The Demise Of The Dollar And What To Do About It

[ultracapper]

the original post in this thread was very good

[gales0678]

Originally Posted by randallscott35

NOTE: This is a econ post so it if you aren't into that sort of thing, it's not for you.

If your wallet feels a little light lately, you aren't alone. Nope 300 million of us have a currency that is decreasing and will continue to decrease over the course of the next few years. The dollar has dropped roughly 36% over the past 8 years against the EURO. Mind you the Euro includes "powerhouses" like France where their economy sputters along and unemployment is at 10%.

So why is our money declining in value? Well the biggest reason is that Americans do nothing but spend and the big countries of the world finance our credit by buying dollars and trading with us. (In fact we have a -1% savings rate, the lowest in the world) Thus we run a current accounts deficit that is off the charts. Of course those of you with credit cards realize you can keep borrowing----until you can't anymore. That time is coming. The dollar is losing value b/c the realization among countries like China is that they need to diversify their holdings into other currencies and aren't buying them. Meanwhile the strong dollar policy that this country had for decades is gone as Bush became President.

What does it mean for you? For one it means asset inflation which is what you are seeing right now in the Stock Market. The DOW has been up 24 of the past 27 days as I write this. That hasn't been seen since 1927. Ring a bell. Then as in now the liquidity of the money supply some 18% worldwide compounded year over year has to go somewhere. For a while it was housing which is now puking its guts up. Now it is in asset prices....Secondly if you haven't noticed the prices you pay for foreign goods are going up and will continue to do so. So putting off that vacation to Europe isn't a bad idea.

So how can the FED reserve stop this? Easy by raising interest rates a lot and protecting the dollar. The problem is the economy is actually decreasing quarter over quarter and the housing market will get worse with a rate increase. So the FED is stuck....

What should you do. Well if inflation is going to get worse one of the main things you should do is lighten up on stock holdings for the foreseeable future. Contrary to the rah rah crowd on CNBC, they have a vested interest in seeing you fully invested...The best natural hedge against inflation is buying gold. Not easy to do but if you can buy the physical, 1 ounce Gold Eagles at 7 dollars over spot price(which currently is about 685$) you should do alright. Always buy in cash and find a safe place to store it...not in a safety deposit box.

OR--if you do want to invest in the market, buy mining companines which mine precious metals. Tickers AU and GOLD are my two faves right now.....OR if you want to buy into gold but can't store it, its easy. They have a Gold ETF(exchange traded fund) which tracks the spot gold price in NY. Ticker is GLD.

Either way, there are a bunch of bright people around here. Just realize what a declining dollar means and how its going to affect you. You'd think it was a great thing according to financial news b/c companies here selling overseas get a benefit.....But its a short lived benefit. And higher prices are on their way, from cars to the grocery store----just keep your eyes open. You will see it. Randall

Rnadall - correct me if i am wrong , but, i think the savings rate in this country is based on after tax dollars - so it is not including payroll deductions into 401k's and 403'bs and standard ira's. If we added those figures in the number would probably increase greatly. Back in the 50's and 60's the savings rate was high because people didn't have te ability to put in pre-tax dollars into mutal funds, they just put $ into the bank. The savings rate also does not include capital gains - so if you bought 100 sahres of exxon and paid $50 a shrare and now it is at $75 a share you are wealthier by 50 % on that $, but, that does not show up in the savings #'s published by the gov't.

[randallscott35]

Originally Posted by gales0678

Rnadall - correct me if i am wrong , but, i think the savings rate in this country is based on after tax dollars - so it is not including payroll deductions into 401k's and 403'bs and standard ira's. If we added those figures in the number would probably increase greatly. Back in the 50's and 60's the savings rate was high because people didn't have te ability to put in pre-tax dollars into mutal funds, they just put $ into the bank. The savings rate also does not include capital gains - so if you bought 100 sahres of exxon and paid $50 a shrare and now it is at $75 a share you are wealthier by 50 % on that $, but, that does not show up in the savings #'s published by the gov't.

Personal savings rate is based on disposable income, so yes your after tax income is basically subtracted from everything you consume...The end result is the savings rate.

