How Will the Economic Future Unfold?

[BaldEagle]

And unfortunately, this sets things up even further for a depression. The stores close, the commercial holding companies let the property go back to the banks, the banks have lots of property and no cash so they start closing, and the country tanks. Of course, the USA is not alone in this:

Toyota shock hits Japan's auto region - Yahoo! News

With the Japanese economy tanking, they may not be as willing to finance our deficit spending, along with a few other former big spenders. What will Washington do when it votes a big deficit and there is no money to pay for it? Oh yes, the government controls the printing presses, so we might expect inflation, big inflation, while the economy continues to sink. Jimmy Carter, where are you?

On a personal note, I've found several houses in San Diego that are currently selling for under $100,000, one priced at $50,000 even. Some of these even have a fair amount of property, up to half an acre with a 1500 sq ft house plus a garage. I'm headed down there in a week and may do some buying. Figure if I buy at a cheap price now, and inflation hits to sky, I'll come out good. And with California's proposition 13 controlling the property tax, I won't get hit hard when the value goes up. Will see, both the houses and the future.

San Diego Huh....
KPBS > News > Wildfire Coverage > Fire Season 2008

Might want to make sure that $100K or $50K includes a house not just a foundation and fresh coating of ash on the ....lawn.

As for Prop 13 a large number of those that have bought houses over the last decade and fought for it as values skyrocketed are going to be moving to the other side of the equation now as those home values fall. I personally don't believe they would amount to enough to repeal Prop 13 but something to keep in mind.

[Gneisenau]

So are all the know-it-alls still blaming this whole mess on the bad loans from banks?

[Sailer]

So are all the know-it-alls still blaming this whole mess on the bad loans from banks?

In part. The banks acted very irresponsibly, as they controlled the base money supply and interest rates which allowed for the overbuilding in the housing sector and the vast oversupply of cars, among other things. If the banks had not made so many bad loans, there would not be nearly as many loan defaults. But the Federal government has its share of blame. After all, it set the interest rates too low for the banks themselves and then printed money to cover its mistakes. Add to that the irresponsible deficit spending and popularizing the idea that the government can make jobs, etc, and the elements were set for disaster. All this led to a delusion among the populace at large that money could be borrowed endlessly and never paid back. Well, the time has come that the piper must be paid, and its going to hurt bad.

While there is no one person or organization that shoulders all the blame, I think the banking industry, both in the USA and throughout the world, has the heaviest responsibility. Even if we had idiots in Congress who never said "No" to a spending bill, if the banking industry had refused to finance the spending, our Congress would have found itself helpless to continue operating as it wanted. Of course, individual people have their share of responsibility to manage their personal finances, but they were deluded by the banks.

It comes back to the concept of the Big Lie. People may not accept a little lie, but if you tell them a Big Lie, and tell it to them often enough, they will eventually believe it. We, not just people in the USA, have been told a big lie, that we can have it all without paying for it. Now the piper is here, demanding payment. And if people accept the lie that the government can print money and somehow make things better, then they will deserve what they get, an even bigger disaster.

[BaldEagle]

Looks like the DOW is in for a major hit.
24/7 Wall St.: Short Sellers Attack America's Largest Companies (GE)(PFE)(T)(HAL)(XOM)(INTC)(MSFT)(CSCO)(IBM)

For the latest reported period, ending December 31, short sellers did not make any notable moves in or out of tech, financials, or industrial shares. What they did do was take impressively large positions in many of the largest cap companies in the world.

It was as if a part of the market was making a negative bet across the entire economy.

A little "Silver Lining" from the recession.
Trade deficit plunges on falling demand, prices - MarketWatch

The U.S. trade balance with the rest of the world plunged by 29% in November to $40.4 billion, on a record decline in oil prices and significantly weaker demand for imports, the Commerce Department reported Tuesday.

Imports fell a record 12% to $183.2 billion, the lowest level in two and a half years, as the average price of imported petroleum dropped by $25.30 a barrel to $66.72.

Meanwhile, exports dropped 5.8% to $142.8 billion, led by weakening foreign demand for industrial supplies and capital goods.

