Future of the U.S. Economy

[jimtron]

I'm curious to hear, especially from those knowledgeable in economics, where things might be headed in terms of the U.S. economy. There seems to be a fear among some folks, perhaps irrational, that we won't recover from the likely recession, and even that this could mean that the empire will begin to crumble. Another viewpoint is that things are currently bad, but in the past we've always recovered from recessions, and eventually will get on track; in the long run things will be fine and the economy will continue to grow.

I'm not interested in conspiracy theories or paranoia, but educated guesses about what could, realistically, happen in the future. Could things really start to unravel? Is it paranoia to worry about the economy never fully recovering, or is that a real possibility?

[Ohmer]

In the early 90’s we had recession that was exacerbated by a Savings and Loan scandal. Greedy people doing stupid things during the 80’s boom. The sky is falling! We recovered and had a huge economic expansion in the mid-late 90’s.

In 2001 a recession started when the dot com bubble burst. It was exacerbated by Eron, WorldCom and other greedy people doing stupid things during the 90’s boom. The sky is falling! We recovered and had a decent economic expansion in the mid 00’s.

In 2008 we have a recession started by the housing bubble bursting. It is exacerbated by the mortgage crisis. Greedy people doing stupid things during the 00’s boom. The sky is falling!

I am no expert in economics, but I don’t see that anything is significantly different this time. We will have another expansion during which greedy people will do stupid things that will blow up in their face at the start of the next recession. Some will claim that the sky is falling!

[PAC]

Our economy has been a remarkable engine. While I don't look forward to a coming downturn, our economy has self correcting processes. We need to let these take place and work through them. While it may seem cruel, bad decisions often have negative consequences. Letting the consequences take place is part of the self correction process. I have complete confidence that our economy will rebound. For instance, while my 401K may drop in value for a while it will be buying more shares of stock at a lower price than if the economy kept going at a higher rate.

My concern is that poor policy drags down the economy. If we continue supporting short-term policy at the expense of long term growth, we will decline. We need leadership. However, I doubt that the American public wants to be led in this direction.

[jimtron]

I am no expert in economics, but I don’t see that anything is significantly different this time.

Aren't there some significant differences? The size of our deficit, price of oil, ongoing Iraq War, trouble brewing with Iran? Also, some would say that the U.S. is seen as less powerful than it was, and probably less respected and feared than it used to be.

I don't know--I'm playing devil's advocate here. I'm skeptical of the argument that the empire is collapsing, but I'm also somewhat skeptical that things will be back to normal in a few years.

[geni]

Devulation of currency will mean the US will increase exports particularly of manufactored goods.

[Ohmer]

Aren't there some significant differences? The size of our deficit, price of oil, ongoing Iraq War, trouble brewing with Iran? Also, some would say that the U.S. is seen as less powerful than it was, and probably less respected and feared than it used to be.

Of the problems you have listed, what do you think is really significantly different than the early 90's? The dept was huge. Oil was not cheap. We had a war with Iraq. Trouble has been brewing with Iran for decades. There was a Bush in the White House and a Clinton running for president.

Sure problems have grown, but has there been a fundamental change? I don't think so. Our economy will adapt.

[jimtron]

Of the problems you have listed, what do you think is really significantly different than the early 90's? The dept was huge. Oil was not cheap. We had a war with Iraq. Trouble has been brewing with Iran for decades. There was a Bush in the White House and a Clinton running for president.

Sure problems have grown, but has there been a fundamental change? I don't think so. Our economy will adapt.

To me things do seem worse than in the 90s. The war in Iraq is much, much worse than then--there's no end in sight, it's extremely expensive, and very unstable. Also, according to Wikipedia (which I realize might be wrong), the debt is more than twice as big as it was in the 90s, and the dollar is worth significantly less.

Maybe the question I should be asking is, what would it take to wreck the U.S. economy? Will it be healthy forever? What would cause it to go south and not recover?

Again, I'm not trying to make an argument, it's just that I wonder if one side is overly optimistic, and the other side overly pessimistic.

[Ranillon]

Here is my best understanding of what is and might happen. Take it as you will.

Over the past thirty-five years there has been a massive economic shift that has favored business and the wealthy over everyone else. While this shift can and has been exaggerated, it is still nevertheless very real. Wages have stagnated (when adjusted for inflation) even as the relative cost of things such as health care and college have steadily risen. Likewise, the social safety net -- in part government provided, in part from business (such as pensions) -- has at the same time been stretched ever more thin. Inequality has risen to proportions not seen since before the Great Depression. Naturally, while there are ethical and social consequences of such policies the potential economic effects are serious as well.