You aren't wrong on stocks but realize that investing in the stock market isn't saving. The idea that stocks go up indefinitely is simply wrong. That's why buy and hold is a fallacy. Those who invested in Cisco in 2000 may get even in 2012 if they are lucky. Also consider that as the value of the dollar gets debased, you need to make a higher % stock gain to offset the decreasing currency. But if you are lucky enough to make money in the market---- most people end up spending their paper gains in stock. Heck, if your stocks are up 10 grand, you feel comfortable to spend 5 grand on a vacation. Meanwhile you haven't sold a thing or saved anything. The only years with a negative savings rate since '32 and '33 were 2005 and 2006. Part of this is unquestionably the wealth effect which in '05 made people spend based on the increased value of their homes. But as home prices have started to decline, you can't cash out on your home anymore and those with ARMs as loans are really feeling the pinch.

I guess my point here is that rainy days do happen. So a negative savings rate is really rolling the dice.

[randallscott35]

Yes, a Randall sighting. I post only on economic message boards as I've gone back to really what my background is. Love the ponies but I'm transfixed by what a cluster**** situation the economy is in.


This thread was started on May 8th of '07. Since then the dollar has weakened another 8.5%. Oil has gone from 65 to 100. And gold has gone from 680 to 870. The XHB, Homebuliders Index is down by half. All this has happened in the span of 7 months. The pundits like to point to an up market for '07 which is ridiculous. Use the gain against inflation+dollar decline and you'll see you lost money and purchasing power in '07.

I have a deli I go to everyday to eat, one of the best in New Jersey. The owner is a close friend. In the span of 6 months his wheat prices doubled. This is unheard of, he's never seen anything like it in his entire life. Look at eggs, milk, etc... The grocery store story I used in my original post simply came about far faster than I ever thought was possible. And realize the rosey inflation figures they like to give you ex out food and energy. Why? Well who wants to hear what real inflation is. Plus, the cost of living increase in Social Security each year is partially based on government figures for inflation and wage earnings....Quite a nice reason to lowball the numbers, right? The rest of the world isn't stupid which is why they are selling the dollar like there is no tomorrow.

So what's next? Well you saw unemployment tick to 5% this morning and the market tank. First let me say, I hate using the stock market as a proxy for the economy. Because it is figured in nominal terms, so much of economic weakness is hidden. Plus that unemployment rate is artifically low. Many people have stopped looking for jobs. The birth death model puts about 125,000 new jobs a month to keep up with population growth. Thus, when people get goosed by a decent jobs number they should take that into account.

Where do you go from here? Well people scream for rate cuts, mainly to save housing, because people used it as an ATM machine and a negative savings rate with a declining home value = death....That bailout plan on subprime was laughable by the way. It will help very few and simply slow the process of foreclosures. It also makes banks not want to lend with the government able to fix rates whenever they feel like it.

Now to the banks. Their balance sheets are an absolute joke. Back in August when TSHTF some of these banks chose to give writedowns in dribs and drabs. Citigroup for instance had an earnings report which literally looked like an Enron sheet, complete with a complete lack of transparency for the amount of derivatives tied to subprime loans. Since August they've gone down the shitter. And who knows what their writedowns will be going forward. I don't. You can hope that the Middle East guys flush with cash will keep cash infusions going to these banks. Give them a floor? Maybe, but its short term. And its not like they'll keep doing it when their investments continue to go down in value which they have. Bank of America gave Countrywide an infusion in August based on an 18 dollar share price. Seemed like a good deal at the time, right? Well now CFC is 8. Not a good return on investment is it.

So going forward: The FED cuts but that's not the problem. It isn't a lack of money, its a lack of lending. Who wants to lend from bank to bank when you don't know if you'll get paid? Meanwhile the cheaper money floods the system and raises everything from wheat to meat to oil to gold to fertilizer etc. etc.

Truthfully, I am bumping this(and making an appearance) because it is still so important that people realize what is going on in the economy...So if you feel like talking economics with me, I'm looking forward to doing so. It affects us all, no matter what you do for a living. Randall

[herkhorse]

Thanks for the post Randall. You have my vote for president.

