Latest Diablo 3 News
DiabloWiki Updates
Support the site! Become a Diablo: IncGamers PAL - Remove ads and more!

The American Recovery- A Phony Recovery

Discussion in 'Off-Topic' started by Stark_, Mar 13, 2004.

  1. Stark_

    Stark_ IncGamers Member

    Joined:
    Jun 27, 2003
    Messages:
    25
    Likes Received:
    0
    Trophy Points:
    5
    The American Recovery- A Phony Recovery

    Valid or invalid? Discuss.


    Personally, I think they're right. There have been lots of whispers that the last recesion was only a little blip before a huge tsunami, and the current boom is like the calm just before the tidal wave comes crashing down. And I think the people who most rely on their homes financially, namely middle and upper-middle class Americans who don't invest heavily, are going to be hit the hardest by this.
     
  2. cleanupguy

    cleanupguy IncGamers Member

    Joined:
    Oct 29, 2003
    Messages:
    397
    Likes Received:
    0
    Trophy Points:
    77
    Your link requires paid subscription. As I have no idea what the article was about, I won't be able to comment much. But yeah, I do believe that the so-called recovery is a phony one.
     
  3. VampiroXIII

    VampiroXIII IncGamers Member

    Joined:
    Jun 22, 2003
    Messages:
    655
    Likes Received:
    0
    Trophy Points:
    120
    *refuses to pay to read article*

    I think the economy is fine. Other than the skyrocketing gas prices that is. The DOW hasn't been this high since before the 9/11 incident, and the 6.5% unemployment rate is average. Granted we aren't the richest country in the world, and other countries' currency is being worth more and more compared to the US dollar, but I think that is just a result from negativity toward Bush's foreign policy.
     
  4. tarnok

    tarnok IncGamers Member

    Joined:
    Jul 3, 2003
    Messages:
    1,060
    Likes Received:
    0
    Trophy Points:
    346
    I think that's a bigger point than most people realize. This country really does live on gasoline. Higher gas prices are going to impact nearly every industry and enterprize directly and spread from there.
     
  5. Freemason

    Freemason Banned

    Joined:
    Feb 16, 2004
    Messages:
    3,156
    Likes Received:
    0
    Trophy Points:
    0
    Stark, you sound like you want the economy to tank. The dorks saying this is the calm before the storm are wrong. The economy is growing rapidly, the stock market is strong, manufacturing is up, jobs are being created. The same thing that happened after Pres. Kennedy & Pres. Regan cut taxes.
     
  6. th5418

    th5418 Banned

    Joined:
    Nov 1, 2003
    Messages:
    9,741
    Likes Received:
    0
    Trophy Points:
    0
    Some bias within your words Stark?
     
  7. Stark_

    Stark_ IncGamers Member

    Joined:
    Jun 27, 2003
    Messages:
    25
    Likes Received:
    0
    Trophy Points:
    5
    WHEN The Economist sounded the alarm about America's bubble economy in the late 1990s, what concerned us most was that share prices were no longer just a mirror that reflected the underlying economy, they had become its major driving force: soaring share prices encouraged a borrowing and spending binge. Although the stockmarket is lower today, in some respects the “economic bubble†has still not burst. The value of households' total wealth (in financial assets and homes) is well above its level before share prices started to slide in early 2000—and the American economy is more dependent than ever on asset appreciation.

    America's economy has survived the bursting of the bubble better than had been expected largely because policy-makers have pursued what is possibly the biggest fiscal and monetary stimulus in history. This week, even Alan Greenspan, chairman of the Federal Reserve, expressed concern about spiralling deficits. Tax cuts have given consumers more to spend. More importantly, historically low interest rates have inflated the prices of homes (and more recently shares again), encouraging households to pile up more debt.

    This has allowed consumers to keep spending even as wages and salaries have stagnated. Strikingly, although GDP has grown by a robust 4.3% over the past year, wage income rose by barely 1% in real terms. According to Kurt Richebächer, an independent economist who publishes a monthly newsletter, wages and salaries have, on average, increased by 9% in real terms in the first two years of previous post-war recoveries, but have been almost flat over the past two years, thanks to the sickly jobs market. Despite this, consumer spending has continued to boom, at an annual rate of 4.7% in the second half of last year. The gap between stagnant wages and rising spending has largely been filled by tax cuts and rising asset prices.