The average family has dealt with the money crunch primarily in two ways -- by sending an additional wage earner into the market and by taking on debt. Problem is that you can only have so many extra bread winners and only service so much debt. National savings have turned negative and with the collapse of the housing market people can no longer tap equity when things get tight. Housing prices may have inflated as much as 40%. That’s a long way to fall. As a result the housing slump isn't going away anytime soon.

Problem is that consuming spending is still the (by far) primary engine for the economy. With our primary means of adapting to stagnant wages and declining benefits becoming tapped out one has to wonder what is going to keep things going. Business investment is obvious possibility, but despite record profits it has remained unremarkable over the last financial cycle and with recession looming how eager will business be to change that trend?

Under normal circumstances all of this would be a recipe for “merely” a serious recession, but there are other factors that could – let me emphasize could, not necessarily will – make things worse. The most notable of these would in my estimation be: Peak Oil, Global Warming, and our staggering national debt.

Sure, you can argue that any one of these are overblown potential dangers, but you don’t need doomsday to nevertheless have serious economic repercussions. Even if the effects of these three remained modest they could turn a 2-3 year recession into a 20-30 year one. Rising energy prices would eat up wage gains. Servicing and paying off the national debt likewise gobbles up cash that could be better used to stimulate the economy through investment and public services. Worse, the rest of the world could start refusing to fund our collective spending spree meaning we’d have to make serious cuts and/or borrow at increasingly burdensome rates. The debt also tends to cause the dollar to drop in worth which in turn makes the price of imports go up. Yes, it would over time promote our own exports, but then again over time we’ll all be dead. The question is whether it would be enough to make a serious difference in the face of other factors.

Point is that with a depressed housing market, tapped out workers, and a business climate that sees cutting jobs and sticking the tax payer with the bill as the height of virtue we are dangerously vulnerable to all of these other factors. The average person doesn’t have much to fall back upon to make up the difference if their buying power shrinks. The result would not be the end of civilization, but it might very well represent a prolonged era of “stagflation” where our collective standard of living decreases.

The social consequences of this are potentially staggering. People can take the short term disappointments – wage cuts, job loss, health costs – if they think things will quickly improve, but what happens when steady inflation and a stagnant economy start to make it clear that their situation will not meaningfully change for decades? People can take a lot, but the precipitous rise of inequality and the lowering of economic security have already consumed a sizeable portion of our available social capital. That means that our collective reserves of patience and faith in the good will of society are already low. It might take less than you think to start snapping them.

Whether we handle these problems well or badly I think we are seeing the end of American economic dominance. Again, this doesn’t mean ruin, but the U.S. will fall back into the economic pack. We could very well be seriously eclipsed by Europe, for example. Its collective economic might is already equal to that of the U.S., but they are doing a better job of handling oil dependence and the possible consequences of Global Warming. I also wouldn’t be surprised if the Euro grabbed the de facto role of global currency from the greenback. There are already signs it is happening.

The end result would be an America that would have to get used to reduced consumption and expectations. We would also have to forgo our national swagger – reduced resources will inevitably mean a reduced military and less general political influence. There will be a lot less “going it alone” and a lot more compromises with other nations. Just how bad things might get depend a lot of how we handle the next 10 years. If we start investing in physical and social infrastructure – make healthcare and schooling affordable, reduce inequality, wean ourselves from oil dependence, and so forth – we can make things as painless as possible, perhaps even turn a bad situation to our advantage. The alternative is to continue with current policies that will just stretch inequality to obscene levels, leave more people without hope, and inevitably lead to serious social unrest.

[Tokenconservative]

In the early 90’s we had recession that was exacerbated by a Savings and Loan scandal. Greedy people doing stupid things during the 80’s boom. The sky is falling! We recovered and had a huge economic expansion in the mid-late 90’s.

In 2001 a recession started when the dot com bubble burst. It was exacerbated by Eron, WorldCom and other greedy people doing stupid things during the 90’s boom. The sky is falling! We recovered and had a decent economic expansion in the mid 00’s.

In 2008 we have a recession started by the housing bubble bursting. It is exacerbated by the mortgage crisis. Greedy people doing stupid things during the 00’s boom. The sky is falling!