[GBBob]

I regret that it took a while to find this thread because it is fascinating reading...even for an economic layman. The ticking time bomb in my World is the continuing devaluation of the RMB and the lack of focus that US retailers have given it. All major chains either refuse cost increases or hold "auctions" for low bids and keep assuming that Asia is a bottomless pit of yearly cost decreases. That is so over. The lead paint issues that surfaced this year are just the tip of the iceberg over what will happen in the next 3-5 years as China factories demand currency and labor cost equality. There are three supposedly "immoveable" parties here...the factory, the retailer and the consumer. One is about to give in a big way and everyone will feel the consequences.

I expect exporters will have a good roll.
We have been the ultimate consumer nation
for so long. Maybe this will cause us to save
more and produce more for demand in other
nations.

Lots of technostuff we make much better than
any other country. And I think we are just touching
the tip of the techno iceberg. Little stuff coming.
Nano-technology as one small example could have
a huge effect on so many things. In the field of
medicine no one touches this country.

The number of new machines coming out to measure
so many diff. medical problems. I see a big upside in our
ability here. I could go on. I am a science guy and I
have never seen so many incredible leaps (a few of which
might actually lead to some technological advance.)

I also see the economy of other nations causing huge
environmental problems. China and India are going to
experience serious health problems in their work force.
They might looking for solutions we already have sitting
but no reason to use quite yet.

Oil and inflation could be a long term blessing in disguise.
I feel this will lead to genuine ingenuity in energy.

But I could be very wrong. Nice to see you post again.

[TheSpyder]

Randall,

Good stuff here and I'm impressed us pony lovers are smarter than I thought.

I for one come from a manufacturing back ground and seen the quick demise in the USA as a real source of concern. The retailers i.e. Walmarting of America, are just too string and too much influence.

However, for me the central issue is what will happen when the war is over. I believe that war spending is fueling our economy with goods and services for the military. The greatest increase in jobs is in the military. When it goes, and I hope it does, that's a whole lot of loot and a whole lot of action sucked out of what is already a weak economy.

It's disheartening to hear our politicians speak nothing of the real issues. Seems like there are so many things going bad.

Too bad for the children.

Spyder

[2Hot4TV]

The devaluation of the dollar could put the US labor force into third world price levels. Manufacturing will might come back to life.

[Bigsmc]

Nice to see you back Rand.

[dylbert]

randallscott35 is "day trader" economist. GenuineRisk is income redistributionist. GR, you can redistribute income all you want, but income earners will trample you if you attempt to redistribute their wealth.

1. US is still largest economy on Planet Earth.
2. All economics is cyclical.
3. Y = C + I + G + (X-M) Basic Keynesian theory still drives fiscal policy.
4. Money supply still drives economic growth and inflation. Fed still practices what Milton Friedman preached.
5. Dollar has more competition today, but still is world currency. I haven't been to a country yet where dollar isn't accepted by locals.
6. Gold and silver and other precious metals come & go. Hard currency advocates usually get their heads served on their own "silver platter."

I am watching LSU dominate OSU. Roughing the kicker... another OSU oops! More economics at later date. GEAUX TIGERS! SEC RULES!!!

[randallscott35]

Seems like as good a time as any for an update since a few weeks back.

Since then, you had a hysterical display by Bank of America (my bank by the way) last week throwing good money at bad. In the last installment we looked at the fact that they bought into the company in August and after a 75% haircut they decided they might as buy the whole damn thing. The CEO had egg on his face for the purchase and this was a way to claim victory and call it value. Mind you since the announcement, CFC stock has gone from 8 back to 5.75. My call is that this deal never actually closes. BAC is taking on basically all the future litigation by states and individuals against CFC for an equity in a company in the death spiral. It makes zero sense and just shows that financial companies are still not coming clean about their problems. Understand the FED said "they were aware of the talks between the two companies." Translation = we are quite happy someone took CFC(the largest mortgage company in the U.S.) from going bankrupt. A wink and a nod and BAC and their shareholders take one for the team.