    Since 1999, the rise in the value of Americans' homes has more than offset the loss on their shares—and the latter have also recovered about half their losses. As a result, economic growth is once again being driven more by wealth than income. Over the year to the third quarter of 2003 (the latest figures available), the total value of homes, shares and other assets owned by households rose by $4.5 trillion, not that far off the $5.5 trillion jump in 1999 (see chart). Over the same period in 2003, personal disposable income increased by about $400 billion, to $8.3 trillion.

    Moreover, compared with 1999, a bigger slice of those capital gains has, in effect, been turned into cash by households borrowing against the higher value of their homes. Total household debt increased by more than $900 billion last year, almost twice as much as in 1999. Mr Richebächer claims that America is experiencing the biggest credit bubble in history: total debt (public and private) has increased by a hefty $6.5 trillion since 2000.

    Consumers can spend more than they earn by borrowing against their expanding wealth or running down savings, but for how long? If (still a big if) hiring by firms picks up sharply in coming months, pushing up incomes, then consumers will become less reliant on asset appreciation and debt, and the recovery will become more soundly based. Even so, their debts will hang around for a long while.

    Although concerned about budget deficits, Mr Greenspan argued this week that the recent surge in household debt is relatively harmless for the very reason that it has been accompanied by big gains in household assets. According to such an interpretation, the drop in household saving, to only 1.5% of personal income in December, is no cause for alarm: households no longer need to save, because rising wealth in shares and homes will do it for them.

    The snag is that the “wealth†being built up is partly phoney. In a recent report, the Bank of England argued that rising house prices do not create genuine wealth in aggregate. Those who have yet to buy a home suffer a loss of purchasing power, so rising prices redistribute wealth, they do not create it. More serious is that the price of homes or shares can fall, while debts are fixed in value. In the long run, the only way to create genuine wealth is to consume less than income, and to invest in real income-creating assets.

    America (and other economies) have been enjoying a very different sort of wealth creation: the Fed is in effect printing it. Not only has it held interest rates unusually low, but the excesses of an asset-driven economy are being fuelled by artificially low bond yields (helped by huge purchases from Asian central banks trying to suppress the rise in their currencies) and hence mortgage rates.

    Stephen Roach, the chief economist at Morgan Stanley, has long argued that the Fed is a “serial bubble blowerâ€. Its cheap money is stimulating another round of irrational exuberance. America's property market certainly looks pricey: the ratio of house prices to incomes is currently at a record high, and about a fifth above its 30-year average. Share prices still look overvalued by many measures. Undaunted, investors have regained their appetite for shares with something approaching indecent haste. A net $60 billion was invested in American equity mutual funds in January, beating the previous record, which as it happens was set in February 2000, just before the stockmarket peaked.

    Foaming asset prices are reviving the debate about whether the Federal Reserve should raise interest rates to cool down asset-price inflation. In January Mr Greenspan declared himself fully vindicated in his decision not to prick the stockmarket bubble in the late 1990s, but instead to wait for it to burst and then cut rates sharply to cushion the consequences. Mr Greenspan argues that it is hard to be sure what constitutes a bubble. Raising official interest rates sufficiently to prick what may or may not be one could itself trigger a deep recession. The Fed is also determined not to repeat Japan's mistake in the 1990s, by tightening monetary policy too soon.

    That, however, runs the risk that the Fed is cushioning the impact of the bursting of one bubble by inflating another—in housing. This is hardly a sound basis for a sustainable recovery. So addicted has the economy become to debt, that this will make it harder for the Fed to raise interest rates when it needs to do so.

    Other central banks seem to be breaking ranks with the Fed. Officials at the European Central Bank, the Bank of England, the Reserve Bank of Australia and the Bank for International Settlements (the central banks' central bank) have given some support to the view that monetary policy should sometimes lean against a rapid growth in asset prices and build-up of debt, even if consumer-price inflation is low. The Bank of England and the Reserve Bank of Australia both recently raised rates because of such concerns.