I am no expert in economics, but I don’t see that anything is significantly different this time. We will have another expansion during which greedy people will do stupid things that will blow up in their face at the start of the next recession. Some will claim that the sky is falling!

Just so.

Those of us old enough to remember the 70s and 80s will recall that it looked a LOT like things look today, and the same breed of doomsayers were out there, screaming from (not so much the headlines as today, unfortunatey) that TEOTWAWKI was nigh.

I remember reading hysterical reports that the dollar was doomed, that we'd be like Weimar Germany, taking wheelbarrowsful of dollars to the grocery to buy a loaf of bread, that the Japansese, Euros and Canadians (!) were buying up the country!!

Auuuuggghhhhh!!!

Then um...well, not so much.

Today, some of the players have changed, and the left-advocacy media, intent on helping see a socialist in the White House and a clear socialist majority in both houses of Congress is even more shrill, but otherwise it's just exactly as you point it up...only not nearly as bad as it was in the 70s and most of the 80s when we really had unemployment and inflation issues (much of it related to early-70s meddling in the economy by Nixon, much of it associated with the declind of heavy manufacturing and the problems in the oil industry here).

But we got over it then, and we will now...maybe. Then, the media were simply left-biased and not, as they are today, openly left-advocacy and using their bully pulpit to frighten Americans into a recession on the knowledge that swing voters tend to vote D in "bad" economic times.

Tokie

[Tokenconservative]

Of the problems you have listed, what do you think is really significantly different than the early 90's? The dept was huge. Oil was not cheap. We had a war with Iraq. Trouble has been brewing with Iran for decades. There was a Bush in the White House and a Clinton running for president.

Sure problems have grown, but has there been a fundamental change? I don't think so. Our economy will adapt.

Thanks for the rare rational view!

Then, we had the Cold War...today we have the much smaller and far less dangerous war against international Islamofascism (less dangerous in the short run...we either win this or our grandchildren will be fighting the Muslims in our streets). There is no real threat of global thermonuclear war, today, either. The Russians are not going to launch their aging, poorly-maintained, missiles at us if we invade Iran. Nor will China.

Tokie

[geni]

We could very well be seriously eclipsed by Europe, for example. Its collective economic might is already equal to that of the U.S., but they are doing a better job of handling oil dependence and the possible consequences of Global Warming. I also wouldn’t be surprised if the Euro grabbed the de facto role of global currency from the greenback. There are already signs it is happening.


Europe doesn't appear to be going anywhere though. Yes there is reasonable growth in the east but that is from a low base but the west is suffering from demographic issues and lack of economic reform.

[Ranillon]

Europe doesn't appear to be going anywhere though. Yes there is reasonable growth in the east but that is from a low base but the west is suffering from demographic issues and lack of economic reform.

I was talking 15-30 year time scales, not 2-3. And, the so called "lack of economic reform" for Europe tends to be exaggerated (sometimes greatly) by partisans here in the US that take it for granted our system is superior. I think it has done a marginally better job for short term gains, but I fear only at the cost of serious long term problems -- which is what my post was about.

If Europe (or anyone else) does seriously overtake the US economically it won't happen overnight, but rather be something you see take place over decades.

[Ohmer]

Europe doesn't appear to be going anywhere though. Yes there is reasonable growth in the east but that is from a low base but the west is suffering from demographic issues and lack of economic reform.

It will be interesting to see what happens as the billions of people who live in China and India continue entering the middle class. There is an absolutely huge untapped market here. As the wealth gap between east and west shrinks, smart western business can take advantage.

[Tokenconservative]

Europe doesn't appear to be going anywhere though. Yes there is reasonable growth in the east but that is from a low base but the west is suffering from demographic issues and lack of economic reform.

What do you mean by "lack of economic reform"? A move away from socialism?

And do you mean Western Europe?

Demographic issues, indeed: birthrates of culturally European Europeans are in the negative numbers while Muslim numbers are rocketing upward. Islamafication of Western Europe is an enormous problem facing most of the Continent and GB...if something is not done about it (wholesale repatriation of Muslims to their places of origin, say) soon, it's likely most of W. Europe will be Muslim with all the economic problems such a stratified, backward looking social order will bring.

Tokie

[Tokenconservative]

It will be interesting to see what happens as the billions of people who live in China and India continue entering the middle class. There is an absolutely huge untapped market here. As the wealth gap between east and west shrinks, smart western business can take advantage.