Then we get to this morning with Citigroup who back in August showed a strange balance sheet. Well they write down some of their losses, not nearly enough, and the market laughs and chops another 7% off the largest bank in the U.S...Did I mention that on page 11 of their release they said they may have 230 billion is suspect loans to home borrowers. What did they write down, 10 billion this morning? This is beyond best case scenario. Sure they cut the dividend but they didn't cut it enough. This company is fighting for survival whether anyone realizes it or not. For the second time in months they needed a huge capital infusion just to keep chugging along. Realize something shareholders of these banks getting the infusion, they are giving equity(yours) and diluting the shares you own by giving % of the company away or giving notes worth high interest rates. I keep hearing how nice it is and this will stop the bleeding. No it won't. It prolongs the bleeding. The patient, especially in the case of a Washington Mutual and CFC are dead. You can plug holes and another one opens.

What happened? CDO is a collateralized debt obligation and essentially means that there are supposed to be assets backing them(a range of assets with different credit qualities) and giving investors a return on their investment. The problem is these were rated as safe investments with superior AAA standings in some cases. Would you eat a filet mignon with a tiny piece of feces on it? Probably not, but people bought into these not realizing that piece of these were backed by mortgages that were bound to fail. And then you are screwed b/c they become worth less and less and banks can't price them because they don't know the ultimate end with regard to bad loans. They are guessing. No one wants them.

The worse the housing market gets the more likely people with prime mortgages will default. Why? Not necessarily because they can't make the payments but b/c it makes sense. Watch closely the next 6 months and count the number of times you hear the expression "jingle mail" on TV or in the newspaper. If you put 50k down on your home and its lost 100k in value you have negative equity in your home. At a certain point you are better off mailing the keys back to your bank and taking the credit beating than holding onto your home. An ugly choice and not one I envy people making.

An aside here for a second on the mortgage market. I have a friend who has given loans for the past 2 years at a mortgage company. He said basically if you had a pulse 2 years ago you could get 400k loan. NINJA--no income, no job, no assets.....no problem!! Haha. Well thats fine and dandy when prices go up but the effect when they decline is pernicious(SAT word). The market was kept artificially high by allowing anyone with a first name to come in and purchase a home with funny money. It is the opposite effect when people can't get financing.

And this is why the magical rate cuts coming won't work! All they will do is weaken the dollar and cause commodities to go up even more. Banks don't want to lend and people don't want to borrow when a recession is coming and banks already have no idea what their ultimate damage will be on writedowns. Gold is talking here. Sure I took shots early in this thread for a call on a shiny metal. Made sense since it has underperformed for decades but times change and monetart policy gets dicey and bang...People aren't buying more jewelry, the price is going up because of inflation and nothing more. I am not a nut who thinks we will be paying for things in gold coins 5 years from now. You can't put the genie back in the bottle. I do, however, believe that taking your medicine and allowing some of the weaker financial institutions to go bankrupt is a better idea than pissing away people's savings through dollar depreciation.

Make no mistake this is now and is going to be ugly. No, the sky isn't falling but a recession is not priced into the stock market or the general economy at large. And since I don't buy government numbers let your "soul be your pilot." You know what you feel and see, no matter what you do for a living. So think for yourself and be smart going forward here. For the record all this happening is good in the long run. Banks will be regulated and the ones that survive will be stronger...There will be a time to take on debt also. If you think that other than a short bounce in the dollar the trend will continue to go down there comes a time when you should take on debt. Why? Well because you will be paying back that debt, mortgage or other(not credit cards--bad!) with dollars that are worth less as time goes on. Good for you, not for them....But we aren't there and I wouldn't tell you to do it yet.

I know this was a mishmash by the way…I'll stick to one topic next time since I was all over the place today. Sorry about that. I will tackle energy and more to the point "ethanol" and what a serious misjudgment this country made by promoting it. Long term consequences that people aren't talking about! Randall

Originally Posted by randallscott35

Seems like as good a time as any for an update since a few weeks back.

Since then, you had a hysterical display by Bank of America (my bank by the way) last week throwing good money at bad. In the last installment we looked at the fact that they bought into the company in August and after a 75% haircut they decided they might as buy the whole damn thing. The CEO had egg on his face for the purchase and this was a way to claim victory and call it value. Mind you since the announcement, CFC stock has gone from 8 back to 5.75. My call is that this deal never actually closes. BAC is taking on basically all the future litigation by states and individuals against CFC for an equity in a company in the death spiral. It makes zero sense and just shows that financial companies are still not coming clean about their problems. Understand the FED said "they were aware of the talks between the two companies." Translation = we are quite happy someone took CFC(the largest mortgage company in the U.S.) from going bankrupt. A wink and a nod and BAC and their shareholders take one for the team.