Imports of goods fell 14% to $149.7 billion, while exports of goods fell 7.2% to $97.2 billion, Imports of services fell 2.3 to $33.6 billion, with exports of services down 2.5% to $45.6 billion.
Imports of industrial supplies dropped 25% to $48.2 billion, led by petroleum products and natural gas.
Imports of consumer goods fell 9.4% to $36.6 billion, led by drugs.
Imports of capital goods decreased 5.9% to $35.1 billion, led by computers.
Imports of autos fell 6.7% to $16.4 billion.
Imports of foods and feeds dropped 5.6% to $7.3 billion, led by fruit, fish and wine.
Exports of industrial supplies fell 13% to $27.3 billion, led by petroleum products.
Exports of capital goods fell 3.8% to $36.5 billion, led by semiconductors. Exports of aircraft rose 7.1% as the strike at Boeing Co. ended.
Exports of consumer goods fell 1.7% to $13.1 billion, led by artwork.
Exports of autos fell 11% to $9 billion.
Exports of foods and feeds fell 6.6% to $7.7 billion, led by meat, poultry and corn.

[Sailer]

Looks like the DOW is in for a major hit.
24/7 Wall St.: Short Sellers Attack America's Largest Companies (GE)(PFE)(T)(HAL)(XOM)(INTC)(MSFT)(CSCO)(IBM)

Personally, I'd like short selling banned entirely. It seems wrong to me that people can sell what they do not own for the sole purpose of damaging companies, thus driving the price down, and then buying what they never owned back at a lower cost. The way I see it, all it is is legalized robbery.

As for imports going down, its about time. No country can export its money for an indefinite period of time. At some point, income must be produced by importing money. The simplest definition of trade is "I trade my bushel of wheat for your bushel of rice". Then we both have a tangible product at the beginning and the end. In a trade deficit, it more like "I trade 2 bushel's of wheat for your one bushel of rice". Eventually, I run out of wheat while you still have rice. Then I go hungry while you still have your rice to eat.

As for the computer sales, its been predicted for years that a saturation point would be reached in computer ownership and sales would plunge. As individuals, we don't need more computers if we already have one. But we do need rice, or wheat, to eat. Even companies that use lots of computers get to the point where they ask "Why buy or update our computers? The ones we have do the job just fine." So they don't buy any either. When this happens, the only reasons to buy a new computer become either replacing one that broke, or buying one that is so much more efficient that its cost savings pay back its purchase price.

[BaldEagle]

Personally, I'd like short selling banned entirely. It seems wrong to me that people can sell what they do not own for the sole purpose of damaging companies, thus driving the price down, and then buying what they never owned back at a lower cost. The way I see it, all it is is legalized robbery.

As for imports going down, its about time. No country can export its money for an indefinite period of time. At some point, income must be produced by importing money. The simplest definition of trade is "I trade my bushel of wheat for your bushel of rice". Then we both have a tangible product at the beginning and the end. In a trade deficit, it more like "I trade 2 bushel's of wheat for your one bushel of rice". Eventually, I run out of wheat while you still have rice. Then I go hungry while you still have your rice to eat.

As for the computer sales, its been predicted for years that a saturation point would be reached in computer ownership and sales would plunge. As individuals, we don't need more computers if we already have one. But we do need rice, or wheat, to eat. Even companies that use lots of computers get to the point where they ask "Why buy or update our computers? The ones we have do the job just fine." So they don't buy any either. When this happens, the only reasons to buy a new computer become either replacing one that broke, or buying one that is so much more efficient that its cost savings pay back its purchase price.

I would disagree with yout that short selling is essential to keep a bull market from running prices through the roof like they did in the 1920's.

Now Naked Shorts which is what you were alluding to is a whole different story ....BAN BAN BAN


So the idoits behind the CRA who started this mess now have a new plan
http://www.cnbc.com/id/28638551

Taylor and the NCRC are proposing a new government program, using TARP money, whereby the government would “use its power of eminent domain to take troubled properties/loans from mortgage servicers and lenders, so large numbers of loans could be modified, writing down principal and interest rates. The loans would then be re-sold to the private market.”

The government would buy these loans at a “steep discount.” Eminent domain allows the government to take an asset where a public purpose is served, and it requires that they pay the investor the “fair market value” for it. NCRC claims the fair market value would be about 30-50 percent of the current loan value.