They already are taking advantage...car sales in China and even India are through the roof, for example. It's a huge status symbol to have a private car in either place, and the rising middle class in both places see it as a "must have."

And to have an American car is an even bigger status symbol. Maybe Detroit will rise pheonix-like from the ashes of its own self-imposed destruction?

Tokie

[Tokenconservative]

I was talking 15-30 year time scales, not 2-3. And, the so called "lack of economic reform" for Europe tends to be exaggerated (sometimes greatly) by partisans here in the US that take it for granted our system is superior. I think it has done a marginally better job for short term gains, but I fear only at the cost of serious long term problems -- which is what my post was about.

If Europe (or anyone else) does seriously overtake the US economically it won't happen overnight, but rather be something you see take place over decades.

Hmm...when you say "long term," what do you mean? We've had pretty much the same free market system since oh, 1785, anyway...and aside from a few hitches hysterics like to scream about, it's pretty much done nothing but grow and bring more and more people into the middle classes and upper classes.

Europe's record over that same time period has been...sketchy, at best...it was headed in a good direction in Germany under the Kaisers, but then ran into a snag or two along about 1914-1945....some things happened.

England has had its problems, up until the 80s, dealing with it's social stratification, then with reforming its socialistic econ and other sytstems...thanks mostly to the Iron Lady, that's all been fixed. Italy? LOL! Greece? Ditto. Spain, has been coming along nicely, it seems, meanwhile, Portugal is like Europe's Haiti...the low countries and Scandinavia seem to be reforming to some degree and yes, what that means is adopting a more (rather than less) free market approach that's built on inclusion, rather than the socialist-feudal system of exclusion that had ruled all of Europe for so long.

New Europe, of course, had it's fill of both by the time Reagan defeated the Soviets, and while they are not, necessarily leaping into high tech and finance as quickly as they, certainly, and others would like, the are embracing free market economics and egalatarian social view far more rapidly than is moribund old Europe...regardless of my bigoted view as an American.

Tokie

[geni]

England has had its problems, up until the 80s, dealing with it's social stratification, then with reforming its socialistic econ and other sytstems...thanks mostly to the Iron Lady, that's all been fixed.

Err you regard increased social stratification as a fix do you?

[dash]

I'm curious to hear, especially from those knowledgeable in economics, where things might be headed in terms of the U.S. economy. There seems to be a fear among some folks, perhaps irrational, that we won't recover from the likely recession, and even that this could mean that the empire will begin to crumble. Another viewpoint is that things are currently bad, but in the past we've always recovered from recessions, and eventually will get on track; in the long run things will be fine and the economy will continue to grow.

I'm not interested in conspiracy theories or paranoia, but educated guesses about what could, realistically, happen in the future. Could things really start to unravel? Is it paranoia to worry about the economy never fully recovering, or is that a real possibility?

All that will happen is the government will devalue the dollar. This represents a taking from anyone holding bonds and dollar denominated assets to whoever doesn't. Great time to be deep in debt with fixed interest payments. You'll be able to pay back the loan with devalued dollars. That is, if you can manage to hold your job and your wages stay the same.

Read Peter Schiff's book Crash Proof. The US can only function because we control the world's reserve currency. We print dollars, and the rest of the world has to provide real goods and services for them. That's made Americans fat + lazy. An American doing the same work as a Chinese earns 10x (or whatever). Why? Because we control the dollar and China is keeping their currency down, in order to boost up their economy and production.

All this is changing. The US dollar is fading fast, it won't be the reserve currency any longer. The Chinese yuan will rise drastically in value. Relative wages will equalize. Too bad if you wanted to travel around the world, it's going to cost a lot more with a weakened dollar.

Americans hold 20 trillion dollars in bonds. These are all going to be reduce. The federal government can continue borrowing and printing money to stay operational, it just means devalued dollars for everyone holding them.

It's a travesty, but what can you do? That's how the system operates. I predict a systemic collapse, worse than 1929 even. It's a perfect storm. The propaganda machine (ie the mainstream media) is downplaying all this. The situation is very, very dire. The Fed reduced rates 1.25% within just over a week's time. This is CRISIS mode, people.

Solution: Buy gold + silver, get rid of any and all bonds, t-bills, t-bonds. Get out of dollars, fast. Invest in foreign resource sectors, like energy and mining. Food's always good. The US stock market will stay high in dollar terms, but that's just due to dollar devaluation (or price inflation). It's just a drug to keep people thinking everything is going fine.