    The current dilemma for the Fed is that inflation is presently too low for comfort, which argues for holding interest rates down. But low interest rates, in turn, risk further fuelling asset-price inflation. Still, a small rise in interest rates would still leave monetary policy very loose, while serving as a warning to investors and homeowners that shares and house prices cannot keep rising for ever.

    In a recent article in the Wall Street Journal, Otmar Issing, the chief economist at the European Central Bank, argued that central banks cannot afford to ignore asset prices. This, he said, is one reason why they should keep a close eye on excessive growth in money or credit as well as on their inflation target. He also suggested that central bankers should avoid contributing to unsustainable collective euphoria and should perhaps signal concerns about asset values. Mr Greenspan, alas, shows no sign of taking his advice.


    That's the article. I didn't realize you needed a subscription to read it through their website.

    I do not want our economy to tank. The national and global effects of this would be disastrous. This article is more of a warning of what could happen if certain problems are not addressed. I feel that the valid points of concern have been raised in the article. It is a problem if all of our recovery is being propped up by institutions that are on shaky foundations right now. It is in everyone's best interests to address these problems and find the best way to solve them instead of turning it into a political battle, which is the direction it seems to be going in now . Fixing the dilemma would require some serious tweaks to our system which are unlikely to occur in an election year. The Bush Administration so far has been unwilling to back away from any of its controversial stances, and I don't think this will be any different unless cooler heads prevail.
     
  8. Freemason

    Freemason Banned

    Joined:
    Feb 16, 2004
    Messages:
    3,156
    Likes Received:
    0
    Trophy Points:
    0
    I've seen that junk before. It's all based on the housing bubble bursting. I'm in the industry. I read most of the trade pubications out there. While there has been some concern about the possibility of this being a bubble, there isn't any real worry. We know that the housing market is strong and will continue to remain strong for years to come.

    The article is fearmongering by a clueless author. There is no reason to panic. The only thing that can hurt this economy is another terrorist attack that really and truely cripples a huge section of the economy. We weathered a near collapse of the airline and hotel industry. The terrorists can only hurt us, not cripple us.
     
  9. Steve_Kow

    Steve_Kow Banned

    Joined:
    Sep 20, 2003
    Messages:
    2,860
    Likes Received:
    0
    Trophy Points:
    0
    I thought the unemployment was a tad lower than that?...
     
  10. Freemason

    Freemason Banned

    Joined:
    Feb 16, 2004
    Messages:
    3,156
    Likes Received:
    0
    Trophy Points:
    0
    Does anybody remember the unemployment rate in 1996? 5.6%
    Does anybody remember the unemployment rate right now? 5.6%
     
  11. Necrolestes

    Necrolestes IncGamers Member

    Joined:
    Jul 23, 2003
    Messages:
    1,904
    Likes Received:
    0
    Trophy Points:
    165
    Closer to 5.8% actually.

    The unemployment rate is currently hovering around 5.8 though that may just be in Pennsylvania, formerly known for steel and now known for outsourcing.
     
  12. Steve_Kow

    Steve_Kow Banned

    Joined:
    Sep 20, 2003
    Messages:
    2,860
    Likes Received:
    0
    Trophy Points:
    0
  13. maccool

    maccool IncGamers Member

    Joined:
    Jun 22, 2003
    Messages:
    3,904
    Likes Received:
    1
    Trophy Points:
    165
    So are y'all quibbling over the unemployment number because you don't understand the article or is this an "I can pee farther than you" moment?

    National numbers are good, but for an interesting take, look up regional unemployment rates, then look up the unemployment estimates by race, then realize that the unemployment rate is generally between 5 and 7% or so and that has nothing to do with the article Stark_ brought up.
     
  14. maccool

    maccool IncGamers Member

    Joined:
    Jun 22, 2003
    Messages:
    3,904
    Likes Received:
    1
    Trophy Points:
    165
    I don't know what article you read, but that wasn't the point. Inflated housing prices are the symptom. The author made the case that while the economy is growing, people are incurring massive personal debt by overspending. They see low interest rates, which the Fed may or may not be keeping artificially low in order to encourage spending, and go buy stuff.


    But you like fearmongering. It's what you do best. Again, I don't reckon you read the article. Or you might have noticed that the author describes a scenario where the massive debt we've incurred over the last two years can be payed down with relative ease. Llad's signature comes to mind every time I read on of your posts, Smeg. You see what you want to see and you hear what you want to hear.

