Global Financial collapse

[Finnster]

What I think we have here is a number of different but overlapping issues, and panic and confusion is setting in to how these play out. I think it will be important to regard easch of these as their own seperate issue with their own solutions and focus on those rather than to lump them all together and become subsumed with fear.

Biggest issues as I see them, and all coming into confluence right now:

1.) Short-term US deficits

2.) Medium to Long Term US debt
-Easy confused with the budget deficit, but they are not the same thing and shouldn't automatically be treated as such

3.) Eurozone structural problems and debt

4.) US economic growth and umemployment

5.) China, Trade balances, manufacturing base, etc IE "Other"


As far as relevance to the current crisis, I'd put them in the following order in terms of importance: 3, 4, 2, 1 and 5(somewhere in there)

The headline for the downgrade is catching, and the dysfunction of our govt is astounding, but the fact remains the US is the largest, most dynamic and most productive economy in the world. Even China's rise is not going to change that anytime soon.

We are still growing (albeit slowly) as of Q2'11. Contrast this with Q4'08 where GDP was -10%. In that time, businesses and individuals have been deleveraging and bringing down debt. Household debt is still high, and a major drag on growth (likely #1) and businesses are literally sitting on trillions in cash. They are far more lean and productive than they were 3 yrs ago.

The current deficit is large and needs to be properly managed, but I have not seen any credible economists who say this must be balanced right now. Econ theory, backed by many historical examples, shows this would be a terrible idea and likely exercise in futility. However, there needs to be some serious reconning to our priorities what debt is important to have, how it contributes to the growth of the econ, and what we are really willing to pay for. More debt will be needed to get us out of this fix, but th usefullness of it should be carefully weighed. Leads to issue #2.

The debt is large in $$, but its still not unmanageable and actually not that bad compared to the rest of the world. For reference, Japan's debt is 228% GDP, and Libya is the lowest at ~3% GDP. Also to note, the yeild on a 10 yr Japanese bond is 1% or less. Japan is also rated AA+.
This is not a call to massively increase the debt, but its important to keep some perspective about it before we start introducing suicidal financial policies (like we nearly did in almost defaulting on our debt.) How many times your yearly salary do you owe on your house?

Let's not be blinded by huge numbers and panic. Today's debt and deficits are a result of policy choices that have been in the making for decades. They are just now starting to finally blow up in our faces due to the downturn. We can try to just blame Obama and/or Bush all we want, but that keeps us from seeing the deeper and longer term problems. There is a pretty clear trendline we need to address, and just changing Presidents from a D to and R isn't going to change that.



Partisans just want to point to the last few clicks of the graph and say the trouble is all just in there, or just a few points in further. I think the truth is the Great Recession was merely the tide finally moving out and exposing the raging shoals that we've ignored for too long. For thirty years we've been on a consistant mission to both massively increase military spending and big entitlement programs, meanwhile slashing taxes. I can't think anyone can be surprized by the results of this. SS, Medicare, the Pentagon and interest on debt are 70% of gov't spending. Tax revenues are at their lowest share of GDP since just after WW2. No one has said no to anything for far too long.
Everyone knows this cannot continue.

R's have to give in on tax increases and military spending. D's have to give in entitlement reforms. There is plenty of debate to what that should look like, but D's and R's cannot even admit all that must happen.

As far as the other stuff: Europe is really really important to the global econ right now, even tho I gave it the least amt of space. More so than the US. Our problems are mostly a lack of will imo, but the Eurozone has some deep seated problems that won't be easy to fix, and have even less of a will to do.

Badness all around, but this too shall pass.
I'm not a seller here, but I'm not buying either.

[JERRY2KONE]

Well it looks like the stock market world wide dropped in large amounts. The US stock market dropped another 400+ points after falling 500 points on Friday, and from what they shared on the world news this evening markets in Asia and Europe fell quite a bit as well. Kind of makes you wonder just how far things are going to fall before we see better days. The national debt is growing and speeding up, the gross national product is losing value, and we are about to see some serious layoffs in our Federal Gov as it tries to shrink its overall footprint to coninside with projected budget cuts and national down sizing. It seems to me that the only resolve to all of these problems is a historic depression. Kind of like re-booting your PC when it becomes overwhelmed with too much data transfer, too many processes, and fragmented data. I mean really are there still people out there who still think this is no big deal? I am sure that we will see state and federal employees cut to 4 days a week for a while to reduce payroll. Plus pay cuts accross the board for anyone receiving federal money of any kind. All of this along with increased taxes to increase revenues that will repay our debts. This is about to get pretty ugly.

The monthly number of people walking out on mortgages and leaving the bank holding the bag are astonding. I had a friend tell me that the new trend is for home owners upside down on their mortgages was to purchase a new larger home already reduced in value, along with acquring enough bank money to purchase a new car (paying cash), and then file bankruptcy on the upside down home or just walk away.