NCRC argues, “Discounting the purchase of these loans would strike a balance between assisting homeowners and ensuring that lenders, servicers and securitizers are not rewarded for financing and servicing predatory and price-inflated loans.” That discounted price would then “be sufficient to write down the loan balance of millions of loans such that they can be permanently refinanced or modified to ensure long-term sustainability.”

It’s not too crazy, no? I mean, if you’re of the opinion that these borrowers should in fact be saved and given back home equity that perhaps they gambled on in the first place. The cost, NCRC estimates, $50-$100 billion.

We are now going to steal mortgages form lenders so the idiots that got in over their heads can stay...

That should tighen up lending practices just a bit eh. Probably anyone with a credit score below 800 for the past 10 years and less than 50% down would not get loans.

The testimony to Congress.
http://www.ncrc.org/images/stories/p...0testimony.pdf

CRA establishes an obligation on banks to serve the needs of all communities, particularly low to moderate-income neighborhoods, consistent with safety and soundness. In order to build upon CRA’s benefits and increase the safety and soundness of credit and capital, NCRC urges Congress to pass CRA modernization legislation—similar to the CRA modernization Act of 2007—and the planned reintroduction of the CRA Modernization Act of 2009 (to be sponsored by Representatives Eddie Bernice Johnson and Luis Gutierrez). The CRA Modernization Act of 2009 would apply CRA to non-bank financial institutions, including mainstream credit unions, insurance companies, independent mortgage companies, and investment banks.

Oh I get it now....breaking the banks wasn't enough they want to destroy every possible financial institution to be fair. Bend over and kiss our economy goodby if they get this through.

[Sailer]

I would disagree with you that short selling is essential to keep a bull market from running prices through the roof like they did in the 1920's.

Now Naked Shorts which is what you were alluding to is a whole different story ....BAN BAN BAN

The testimony to Congress.
http://www.ncrc.org/images/stories/p...0testimony.pdf



Oh I get it now....breaking the banks wasn't enough they want to destroy every possible financial institution to be fair. Bend over and kiss our economy goodby if they get this through.

OK, perhaps in the senility of my older years I get shorts and "naked shorts' mixed up a bit.

I think this new plan from the CRA stinks. On the face of it, it appears that I should have bought a house I couldn't afford and now the government will ride like the cavalry coming over the hill to save me from that mean old bank, or credit union or whatever other lending place financed my loan. I would get rewarded for my irresponsibility and the lending institution would get screwed. If this goes through, what lending institution, bank, credit union, or otherwise, will ever want to lend money again?

At the same time, those of us who borrowed responsibly get screwed. Since we can afford to make the mortgage payments, we get no help. Times are bad when the irresponsible get rewards while the responsible get sunk. More and more, I get the feeling that I should pack the bilges with some gold and silver and leave the country before it falls to pieces.

[halbhh]

Global "recession" (or substitute your own word...) grabs the remaining countries?

OECD warns over growth in China, Germany and Russia as downturn goes global - Telegraph

Europe's economy contracts at rates not seen since 1930s - Telegraph

Some may remember I said a month back this is 1930. Well.....let's hope we don't have to do '31.

[halbhh]

Poll:

is 1931 inevitable????

....

[Sailer]

Poll:

is 1931 inevitable????

....

Not just 1931, but 1932 and beyond as well, in my opinion. From what I see in too many governments around the world, they think they can print dollars and spend their way out of debt. This may work for a short time, but sooner or later people catch on. Another unfortunate side effect is that numerous recessions/depressions of the past have ended in major wars.

From the Chinese side of the family, things are going down fast in China. There has been rioting, and its getting harder for the government to maintain control. I fear that if they don't get some control of the situation soon, a crackdown could occur that sends them back into the darker days of Communism, with stern warnings from their government that all their problems were caused by venturing into capitalism. Since the younger generation has never known the brutality of the "Great Leap Forward" nor the "Cultural Revolution", but only the relative freedom they've had with capitalism, this could lead them into a bloody civil war.

Oh yes, as to our country, I make no bets, other than I think it will get bad. Nothing against Obama here, but I think he will have a tough time with things. Whether its with the stock market, or real estate, or anything else, I think the old message applies, don't invest what you can't afford to loose and don't buy what you can't pay for.

