Economic woes

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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/15/ccom115.xml

Any opinions on what's going to happen next? Will the UK economy follow that of the US into the abyss?

Hell, I live in the US, and I'm living with the sh!tty economic system day after day.
It's crazy, but unless I can gather the money to move to Canada, I have no choice.

The US's economy will probably hold, hard to say though, but we have not gone into a depression yet, and really have not necessarily hit recession levels. The problem is that our financial system is now really screwed up and there are similarities to the Great Depression that make it difficult to predict just as the Great Depression itself was hard to fully ascertain.

From what I understand of the Great Depression in the US, it was caused by a number of factors, namely financial (banks, stock market) and natural disasters (drought, dust bowl). The first two are still with us--does anyone else find it disturbing how people are being pressured to invest in the stock market (echoes of the 1920's, anyone?)--and the American Midwest has suffered droughts and floods and other weather-related calamities. Now I read that the price of wheat is going up.

But there is a third (new) factor in the American economy, and that is that many jobs which were once well-paying, are increasingly going overseas. I come from a part of Michigan that never really did recover from the Great Depression, which is why I don't live there; and the stories I hear now about the part of the state I now live in have an all-too-familiar sound to them. Only instead of mines shutting down, it's factories. My neighbors haven't realized it yet, but the days when you could just walk out of high school and get a good paying job are gone forever. They aren't coming back any more than the mines are going to reopen up north. But nobody, including our governor, wants to be the one to say that in public. See, nobody wants to talk about what happened in the Upper Peninsula when the mining companies pulled out. But the fact is, those that could, got out. My dad said that when he graduated from high school, the lucky kids got a bus ticket out of town. Not a car, not a fancy graduation party, a bus ticket. Because there was no future up there for many of them. In the meantime, the UP has had to reinvent itself. Some places, such as Marquette and Houghton, are doing quite well, because they are college towns. But the mainstay of the UP economy is tourism, and now that gas is over $3 a gallon, a lot of the motel and restaurant owners are hurting. So, once again, I think you are going to start seeing an exodus from the area. The big difference is, now, where are they going to go? The downstate option of factory work is no longer open.

I for one, am not optimistic about the American economy. I count myself very lucky to be employed in one of the few companies in Michigan that is actually expanding, but now that we have a foothold in China, who knows what the future will be. I do know, that the American economy is going to have to reinvent itself, and that is going to have to call for some very unpopular statements from our politicians. One of the things that impresses me about India is that after it became independent from Britain, Nehru said that India could not continue doing business as usual if it wanted to stay independent, other countries would come in and swallow it up. So he implemented a plan to make India technologically self-sufficient. The next time you talk to tech support in Bangalore, think of Nehru.

Meanwhile, here in the so-called greatest country in the world, our educational scores are slipping, more and more people live in poverty, our health care system is failing . . .

Yeah, downward pressures on wages and changes in industry are impacting the US, and this will change how the US works in ways that are not going to be the easiest to predict, but are to a good extent irreversible.

I think that the major unpopular thing that politicians will need to do is to keep from jumping up the deficit and from intervening too much and doing so poorly. You can claim that Nehru did some good things for India, but Nehru really did a crap job with the economy. Soviet 5 year plans were part of the reason that it has taken India so long to start developing and Nehru was behind that as well.

The US does have sucky things to it, and it definitely needs some reforms that the voters will not like, I don't think these reforms will really have to resemble Nehru's much though.

when people start canceling their cell phone service & cable TV and casino's start whining they are hurting along with all sorts of other segments of the waste of money entertainment industry, than somebody can say we have a problem. gas sales should be falling, they aren't because people are still going about their business.

currently will have bankers causing a panic in the mortgage industry so they can steal back all the bundles of mortgages they sold for investors cheap and steal back shares of bank stocks cheap

simple grade school math tells the truth

$11 trillion in mortgages at 6% interest = $660 billion in profit a year for the banks
if 2 million forclosures happen and they happen to loose $50,000 on each house, that = $100 billion so just dents their profit margine.