The government doctors the statistics. The CPI and PPI (Consumer Price Index and Producer Price Index) are refelecting perhaps only 1/3 of the true inflation levels. We're into double digit inflation already. The M3 money supply is skyrocketing. Look at the shadow stats. Why is the price of gold soaring? Over 12% in the last month alone.

What this means is your savings could get wiped out, little by little. It means if you invest wisely you can make out like a bandit. Bet against the USA and you'll do fine. This isn't a speed bump, this is a major train wreck. Life will go on. It always does. But whether the federal government continues to exist...there is a very real chance it won't.

Recall how big a surprise it was when the Soviet Union collapsed under Gorbachev? We might face the same thing. Then it will just be 50 independent states. Great, I say. Maybe now we can have a real currency, backed by something like gold or silver, that the corrupt government can't diddle with.

What's wrong with balanced budgets? What's wrong with no national debt. How about the government can only spend what they can collect in taxes?

What happened to the Constitution? Persnal responsibility? Individual freedom?

Let the government collapse, I say. Don't be afraid. The world that will follow will be so much better, we'll never miss the old empire. The world is sick of empires. Endless war. Remember the book 1984? We're living it.

-Dave

[Ranillon]

Hmm...when you say "long term," what do you mean? We've had pretty much the same free market system since oh, 1785, anyway...and aside from a few hitches hysterics like to scream about, it's pretty much done nothing but grow and bring more and more people into the middle classes and upper classes.

Not quite sure what the observation really has to do with predicting future economic reality, but it fails even as an argument for past success. First of all, capitalism goes back beyond 1785. Secondly, there have been numerous depressions, business scandals, monopolies, and other things during that time that shatter the myth of unbroken continuous progress. One clear lesson of the history of Capitalism is that the wealthy and powerful as a group have habitually tried to put their thumbs on the scale in their favor. Not only did/does this have negative moral consequences, but also corrupts and weakens Capitalism itself. It sacrifices some measure of long term prosperity for short term pay-offs. The question isn't whether we will get richer over time, but if we are doing so in the most effecient (not to mention moral) fashion.


Europe's record over that same time period has been...sketchy, at best...it was headed in a good direction in Germany under the Kaisers, but then ran into a snag or two along about 1914-1945....some things happened.
<snip>


Please go read a history book and stop embarrassing yourself. Europe dominated economic life around the globe up until WW2 and is still (in mass) the equal of the US.

[Ohmer]

My retirement fund's take on the situation:

http://www.tiaa-cref.org/support/news/articles/gen0801_110.html

Calm and rational. I always find it odd how some people freak out every time there is a dip in the business cycle.

[geni]

Read Peter Schiff's book Crash Proof. The US can only function because we control the world's reserve currency. We print dollars, and the rest of the world has to provide real goods and services for them. That's made Americans fat + lazy. An American doing the same work as a Chinese earns 10x (or whatever). Why? Because we control the dollar and China is keeping their currency down, in order to boost up their economy and production.

All this is changing. The US dollar is fading fast, it won't be the reserve currency any longer. The Chinese yuan will rise drastically in value. Relative wages will equalize. Too bad if you wanted to travel around the world, it's going to cost a lot more with a weakened dollar.

Traveling around the world is not something that is required for the economy to function. The problem is more raw materials in particular oil. If it wasn't for oil devaluation of the dollar would make a significant amount of economic sense.


It's a travesty, but what can you do? That's how the system operates. I predict a systemic collapse, worse than 1929 even. It's a perfect storm. The propaganda machine (ie the mainstream media) is downplaying all this. The situation is very, very dire. The Fed reduced rates 1.25% within just over a week's time. This is CRISIS mode, people.

I wouldn't desctibe japan as a crisis. Problem yes crisis no.


Solution: Buy gold + silver,


I think not the last silver bubble was bad enough.


get rid of any and all bonds, t-bills, t-bonds. Get out of dollars, fast. Invest in foreign resource sectors, like energy and mining. Food's always good. The US stock market will stay high in dollar terms, but that's just due to dollar devaluation (or price inflation). It's just a drug to keep people thinking everything is going fine.

Food is kinda overvalued right now. May fall somewhat next year.


The government doctors the statistics. The CPI and PPI (Consumer Price Index and Producer Price Index) are refelecting perhaps only 1/3 of the true inflation levels. We're into double digit inflation already. The M3 money supply is skyrocketing. Look at the shadow stats. Why is the price of gold soaring? Over 12% in the last month alone.