Just some thoughts.

[BaldEagle]

Nortel Networks bites the dust.
Nortel files for bankruptcy protection - MarketWatch

Banks are dropping.
Citi's stock falls 15% in premarket to $5 a share - MarketWatch

Citi is going to report a week early so whats up with that? Do they want to post those massive losses before Obama is inaugurated to get more bail-out bucks?
Citi to report quarterly results ahead of schedule - MarketWatch

Retail in the tank.
U.S. retail sales plunge 2.7% in December - MarketWatch

Jewelers really in the tank.
Tiffany cuts forecast, posts 21% decline in holiday sales - MarketWatch

Retail declares it's first casualty for 09'.
Gottschalks files for bankruptcy - MarketWatch

Gottschalks said it is considering "one or more options to create value for stakeholders," including a possible sale of the business, and said it had negotiated $125 million worth of debtor-in-possession financing from a group of lenders led by GE Capital.

Owww that doesn't help GE...

The bankrupt Tribune....
Chicago Tribune to appear as tabloid next week - MarketWatch

The Chicago Tribune will debut as a tabloid Monday for weekday sales at newsstands, newspaper boxes and commuter stations, the newspaper said Wednesday, labeling the move an effort to increase single-copy purchases.

They are finally going to come out of the closet and declare themselves on par with the National Enquirer.

With all this wonderful news today and the bailout bucks all tapped out we'll have our sixth straight losing day.

[Sailer]

With all this wonderful news today and the bailout bucks all tapped out we'll have our sixth straight losing day.

I still like the idea that they send the bail-out bucks to individual people. The people then either stick the money in the bank (except for those who stick it under a mattress), or they spend it where needed. If they save it, the banks don't run out of money so fast. If they spend it, industry doesn't build up excess inventory. Just giving it to the banks, etc and it doesn't do anyone any good, except a few executives who reward themselves with large bonuses.

[BaldEagle]

Global "recession" (or substitute your own word...) grabs the remaining countries?

OECD warns over growth in China, Germany and Russia as downturn goes global - Telegraph

Europe's economy contracts at rates not seen since 1930s - Telegraph

Some may remember I said a month back this is 1930. Well.....let's hope we don't have to do '31.

And that is why we see Gold hasn't done much in the last year is that in spite of how bad our economy appears to be it is actually worse everywhere else.

Shipping rates hit zero as trade sinks - Telegraph

The World Bank caused shockwaves with a warning last month that global trade may decline this year for the first time since the Second World War. This appears increasingly certain with each new batch of data.

[BaldEagle]

I still like the idea that they send the bail-out bucks to individual people. The people then either stick the money in the bank (except for those who stick it under a mattress), or they spend it where needed. If they save it, the banks don't run out of money so fast. If they spend it, industry doesn't build up excess inventory. Just giving it to the banks, etc and it doesn't do anyone any good, except a few executives who reward themselves with large bonuses.

What they should have done is fix the bank and the demand side of the problem by giving every taxpayer a $5,000 2-year CD deposited at the bank of their choice. The people would then decide who survives and who perishes as well as some security to go out and spend (Wow! some would even have a down payment for a house when they mature.). See we'd even be money ahead by now and with Obama set to double down on that debt with his pork spending stimulus plan we could have even given every taxpayer another $10,000 CD! Lets see that would then make $30K per couple for a house down payment come 2011 (could have solved a lot of inner city housing issues with that plan).

Bailout Cost to Average Taxpayer (Revisited)… the LYNCH report

So, there you have it: $7,546.74 for each and every taxpayer, on average, spent by the government to buy assets at prices no one is willing to freely buy them at.

[Sailer]

Bailout Cost to Average Taxpayer (Revisited)… the LYNCH report

Yes, I can think of many ways I might spend that $7,546.74. And if I, and the rest of the people in the country, spent it on things we would need/like, then many of the nation's industries would not be in trouble, their employees would not be getting laid off (instead be earning money upon which they would pay taxes), the stock market would do better, and the TV wouldn't be telling us nightly how bad things are. I might put in a stipulation that the $7,546.74 be only spent on things made or grown in America, as the money doesn't do much good if its used to support industries in other countries, but I don't know how to enforce such a stipulation.