[Finnster]

Dow down 5.6%, -634 pts on the close.

Markets are expressing thier fear of our S&P downgrade by... having 10 yr Treasuries drop to 2.33%!

The only time they were lower in modern history was in the very depths of Dec 08 when they fell to 2.0%. Gold shot to 1720/oz. Everyone is fleeing to safety.

If the sell-off continues, maybe we can get our debt funding down to free. How many more margin calls and fund redemptions are out there?

Some may say we should take advantage of those historically low rates, at very little yearly cost, to fund a real jobs program to put people to work, improve our old and crumbling infrastructure, get some money in worker's hands so they have something to spend and have something for businesses to sell and bother to have workers to produce. Let alone provide better transportation so workers can get to jobs faster and businesses can move goods to markets more quickly and cheaper and become more competitive.

Then again that's crazy talk. The Responsible People say its better to turtle up and hide until the bad stuff goes away. Not like we have any old bridges or anything else collapsing and in need of repair. Oh wait..



Or blown up by Mean Momma Nature:



Else we could just sit on our hands, keep cutting and firing and laying off people in a continuous death spiral until everyone is so freaked out, pissed off, crazy and in despair that WW3 breaks out and we can start putting all that stockplied ammo to good use. Then we can borrow a ton of money from ourselves, put a bunch of the surviving people to work in factories and watch GDP skyrocket as we obliterate our enemies and enjoy our new found wealth after the nuclear ashes settle and peace breaks out in the blackened hellscape that would surely come.
I mean that's the more expensive and painful way out of it. I'd rather just build bridges, but kinda wonder if its not going to go one way or the other.

[Finnster]

Damn, Asian markets are down 4% again on Tues. Blood is pouring in the streets

[Finnster]

Hoping for stability today in prep for reversal. See what Ben says today

[PBO]

Everyone enjoying the fragile calm!?

[Finnster]

So we going up or down 5% today?

[JERRY2KONE]

The markets are teetering back and forth as everyone waits to see what happens with the US Governments handling of the US debt which is climbing higher and higher as our leadership looks for ways to side step a very large financial problem that no one seems to have a good answer for. It appears that the only answer will be to reduce/shrink/dismantle its military to a point that is unsafe and in fact very scary. I belive that if they stop all of the futuristic research, design, and construction of upcoming weapons that are planned to take us into the next decade, but doing so will put over a million people out of work due to canceled contracts, which will all trikle down causing even more financial problems for the USA. The bottom line is that the economy will not fix itself. Something major has to change in the way the Gov handles itself.

Now the European markets are begining to show signs of faltering due to its own growing debt issues that also are not going to just go away without some level of compromise. The credit system as a whole has finally grown so large that no one seems to be able to deal with it any longer.

[lutach]

Originally Posted by Finnster

So we going up or down 5% today?

All depends on what the high frequency trading firms decides . They'll make money up or down. Asia is down and if Europe is down then maybe here in the Americas it will be the same. I just hope the US citizens can realize where the big Gov. is taking them. The Fed. chairman doesn't believe that Gold is money and printing money is the solution. Ever since money has been in use, it was first metals such as Gold, Silver and Copper that was used. The US had the Dollar backed by Gold and if the Dollar was still backed by Gold this country would've been in a much better place. From what I know, Gold and Silver is the only legal tender: http://www.house.gov/house/Constitut...stitution.html (Article I, Section 10, Clause 1)

So does the US (the people) have $15 trillion (or more) in Gold or Silver to pay the debt?

Put this in your favorite search engine, "Gold, Silver Now Legal Tender in Utah."

Might add this in as well: http://www.rc-monster.com/forum/show...&postcount=332
http://www.rc-monster.com/forum/show...&postcount=338

[BrianG]

I too think it was a mistake to move away from a system where our money was backed with something of value. But many US citizens don't care what happens in big gov as long as everyone gets their entitlements, the gov plays "world police" all over the globe, and we hand out cash to any country who asks.

[JERRY2KONE]

I just read an AP story earlier this week about something like $30million that was spent in Afganistan on resources, construction, and contractor services to help the local people, that is now in the hands of the taliban. There is so much corruption and underground operations going on there that it will take decades to overcome and the USA no longer has the means or the funds to do this for other countries. We have got to stop pouring money into projects that do not directly benefit America and its citizens.

[Finnster]

Originally Posted by JERRY2KONE

I just read an AP story earlier this week about something like $30million that was spent in Afganistan on resources, construction, and contractor services to help the local people, that is now in the hands of the taliban. There is so much corruption and underground operations going on there that it will take decades to overcome and the USA no longer has the means or the funds to do this for other countries. We have got to stop pouring money into projects that do not directly benefit America and its citizens.