That just means people are worried. Gold prices are also speculation driven. While not actualy bubble conditions yet long term stability at current levels is questionable.


What this means is your savings could get wiped out, little by little. It means if you invest wisely you can make out like a bandit. Bet against the USA and you'll do fine. This isn't a speed bump, this is a major train wreck. Life will go on. It always does. But whether the federal government continues to exist...there is a very real chance it won't.

Plently of goverments have survived the colapse of their currency. Given the way power generaly moves in an emergency in your senario it is state goverments that are more likely to get wiped out.


Recall how big a surprise it was when the Soviet Union collapsed under Gorbachev? We might face the same thing. Then it will just be 50 independent states. Great, I say.

50 states of limited international importance.


Maybe now we can have a real currency, backed by something like gold or silver, that the corrupt government can't diddle with.

Deflation would result in such an currency being highly problematical. In effect people would use the currency as a means to speculate on gold with the result that the country useing it would find it's currency gaining value at inconvient times.


What's wrong with balanced budgets?

They only make sense under a limted set of economic conditions. Most of the time you want to be running either a surplus or a deficit.


What's wrong with no national debt.


Nothing under most conditions. Causes problems when you suddenly need to say fight a war or repair damage to infrstucture.


How about the government can only spend what they can collect in taxes?


Your country gets hit my a major huricane. Tax income falls because of the damage just when you need more money to pay for road repairs. You raise taxes to solve this problem and destory your economy.


What happened to the Constitution? Persnal responsibility? Individual freedom?

People tend to object to the last two.


Let the government collapse, I say. Don't be afraid.

Anarcy is never fun.


The world that will follow will be so much better, we'll never miss the old empire.

Another promise of a bright new tomorrow? You are living in a liberal democracy. It doesn't get any better.


The world is sick of empires.

The US is not an empire. In some ways this could be viewed as one of it's problems.


Endless war.


Pax romana


Remember the book 1984? We're living it.


I've read 1984. The US is no Oceania

[Tokenconservative]

Err you regard increased social stratification as a fix do you?

My understanding was that it had loosened up quite a bit...not your perception? Are you a Brit?

Tokie

[Tokenconservative]

Not quite sure what the observation really has to do with predicting future economic reality, but it fails even as an argument for past success. First of all, capitalism goes back beyond 1785. Secondly, there have been numerous depressions, business scandals, monopolies, and other things during that time that shatter the myth of unbroken continuous progress. One clear lesson of the history of Capitalism is that the wealthy and powerful as a group have habitually tried to put their thumbs on the scale in their favor. Not only did/does this have negative moral consequences, but also corrupts and weakens Capitalism itself. It sacrifices some measure of long term prosperity for short term pay-offs. The question isn't whether we will get richer over time, but if we are doing so in the most effecient (not to mention moral) fashion.



Please go read a history book and stop embarrassing yourself. Europe dominated economic life around the globe up until WW2 and is still (in mass) the equal of the US.

Capitalism goes back to cavedwellers, I suppose. Who said that it didn't? It certainly predates the US Constitution in N. America, but I believe this conversation is about um...the US economy.

I could've missed something, of course.

The point is that many today are shrieking in bespittled hysteria that this is TEOTWAWKI (devalued dollar against other currencies, rising costs of various things, debt, deficit, etc.) and that it's never been like "this" before, ergo, that means TEOTWAWKI.

I doubt it.

I was around in the 70s when we really did have inflation and recession followed by stagflation in the 80s and early 90s, and we had our share of TEOTWAWKI financial problems then, too, and in the 80s we also had issues with foreclosures (that make the current "crisis" laughable by comparison) and unemployment (we don't have that now) and industry going oversea for real...lots of stuff and somehow the Republic survived.

No TEOTWAWKI then...why would there be now?

I'll take your advice vis a vis the history book. Thanks. I had no idea! Clearly, my saying nothing of the sort led you to that conclusion and I thank you for pointing out my ignorance.

Tokie

[geni]

My understanding was that it had loosened up quite a bit...not your perception? Are you a Brit?

