in their taxes, it would bring in about $30 billion a year. That’s what, about $300 over ten years? Even if you use White House assumptions that this tax increase would cause our economy to actually grow, the total would get to $700 billion. Compare that to $1.72 trillion. You get the idea. The key here is economic growth .. but we clearly have a president who has no clue how to bring that about. After all, why does he want to grow the free enterprise economy that he so deeply despises?

Bottom line --- if Obama would focus more on growing our economy and less on punishing people we rely on for economic growth we might get something done.

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By Neal Boortz

Earlier this week we had the tax cheat, Tim Geithner, tell us, “It’s going to feel very hard; harder than anything they’ve experienced in their lifetime now, for a long time to come.” Peachy! Then we get Federal Reserve Chairman Ben Bernanke telling us that the recovery “will likely remain moderate” for a while, with unemployment falling “only gradually.” Fantastic! Is it any wonder why 63% of Americans now believe that our country is headed on the wrong track?

But if you ask the Obama administration, this has nothing to do with their policies. Nope. Ben Bernanke managed to blame it on “temporary factors” including gas prices, increased food prices and the earthquake in Japan. Oh … and there’s Greece. While we are at it, why don’t we blame the lack of hiring by US businesses on our outdated patent process. Oh wait, we’ve already heard that one … from our Dear Ruler.

Why doesn’t Barack Obama acknowledge the fact that almost one-third of all corn that is grown in this country is now used to satisfy ethanol fuel subsidies? What kind of an effect is that having on food prices? Or why doesn’t Ben Bernanke acknowledge that his “quantitative easing” experiments have decreased the purchasing power of Americans? Federal Reserve Governor Alan Greenspan says that there is zero evidence that this giant inflow of money into the system has even worked .. unless you consider weakening the dollar a success. But now Ben Bernanke has told Congress that he plans on yet another round of “quantitative easing.” Oh joy!

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@H2O MAN,

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How, as I pointed out above, how about growing the economy?

The consumers couldn't take it. They are already flat out.

People could charge for saying "Have a nice day". Or washing the pots.

And what would the Greens say?

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Debt ceiling: Moody's puts U.S. on notice

Quote:

NEW YORK (CNNMoney) – The public pressure on lawmakers to raise the debt ceiling was ratcheted up Wednesday when a major rating agency said it would put the sterling bond rating of the United States on review for possible downgrade.

Moody's Investors Services said it had initiated the review because of "the rising possibility" that Congress will fail to raise the debt ceiling in time - something that could lead to a U.S. default on its debt.

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http://www.quinnipiac.edu/x1295.xml?ReleaseID=1624

Quote:

American voters disapprove 56 – 38 percent of the way President Barack Obama is handling the economy, but by 45 – 38 percent they trust the president more than congressional Republicans to handle the economy, according to a Quinnipiac University poll released today.

The country is in a recession, 71 percent of American voters say, but by 54 – 27 percent they blame former President George W. Bush more than President Obama.

The president gets a 47 – 46 percent job approval rating, unchanged from the June 9 survey by the independent Quinnipiac (KWIN-uh-pe-ack) University. That tops a 64 – 28 percent disapproval for Democrats in Congress and a 65 – 26 percent disapproval for Republicans. Obama outscores congressional Republicans on several points in the deficit reduction battle:

Voters will blame Republicans over Obama 48 – 34 percent if the debt limit is not raised;
Voters say 67 – 25 percent that an agreement to raise the debt ceiling should include tax hikes for the wealthy and corporations, not just spending cuts;
Voters say 45 – 37 percent that Obama’s proposals to raise revenues are “closing loopholes,” rather than “tax hikes”;
But voters say 57 – 30 percent that Obama’s proposals will impact the middle class, not just the wealthy.

Cycloptichorn

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@Cycloptichorn,

Cyclo wrote,

Quote:

But voters say 57 – 30 percent that Obama’s proposals will impact the middle class, not just the wealthy.

What are the facts on this issue? I've been under the impression that only those earning more then $250k would be hit with an increase. Is this wrong?

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@cicerone imposter,

cicerone imposter wrote:

Cyclo wrote,
Quote:
But voters say 57 – 30 percent that Obama’s proposals will impact the middle class, not just the wealthy.

What are the facts on this issue? I've been under the impression that only those earning more then $250k would be hit with an increase. Is this wrong?

That is what he has been proposing; but, they're not necessarily wrong to think this. Any cuts or tax increases affect us all, sooner or later, no matter what group they are for. Though it's hard to say in what way!

Cycloptichorn

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@Cycloptichorn,

Actually, I really don't mind paying more taxes, because we are now at the stage of hurting our children's education, health, and future. That's unforgivable. Even the California university system is increasing tuition by 12%; not many middle class families can afford to sent their children to college which will end up costing our country dearly.

The GOP is ruining this country with their "no tax increase."

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@cicerone imposter,

cicerone imposter wrote:

Actually, I really don't mind paying more taxes, because we are now at the stage of hurting our children's education, health, and future. That's unforgivable. Even the California university system is increasing tuition by 12%; not many middle class families can afford to sent their children to college which will end up costing our country dearly.

The GOP is ruining this country with their "no tax increase."

I agree with that. 3-5% off of my bottom line doesn't make much of a difference at the end of the year; I've been recommending for years that our taxes are raised, in order to help balance the country's books.

Cycloptichorn

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@Cycloptichorn,

I am not sure that the country wants to "balance its books"? By having debt to pay to other countries, it puts us in the position of debtor, and no one wants anything bad to happen to one's debtor.

1 Reply

Where is the US economy headed?

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