I would agree that we need to stop spending on projects that do not benefit the US people and its economy. The wars we are in I would def put into that catagory. Osama is dead, Al-queda is gone, but we are still spending $2B/week fighting goat-herders with homemade bombs and AKs with no end in sight.

I can't see how the Pentagon is not cut down. $700B/yr is an insane amt of money when we really don't have any credible enemies. Iran is weak. Russia? Don't think so. China? It would be an epic global disaster and shouldn't even be considered. We are too dependent on each other anyway, no one could win. Do we really need 11 carrier groups when at best China just got its first, and its a POS rebuilt Russian ship? How many simultaneous wars do we need to be equipped to fight at a moments notice?

Now I would not stop the research projects, and be careful about cutting any programs/bases/systems that would result in big job losses. Budgets need to come down, but immediate cuts are bad ideas. OTOH, all these overseas bases, and all this money we pour into foriegn bases and countries that could be spent at home needs to be strongly justified. Honestly I would shift quite a bit of money away to NASA budgets instead.

The thing I don't like about excess military spending is that it has little Return on Investment, and most of these things you can't use without incurring huge additional costs. However, every president that comes in has a huge temptation to use them as there is no real sacrifice asked of anyone before action starts.

EG. Cruise Missles are ~$1M+/ea. What's the ROI for that? It does nothing, earns nothing, and just sits on a ship ready to go consuming maintence costs. When its finally used (often with little public debate) it costs a whole more to the taxpayer afterward to replace it, and often rebuild the bridge we just blew up, or to payments to other parties to take our side in the action, or to the families of the people we accidently killed because we thought they were someone else. Every president since Bush I has launched hundreds of them themselves. Raytheon sold its 2000th last year, well before Libya where Obama launched over 100 the 1st day. For the quarter billion Obama has spent on cruise missiles, I can think of a lot more things around here that needs fixing and would put more people to work and not result in more wars.
Also, no one else bothers to spend any money on their military and just asks us to do all the bombing for them, (aka the Europeans.) They put their budgets towards universal HC and nice infrastructure, and we just get big Defense bills, crumbling bridges, bankrupted families from hospital bills, and the huge majority of dead and injured soldiers and bad international rep.

At least with NASA you get something cool that doesn't kill a bunch of people and make a bunch of enemies, plus you still get all the good tech and science research out of it (tho not that we should spend $700B/yr on NASA.) We now have to bum rides off Russians just to get our astronauts to the Space Station we mostly paid for, but we do most of the bombing in Libya bc our allies never bought any weapons to "protect" their oil supply in Libya. F'd up if you ask me.

[BrianG]

The only possible enemies the US has at the moment are N Korea (we all know how stable their leaders are) and any 3rd world countries who are getting their feet wet with nukes (they have something to prove). Other than those, any other "enemies" are more financial enemies (like China) than anything.

[JERRY2KONE]

This is why we are sooooo screwed. The USA has been investing heavily and donating funds to so many developing countries over the last 20 years and opening our gates for incoming products as we have been helping everyone else gain financial power that we have given many of them the upper hand. The USA has been soft, and now do you think any of them will have mercy as the USA struggles financially and is over run and outranked by these other countries. We are already begining to drown in debt to some of these other countries with higher interest rates and deeper import numbers as we try to offset what we owe in loans. We need a strong president that will slow some of this down and take a hard line on balancing trade with other countries. We need a money smart hard nosed buisness type in office who is not affraid to get his feet wet, and can stand up to both dominating parties and demand changes that will really improve America's standing. The more troubles and struggles the USA encounters the less respect and trust others with us as an allie.

[Finnster]

A policy-induced slowdown.

There are three main reasons for our downgrade. First, the recent incoming data, especially in the US and the euro area, have been disappointing, suggesting less momentum into 2H11 and pushing down full-year 2011 estimates. Second, recent policy errors – especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling – have weighed down on financial markets and eroded business and consumer confidence. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US. This should be aggravated by the prospect of fiscal tightening in the US and Europe.

http://ftalphaville.ft.com/blog/2011...-bbb-recovery/

Nov 2010 was supposed to be about "Jobs Jobs Jobs," but all DC has been talking about is "cut cut cut." Nothing has been done while the eco has been slowing all year and all the data has just gotten worse and worse. Markets are looking for some leadership and the Pres and Congress are out on vacation. Must be nice...

Originally Posted by JERRY2KONE

...We need a money smart hard nosed buisness type in office who is not affraid to get his feet wet, and can stand up to both dominating parties and demand changes that will really improve America's standing. The more troubles and struggles the USA encounters the less respect and trust others with us as an allie.

You won't find one in the current crop imo. Its President Gutless vs the Cult of the Brainless.

I'd wish Bloomberg would make a run as an Ind. Solid record in business and as NYC mayor. Plus no party allegiance to pull punches on Congress and no religious nuttery. Unfort too sensible to ever run for Pres. :(