Then we get to this morning with Citigroup who back in August showed a strange balance sheet. Well they write down some of their losses, not nearly enough, and the market laughs and chops another 7% off the largest bank in the U.S...Did I mention that on page 11 of their release they said they may have 230 billion is suspect loans to home borrowers. What did they write down, 10 billion this morning? This is beyond best case scenario. Sure they cut the dividend but they didn't cut it enough. This company is fighting for survival whether anyone realizes it or not. For the second time in months they needed a huge capital infusion just to keep chugging along. Realize something shareholders of these banks getting the infusion, they are giving equity(yours) and diluting the shares you own by giving % of the company away or giving notes worth high interest rates. I keep hearing how nice it is and this will stop the bleeding. No it won't. It prolongs the bleeding. The patient, especially in the case of a Washington Mutual and CFC are dead. You can plug holes and another one opens.

What happened? CDO is a collateralized debt obligation and essentially means that there are supposed to be assets backing them(a range of assets with different credit qualities) and giving investors a return on their investment. The problem is these were rated as safe investments with superior AAA standings in some cases. Would you eat a filet mignon with a tiny piece of feces on it? Probably not, but people bought into these not realizing that piece of these were backed by mortgages that were bound to fail. And then you are screwed b/c they become worth less and less and banks can't price them because they don't know the ultimate end with regard to bad loans. They are guessing. No one wants them.

The worse the housing market gets the more likely people with prime mortgages will default. Why? Not necessarily because they can't make the payments but b/c it makes sense. Watch closely the next 6 months and count the number of times you hear the expression "jingle mail" on TV or in the newspaper. If you put 50k down on your home and its lost 100k in value you have negative equity in your home. At a certain point you are better off mailing the keys back to your bank and taking the credit beating than holding onto your home. An ugly choice and not one I envy people making.

An aside here for a second on the mortgage market. I have a friend who has given loans for the past 2 years at a mortgage company. He said basically if you had a pulse 2 years ago you could get 400k loan. NINJA--no income, no job, no assets.....no problem!! Haha. Well thats fine and dandy when prices go up but the effect when they decline is pernicious(SAT word). The market was kept artificially high by allowing anyone with a first name to come in and purchase a home with funny money. It is the opposite effect when people can't get financing.

And this is why the magical rate cuts coming won't work! All they will do is weaken the dollar and cause commodities to go up even more. Banks don't want to lend and people don't want to borrow when a recession is coming and banks already have no idea what their ultimate damage will be on writedowns. Gold is talking here. Sure I took shots early in this thread for a call on a shiny metal. Made sense since it has underperformed for decades but times change and monetart policy gets dicey and bang...People aren't buying more jewelry, the price is going up because of inflation and nothing more. I am not a nut who thinks we will be paying for things in gold coins 5 years from now. You can't put the genie back in the bottle. I do, however, believe that taking your medicine and allowing some of the weaker financial institutions to go bankrupt is a better idea than pissing away people's savings through dollar depreciation.

Make no mistake this is now and is going to be ugly. No, the sky isn't falling but a recession is not priced into the stock market or the general economy at large. And since I don't buy government numbers let your "soul be your pilot." You know what you feel and see, no matter what you do for a living. So think for yourself and be smart going forward here. For the record all this happening is good in the long run. Banks will be regulated and the ones that survive will be stronger...There will be a time to take on debt also. If you think that other than a short bounce in the dollar the trend will continue to go down there comes a time when you should take on debt. Why? Well because you will be paying back that debt, mortgage or other(not credit cards--bad!) with dollars that are worth less as time goes on. Good for you, not for them....But we aren't there and I wouldn't tell you to do it yet.