Tokie

Perception is irrelivant. Reality is that social mobility has fallen in the UK since the 1950s

http://www.lse.ac.uk/collections/pressAndInformationOffice/newsAndEvents/archives/2005/LSE_SuttonTrust_report.htm

[MilwaukeeMike]

I'm curious to hear, especially from those knowledgeable in economics, where things might be headed in terms of the U.S. economy. There seems to be a fear among some folks, perhaps irrational, that we won't recover from the likely recession, and even that this could mean that the empire will begin to crumble. Another viewpoint is that things are currently bad, but in the past we've always recovered from recessions, and eventually will get on track; in the long run things will be fine and the economy will continue to grow.

I'm not interested in conspiracy theories or paranoia, but educated guesses about what could, realistically, happen in the future. Could things really start to unravel? Is it paranoia to worry about the economy never fully recovering, or is that a real possibility?

From an equities standpoint, we have been near a recession for months. Yet much of the sell off has been born out of the fear mongering term, "flight to quality," which is a funny term if you look at the long run returns between bonds and stocks. I.E. Stocks outperform bonds. However, it has been an extremely volatile time too; I've had days where my portfolio has swung 25% in a matter of hours. Unheard of just a few years ago, yet this volatility is great if you can play the spreads with options. And if you are a more long term buyer this is the garage sale of the decade. So many great names have been taken behind the wood shed and beaten like a red headed step child. AAPL, RIMM, GOOG, GE, CSCO, MO, the entire Financial Sector... to name a few. So if you want to know where the economy is headed, well, it's up. Every recession we have makes the country and the economy stronger which is evident in GDP and market growth over the long run.

Every time we have a recession pundits always say the sky is falling and we will never recover. And it's always some new disaster.

1990 - Junk bond collapse and commercial credit crunch. (Similar to the problem we are having now)

2000 - 2003 - Internet blow up, Enron, 9/11

2007 - 2008? - SIV's and CDO's

We will climb out of this recession; have some boom periods, then down the road fall into another recession because of some new problem. Anyone that followed the home lending industry or traded CDO’s saw this coming years ago, its just no one involved wanted to speak up because their pockets were getting lined. This is all great when housing prices climb, but when prices decline, you lose your shirt. This recession and credit crunch is basically a pricing difference, and until the bid – ask spread converges we will have some rough times ahead of us.

[MilwaukeeMike]

Aren't there some significant differences? The size of our deficit
This argument is brought up time and again, yet there is nothing wrong with having debt. It's a great way to leverage yourself. I trade on margin a lot; it allows my returns to be higher than if I had only used capital I owned. The economy is exactly the same, by having national debt; we effectively are creating greater growth than if we purely used tax revenue. This so far has successfully worked for the U.S. as inflation has been low, foreign countries continue to purchase bonds, and the dollar has stabilized. Also, the U.S. is not on the top of the list when it comes to public debt as a % GDP. We are actually 31, behind France, Canada, Germany, Italy, and Japan to name a few notable countries with higher percentages. Finally, our percentage of debt is actually lower than it has been in the past.

http://forums.randi.org/imagehosting/thum_1021047a392246cd94.png (http://forums.randi.org/vbimghost.php?do=displayimg&imgid=10526)http://forums.randi.org/imagehosting/thum_1021047a392343772c.png (http://forums.randi.org/vbimghost.php?do=displayimg&imgid=10527)

price of oil, ongoing Iraq War, trouble brewing with Iran? Also, some would say that the U.S. is seen as less powerful than it was, and probably less respected and feared than it used to be.

I don't know--I'm playing devil's advocate here. I'm skeptical of the argument that the empire is collapsing, but I'm also somewhat skeptical that things will be back to normal in a few years.

As for the rest. Well, oil prices will not bring the economy down. People will change the way they live far before our economy is destroyed by high oil prices. A recession will actually help to lower oil prices.

[jimtron]

Thanks for the responses folks. Let me ask you all this: what would be signs that things were getting bad enough that we wouldn't pull out of it? What would it take for the U.S. economy to tank and not recover? What would cause the sky to fall, and what would the indicators be?

Admittedly I'm not well versed in finance and economics, but I still feel a bit of skepticism about how confident many people are that this is just another dip that we will surely recover from. I do think that's likely to be true, but some folks seem just a tad too confident; it makes me skeptical.

Every time we have a recession pundits always say the sky is falling and we will never recover. And it's always some new disaster.

Which pundits have said that in the past (or now)? The conventional wisdom that I most often hear from finance pundits is that it's best to hold on tight and think about the long term, instead of being emotional and irrational and selling low (it's better to buy when the market's low).