[BaldEagle]

Yes, I can think of many ways I might spend that $7,546.74. And if I, and the rest of the people in the country, spent it on things we would need/like, then many of the nation's industries would not be in trouble, their employees would not be getting laid off (instead be earning money upon which they would pay taxes), the stock market would do better, and the TV wouldn't be telling us nightly how bad things are. I might put in a stipulation that the $7,546.74 be only spent on things made or grown in America, as the money doesn't do much good if its used to support industries in other countries, but I don't know how to enforce such a stipulation.

While ideally you would like to see the money go to US manufactured goods but even foreign made goods still generate US jobs in retail, shipping, distribution, design, advertising, etc. Now of course keep in mind that the actual money would be locked up in a CD until 2010 but consumers would "feel better" about spending just knowing they will have a bit of a "cushion" when it matures.

Now If I were Obama...
Social Security should be increased 10% to offset some loss in income from 201K's (since they used to actually be 401K's ).

To fund this increase and fix social security moving forward the revenue has to increase dramatically. We start by removing the cap and revising the employee contributions to be an 6.2% AGI tax instead of an earned income tax. The employer contribution would remain a 6.2% tax based on earned income tax but computed on the tax payers returns based on their AGI. Your employer could even inadvertently give you a raise then based on your deductions. On the benefits side by removing the cap you would have to add a 50% reduction in the benefit amounts for each magnitude increase above the average wage value. Thus earners at $211K would recieve 150% of their current benefit and earners at $318K and beyond would recieve 200% of their current benefit.

http://av.rds.yahoo.com/_ylt=A0geunt...capnov2006.pdf

This does indeed result in a "stealth" tax on the wealthy (well ok, maybe no stealth involved, more like a bend over here it comes) but since the top rate is now half of what it was when the funding system was started it's about time for a little "change".

[BaldEagle]

Privately held Goody's goes bust so add another retailer to funeral pyre.
Retailers Gottschalks and Goody's file for bankruptcy - Yahoo! Finance

GE takes a 5% hit today......so far

The market shaves off 250 points on day six of "retail reality check".
Stocks tumble on disappointing retail sales - Yahoo! Finance

And the reality lost in the auto bailout fever...
http://finance.yahoo.com/news/Retail...-14057619.html

The Commerce Department reported Wednesday that retail sales dropped 2.7 percent last month, more than double the 1.2 percent decline that Wall Street expected.

[BaldEagle]

Stop the Charade Nationalize Citi: Tech Ticker, Yahoo! Finance

Before the government puts another dime of taxpayer funds into Citi, let's stop the charade and fully nationalize the company, including:

The removal of the current management team, including the board of directors, ideally with some clawback of executive pay.

A wipeout of existing stakeholders, debt and equity alike.

Forced write-down of bad debt.

Now finally some sense seeps in...

[BaldEagle]

Fault lines emerge at Fed - MarketWatch

The Fed has expanded its balance sheet from $900 billion to well over $2 trillion in its efforts to restore the credit markets to health.
Bernanke has argued that focusing on the size of the balance sheet misses the point, arguing the Fed's various asset purchase programs are not easily summarized in a single number.

But Plosser is bringing the spotlight right back to the Fed's balance sheet.
"The size of the balance sheet does offer a possible nominal anchor for monitoring the volume of our liquidity provisions," Plosser said.
Underneath the surface is a real concern about how and when the Fed tries to exit from its new monetary policy.
Fed officials who pay attention to the money supply believe that the Fed's current policy of printing money never ends well and the danger of inflation is very high. They believe the Fed must withdraw the stimulus before there is any sign of inflation or it is too late.

Gee, and here I thought nobody was paying any attention to the presses running full tilt 24/7. I believe I said the exact same thing here previously if they wait until inflation begins to reign in the money supply it's far too late to avoid hitting double digit inflation.

[Sailer]

Danger of inflation, huh. Like I said earlier, time may be to start printing larger bills, like $1,000, $10,000, etc as a 2 trillion dollar balance sheet unbalances everything else. Unfortunately, though someone up there may have some sense, the majority of the senseless thinkers will probably keep cranking out the paper. I think it might be too late as it is. All depends on how soon the majority of people realize that the emperor has no clothes.