I know this was a mishmash by the way…I'll stick to one topic next time since I was all over the place today. Sorry about that. I will tackle energy and more to the point "ethanol" and what a serious misjudgment this country made by promoting it. Long term consequences that people aren't talking about! Randall

Most of this makes perfect sense.
I remember when I purchased my
house we had to reveal almost
everything about our entire lives
in order to get a 10.5 % 30 year mortage. 1987...
Paid off because of "lucky" (its good knowing
people who have a job investing their family money)
aided by good advice by the same person who nailed the fact
that the stock market would rally after the Gulf War (1990).

But I have lived through a lot of changes (48 years). My house
evaluation goes up and down all the time. A house is
not the same as a car. Cars almost always lose value.
Houses fluctuate. So I got a bit of a problem giving up
the keys because "the certain point is not defined". I also
have never considered my house an investment. It may
or it may not turn out to be a good return. It is a place to
live. Its obvious a lot of people did not consider houses this
way. And its very clear some people should get nada as
they were trying to make some quick bucks before things
fell through by buyn and reselling. The bailout for these folks
is a bit sickening but no one seems to know for sure who did
what.

Further. If you can tell me what a recession is, I would
appreciate it, as all the people that seem to understand economics
have diff. definitions. Seems like a very scary word, but I have
apparently lived through these before and did not realize it.

And as C. Simon already indicated, those international stock funds
have just busted loose with a weak dollar. Diversification really does
work.

Anyways, the dream of owning a home is a strong lure
and people seem to think it is a right written in the
constitution. I understand the desire, but it took a lot
of hard work for me.
Thanks for posting. I dont mind the
rambling, it is interesting.

I look forward to your views on energy.

[herkhorse]

Thanks for the posts Randall, rambling or not.

And for people like me who aren't big on numbers, here is a quick read on the differences between a million, billion, trillion, etc.

http://www.tysknews.com/Depts/Taxes/million.htm

Originally Posted by Pillow Pants

The chick of awe.
Awesome.

Tis how I feel.

[GenuineRisk]

Good stuff, Randall, though I'm heading more towards "the sky is falling" the more I read on the housing loan situation, which is now spilling into auto loan. I sure hope I'm wrong.

There is some theorizing that what we're seeing is the end of what has been considered the American Way of Life (really just for the past 50 years, but people get quickly adjusted to being comfortable)- interesting blog post:

http://jameshowardkunstler.typepad.c...er****_nation/

I also found comments on John Cole's Balloon-Juice's thread, "We Are All Sub-prime, Now" interesting reading:

http://www.balloon-juice.com/?p=9510#comments

I don't know what I think about it- I'm not good at snap judgments so I have to mull most things, but I do think this is bigger than a year-long recession.

And I don't think the gov't will leave things alone and let the industries that should fail, fail. They didn't during the junk-bond scandal of the 1980's- instead, they bailed out the industry and passed the bill along to you and me. Or rather, my parent, as I wasn't working yet, though I'm sure I'm probably still paying for it, as our DT'ers kids will be paying for Iraq. Borrow and spend, that's our Administration's way. And Americans adopted it as their own way, too.

It's funny when I get accused of favoring "redistribution of income" because what we have now is just as much about redistribution of income; it's just that it's distributing it upwards, through corporate welfare, inflated executive salary, underpaid rank-and-file workers and an increasingly regressive tax rate. Who was it who said it was wrong that his secretary paid a higher tax rate than he did? Buffet? Gates? One of them. The US gov't has a great hand in redistributing income- it sends it to the top, where most of it stays. Hey, if you're satisfied with how things are going, great; you know how to vote in 2008. Me, I don't think that's right; I prefer a society with a middle class. And I don't think a higher top tax rate will lead to violence and rioting in the streets- Europe has a lot of riots, but I don't recall any being linked to the tax rate. The wealthy don't resort to violence; they don't have to. They resort to white-collar crime and bribing gov't officials.

We've been redistributing income upwards for 50 years now, while at the same time telling middle- and lower-class Americans they can still have it all and not pay for it and now the cracks are really starting to show. It took us quite a while to get here, and it'll take quite a while to get back out. If we can- now we also deal with a world that is catching up to us, and is going to want their fair share of the resource pie. And that's not going to shift back in our favor- the US share of the world GNP is declining and it's going to continue. And as their purchasing power increases, we may see ourselves competing for the same cheap crap we depend on them selling us now. And we don't have the manufacturing jobs to make it ourselves.