[egslim]

there is nothing wrong with having debt. It's a great way to leverage yourself. I trade on margin a lot; it allows my returns to be higher than if I had only used capital I owned.
Here is some information about trading on margin: Investopedia (http://www.investopedia.com/university/margin/margin1.asp)
In volatile markets, prices can fall very quickly. If the equity (value of securities minus what you owe the brokerage) in your account falls below the maintenance margin, the brokerage will issue a "margin call". A margin call forces the investor to either liquidate his/her position in the stock or add more cash to the account.
So trading on margin allows higher returns, but if stocks for some reason drop too far margin traders are forced to sell them. Which fuels the drop even further.

The same is true for taking a second mortgage to take advantage of the increased value of a home. If real estate prices drop people will be forced to sell, fuelling the drop even further.

With sufficient savings a drop in the stock or real estate market isn't such a big issue. You won't need to sell, and eventually the market will recover. But the savingsrate in the US is negative, which means people borrow more than they save. Thus the safety buffer against a market drop is shrinking, which makes it increasingly dangerous.

I think that explains Bernanke's sudden 0.75% interest drop to boost the stockmarkets. To have them fall at a time when real estate prices are doing poorly could cause a dangerous chain reaction.

On the upside, it is so far in everyone's interest to keep the US economy going. Bernanke can reduce interest rates to boost stock and real estate markets, and the government can borrow money from China and Japan to boost the economy.

On the other hand, the negative savingsrate makes the US increasingly vulnerable to market volatility. That means ever more heavy-handed interference will be necessary to prevent collapse in future crisis. And eventually it will probably fail, which would cause many to go bankrupt, starting a major recession.
Second, dependency on foreign lenders with political motives means receptiveness to their political suggestions. At some point major loans will come with political demands.

[MilwaukeeMike]

Which pundits have said that in the past (or now)?

Just turn on CNBC any day of the week and you will hear your fair share of pundits with dooms day opinions.


The conventional wisdom that I most often hear from finance pundits is that it's best to hold on tight and think about the long term, instead of being emotional and irrational and selling low (it's better to buy when the market's low).

First I suggest reading Peter Lynch's book, "One up on Wall Street." Lynch is one of the most successful fund managers in the world and explains how he successfully managed the Fidelity Magellan Fund.

Now onto your question.

It has more to do with retail investors who think they are day traders. The thing is, at least what I tell people, is you should hold an equity for no more than 18 months, yet should not hesitate to sell off in blocks as you make gains. I say 18 months because things change over time and it is foolish to think a company can continue at its current pace; their will be pauses and declines along the way. As Jim Kramer says, “Bulls make money, bears make money, pigs get slaughtered.” (His only good advice I’ve heard) It depends what you are investing in. If GE goes up 10% or 15% in a day I am selling my entire position. If a fast grower, such as Apple last summer, goes up 10% or 15% in a day, I am still a possible buyer. You need to put what you are investing in into perspective. I.E. Apple notched a 137% gain in 2007 while GE had an 11.7% gain.

The problem is most retail investors (Etrade, TD Ameritrade, Scottrade) do not do enough research and homework on what they invest in and also buy into stocks when they hit their height of popularity. When their investments move down, they get scared and sell.

If you do your research and are 100% confident in your stock selection, then downward trends in its share price should not scare you but offer you a chance to add more to your position.

People try to time the market but what it comes down too is doing your homework on a stock. Even in down markets, companies with solid fundamentals and good products or services will succeed. Smart money always wins!

[MilwaukeeMike]

Here is some information about trading on margin: Investopedia (http://www.investopedia.com/university/margin/margin1.asp)
In volatile markets, prices can fall very quickly. If the equity (value of securities minus what you owe the brokerage) in your account falls below the maintenance margin, the brokerage will issue a "margin call". A margin call forces the investor to either liquidate his/her position in the stock or add more cash to the account.
So trading on margin allows higher returns, but if stocks for some reason drop too far margin traders are forced to sell them. Which fuels the drop even further.

Investing is not without its risks. Margin trading is not for your novice investor. I've had several margin calls and they are not the end of the world. I keep funds in a money market account, which is part of my diversified portfolio, that I transfer too and from because of margin calls. Again, I have confidence in my investments because I take the time to do the research, listen into conference calls, read through their financials, so on.

[jimtron]

Just turn on CNBC any day of the week and you will hear your fair share of pundits with dooms day opinions.

I don't have cable.

Folks: what kinds of things would lead to the U.S. economy seriously faltering? What would it take for the markets to head south and stay south?