    This is an interesting article, I need to read it again a couple more times and think about it some more; I'm not much of an economist. But, I do agree that the Fed isn't really helping matters by keeping interest rates low.
     
  15. bigD72

    bigD72 IncGamers Member

    Joined:
    Jun 28, 2003
    Messages:
    2,777
    Likes Received:
    1
    Trophy Points:
    466
    I don't see any problems coming up, I keep all my money in a shoe box, this way I will always have money.

    Crap.

    Anyone seen a Nike box size 14 male laying around? :spy:
     
  16. tydon

    tydon IncGamers Member

    Joined:
    Jun 25, 2003
    Messages:
    1,534
    Likes Received:
    0
    Trophy Points:
    165
    Just look at history to see if a huge recession will happen. Do we have the neccessary things for a large recession to happen:

    Over Valued Stock Market
    In Dept Americans
    Banks over Loaning
    High Unemployment
    No Large Booming industry

    The only one we have is in debt americans.

    Gas does not relate to our economy because it is based solely on what we buy it for from other countries, not OUR economy. Besides, if a recession based on gas happened again, we do have reserves to stimulate the economy.
     
  17. Steve_Kow

    Steve_Kow Banned

    Joined:
    Sep 20, 2003
    Messages:
    2,860
    Likes Received:
    0
    Trophy Points:
    0
    Mac, you're an interesting guy, sometimes after reading your posts I think you're a really cool guy, other times I think you're a dick. Sometimes I think you're both. ;)

    Anyway, I agree that people over-borrowing, and spending tommorow's (presumptitive) money on things for today is foolish, but such is life. It'll catch up to the morons who don't realize that they can't spend more than they earn indefinately, however it is my understanding that these people can often avoid all out financial disaster as long as they stay employed. Therefore--as long as unemployment stays low--everything should be peachy.
     
  18. maccool

    maccool IncGamers Member

    Joined:
    Jun 22, 2003
    Messages:
    3,904
    Likes Received:
    1
    Trophy Points:
    165
    Split the difference, I'm a really cool dick :drink:

    I see your point, but the thing is that if these cats are 2 paychecks away from bankruptcy, what happens in 20 years? I mean, fact of the matter is, social security can not keep up its current payout scheme. Easiest way to remedy this is to raise the retirement age to ~68. Or you can decrease payouts - too bad the old dudes vote.

    Problem is that cats think social security will take care of them and don't bother saving today, like you said. It's not going to. There will be a crisis in this country in the next 10 to 15 years. I don't expect social security to be there when I retire in 20XX so I'm planning now.

    As to low unemployment, here's the really cool thing. In our society, there needs to be some unemployed clowns. Reason being, if everyone is employed, you don't have the fear of job loss. I mean, who can take your job? It's what makes capitalism work so well.

    But peep this, as I mentioned, old dudes are going to retire in droves starting in 2011 (first year of the boomers hitting 65). Sure some of them are going to stay on, but there's going to be a serious job shortage in 5-7 years. Good news for those looking for a job, bad news if you want to have your social security kept at the same level it is today - including the cost o' living increases.

    I started saving for my retirement 10 years ago. The Bush plan to let folks invest their own money in the stock market is complete crap. If you are even moderately responsible with your loot, you can save on your own. His proposed plan just cons folks into thinking that they don't need to save any of their own money, thereby perpetuating the debt cycle. Many Americans will be boned.
     
  19. thejdawg2

    thejdawg2 IncGamers Member

    Joined:
    Jun 21, 2003
    Messages:
    888
    Likes Received:
    0
    Trophy Points:
    120
    I don't think the economy is as strong as a lot of people are saying. But then again, they're all saying it from the top.
     
  20. Painman

    Painman IncGamers Member

    Joined:
    Jun 22, 2003
    Messages:
    2,030
    Likes Received:
    1
    Trophy Points:
    166
    I just think it's interesting that this is coming from The Economist... people usually deride "liberal" media sources for claiming that the sky is falling... AFAIK, The Economist is not reknowned for having a leftist slant :)
     

Share This Page