As for solutions? I don't know. Re-regulate the credit industry for one- put a limit on interest rates so Americans in debt have a chance to dig themselves back out. Regulate loaning. And yes, for once, let the companies that should go under, go under.

But how do you tell Americans to save when the nation's economy depends on them going shopping?

There are a lot of foreclosed houses in the neighborhood I'm in right now (I'm living out of town for a few weeks)- it's really depressing.

I wonder if maybe the Baby Boomers are really God's chosen people- born after the Great Depression and most of them will die before the bill fully comes due for the easy life most of them lived, economically speaking.

(No offense to the Boomers- very grateful for Civil Rights and Women's Lib and all that. The Beatles were pretty good, too. )

Thanks for posting, Randall. Good to hear from you again.

Originally Posted by GenuineRisk

Good stuff, Randall, though I'm heading more towards "the sky is falling" the more I read on the housing loan situation, which is now spilling into auto loan. I sure hope I'm wrong.

There is some theorizing that what we're seeing is the end of what has been considered the American Way of Life (really just for the past 50 years, but people get quickly adjusted to being comfortable)- interesting blog post:

http://jameshowardkunstler.typepad.c...er****_nation/

I also found comments on John Cole's Balloon-Juice's thread, "We Are All Sub-prime, Now" interesting reading:

http://www.balloon-juice.com/?p=9510#comments

I don't know what I think about it- I'm not good at snap judgments so I have to mull most things, but I do think this is bigger than a year-long recession.

And I don't think the gov't will leave things alone and let the industries that should fail, fail. They didn't during the junk-bond scandal of the 1980's- instead, they bailed out the industry and passed the bill along to you and me. Or rather, my parent, as I wasn't working yet, though I'm sure I'm probably still paying for it, as our DT'ers kids will be paying for Iraq. Borrow and spend, that's our Administration's way. And Americans adopted it as their own way, too.

It's funny when I get accused of favoring "redistribution of income" because what we have now is just as much about redistribution of income; it's just that it's distributing it upwards, through corporate welfare, inflated executive salary, underpaid rank-and-file workers and an increasingly regressive tax rate. Who was it who said it was wrong that his secretary paid a higher tax rate than he did? Buffet? Gates? One of them. The US gov't has a great hand in redistributing income- it sends it to the top, where most of it stays. Hey, if you're satisfied with how things are going, great; you know how to vote in 2008. Me, I don't think that's right; I prefer a society with a middle class. And I don't think a higher top tax rate will lead to violence and rioting in the streets- Europe has a lot of riots, but I don't recall any being linked to the tax rate. The wealthy don't resort to violence; they don't have to. They resort to white-collar crime and bribing gov't officials.

We've been redistributing income upwards for 50 years now, while at the same time telling middle- and lower-class Americans they can still have it all and not pay for it and now the cracks are really starting to show. It took us quite a while to get here, and it'll take quite a while to get back out. If we can- now we also deal with a world that is catching up to us, and is going to want their fair share of the resource pie. And that's not going to shift back in our favor- the US share of the world GNP is declining and it's going to continue. And as their purchasing power increases, we may see ourselves competing for the same cheap crap we depend on them selling us now. And we don't have the manufacturing jobs to make it ourselves.

As for solutions? I don't know. Re-regulate the credit industry for one- put a limit on interest rates so Americans in debt have a chance to dig themselves back out. Regulate loaning. And yes, for once, let the companies that should go under, go under.

But how do you tell Americans to save when the nation's economy depends on them going shopping?

There are a lot of foreclosed houses in the neighborhood I'm in right now (I'm living out of town for a few weeks)- it's really depressing.

I wonder if maybe the Baby Boomers are really God's chosen people- born after the Great Depression and most of them will die before the bill fully comes due for the easy life most of them lived, economically speaking.

(No offense to the Boomers- very grateful for Civil Rights and Women's Lib and all that. The Beatles were pretty good, too. )

Thanks for posting, Randall. Good to hear from you again.

GR how old are you?
The sell off that is going
on... I see opportunity.
I am not close to retiring.
I lived through a real estate
crisis in th 80's. Panic. Followed
by a war. Panic.
The 90's turned very good.

China and India rearing up
has the possibility of being
very good for the US in some
scenarios.

There are also large sections
of the country that are not
getting hit as hard by the mortage
debacle.

Next five years there is going
to be some very big innovation
in medicine, pollution control,
nanotechnology, I think.

Much pain now. I dont think
the market reacts 5 years ahead
though. If one has money, I think
its buy time. I am looking at
a longer time frame and I am
optimistic.

[Danzig]

i've been reading sky is falling, we're heading for a recession talk for a few years now.
then you read economists who say we are NOT headed in that direction. then you see conflicting news, sales up, the dow is down, but unemployment is falling, new jobs are rising.

the housing market was inflated a couple of years ago, with people and banks falling all over each other trying to get anyone into a home-including people who had NO business buying. they talked themselves into getting an ARM, and then hoped like hell it didn't adjust up--which shows incredible naivete.
now those who dug too deep are in too deep, and banks who overreached are hurting.

so, those who are in the right position will make out, as always. those who are ready to buy are waiting til the price gets low enough.

a lot of this could be avoided by people who find themselves in trouble getting on the phone with their debtors, and coming up with a solution. but too many ignore the second and third notices, stick their head in the sand, and then find they've gotten in way too deep to get out.

and so the businesses who find themselves in a tailspin suddenly want US (the govt) to bail them out for their over-reaching. it's ridiculous.


but i also remember years ago hearing how the american dream was ending, that home ownership was going down, etc, etc. ebb and flow. we've been thru this (and worse) before, and we'll get thru it again. and again. and again.

[GenuineRisk]

Danzig and Pgardn, obviously I hope you're both right and I'm wrong- I don't want an economic tailspin any more than anyone else. But looking over the past 50 years, it seems that in most every major field, energy, food, etc., we've been paying far less than the actual costs of things. And at some point that has to come due. We were protected before by a lack of globalization and the fact that large population nations like China, India etc., were so far behind us, economically and developmentally. They're not so far behind anymore, and they're not going back- our portion of the world GNP is shrinking, and it's going to keep shrinking, simply because they've become more productive. And we've not put enough money into our own infrastructure and we're starting to see the effects of that.

If the rest of the world wasn't coming up so fast I would think we might have time to right what we've been doing wrong and still be the top economic power, but I think we're seeing the end of empire. Again, though, very much hope you're right and I'm wrong.

Danzig, I think you're right, too, that the gov't will bail out these companies and their predatory lending practices. Or rather, you and I will be bailing them out, as it's our money the government will take to do it. And while I agree about people needing to take responsibility for their actions, in the case of the sub-prime loans, I think much of the responsibility falls on the companies- persuading people of the value of something to the extent that you make them let go of their common sense is the trade of the huckster and the swindler, and it's why we have anti-fraud laws.

But of course, we've all merrily bought our cheap food and our cheap gas for years, without thinking anything of it, so maybe it's no surprise we would also expect cheap housing.

And yeah, pgardn, I do think a lot of people will figure out how to make money out of the current situation; I'm just not sure how yet. But, in the meantime, I'll continue to stay out of debt and put money towards retirement (though I am looking at moving more of my money into mutual funds focused on the international market. Though I'm the genius who got into the market just about at its peak in 2000. D'oh! I did benefit from continuing to invest during the low years right after, so yay for dollar-cost averaging.)

PS- Morty, I am, as always, flattered by your obsession with me. I hope things are okay with you, though. While, judging from most of the posts of yours I've read, I understand you dislike women, that's okay with me- hey, I dislike raisins (though the difference between us being that I will, on occasion, eat a raisin. ). We can't all like everything. But previously, your posts were often amusing enough to more than make up for the vitriol. Sadly, now, they seem more angry than anything else- your most recent post is, I believe, the first one that expressed a wish I would die in an accident (unless you've posted that earlier; I confess my reading of your posts has dropped off lately). I do hope whatever is going on in your life works itself out soon. I'll play the National Anthem for you if that will help.