exports are climbing and have been at double the rate they where under comrade clinton and imports seem to be leveling off so the great president george bush has turned around the clinton commie plan of sell out america and the effects of higher fuel prices will cream the demand for imported oil in the coming years once the SUV fleet sold during the clinton rain of terror on america ends up in the junk yard

According to Bush, the US is not headed into a recession

Bush said, "I believe that our economy has got the fundamentals in place for us to ... grow and continue growing, more robustly hopefully than we're growing now"
http://abcnews.go.com/Politics/wireStory?id=4361751

Seriously, I think it will be bad in both the US and UK. I don't know about a depression but we could get close to one.

It's not that simple, Johnnie. A lot of those loans were bundled up and sold on, so I understand. Each time they're sold someone takes a slice of the profit. In addition, the institutions that bought them were using borrowed money, so you need to factor in the interest rate they're paying on that. At the moment there's obviously a lot of mistrust between these banks as each doesn't know exactly how exposed the others are to this bad debt. That mistrust means they're loathe to lend money, and if they do they're going to use an inflated interest rate to take into account the extra risk. Also, if clients get wind that there's a problem then they'll take away their business, or in the case of banks offering a deposit facility like Northern Rock in the UK then depositers will remove their funds leading to a "run on the bank". The problem is that your economy, and ours, requires money to be readily available on loan to function. Currently it's not readily available.

Anyway, I think it's dangerous to underestimate where all this might lead. Of course, it may just all blow over, but there again it may not.

That twat Alistair Darling send the same about the UK.

What's your opinion of the Fed's intervention with regard to Bear Stearns?

that's the drift I get also and they where bought by pension funds and all sorts of other investers who are trying to panic sell them and nobody is buying. Now how many people investing put all their egg's in one basket ?

Understanding, but a bit negative. I think by doing this, we are publicly protecting private losses, however, this move can help prevent a collapse in confidence. Really, the issue with opinions will fall towards what theory we hold towards this happening. Is this a misallocation of resources that needs to be corrected, or is this a chaotic economic change that needs to be stabilized? I tend more towards the former but I think policy makers tend towards the latter.

Exports are only climbing because of the devaluation of the dollar. That goes double for the leveling off of imports. Bush is not a great president, he's gotten a hell of a lot of people killed and thrown any conceptions of fiscal conservatism to the scrap heap. It would be inappropriate even to criticize his policies as Keynesian, because he even went for deficit spending during economic expansion- the opposite of what Keynes would recommend. Those kind of policies just create severe market distortions and the longer he pursues them, the more unpleasant the eventual correction will be.

Awesomelyglorious, since your here: Have you heard of gold topping $1000/oz, and what do you think of this new development? Obviously, passing an arbitrary number such as that is in itself relatively meaningless (aside from the fact that the dollar is of course worth less) but it seems to me that the psychological impact of crossing that threshold might cause more people to lose faith in the dollar, driving it down even further. And then Bernancke is pursuing inflationary policies to try to bail us out of our current problems- to me, the idea of solving the problems caused by excessive inflation with more inflation seems doomed to failure.

Technically, the U.S. needs to consecutive quarters (6 months) of negative GDP growth to be in a recession. Q4 2007 saw positive growth (albeit slow, but still mostly equal to Europe's average growth rate). Payroll employment is down, but the unemployment rate is still relatively low (4.8%). While I think we may enter a recession in 2008, I also think it should be fairly mild; most of this "economic fear" is fueled by the media and the fact that it is an election year (politicians have an incentive to "do things" or "have plans" like "fixing" the economy or giving $300 to everyone in the hopes they spend it now and increase national debt). A recession would likely be made worse by these irrational behaviors. It is important to remember that almost all economies in the world experience times of growth and recessions; it is a cycle in the modern world. Another important thing to remember is the Great Depression was made much worse by the government's policies, so I would be weary of any government plans to "fix" this economy.

I haven't heard of that, but it might be a clear sign that faith in the dollar is already being lost. People tend to buy gold if they don't have faith in the current economic situation. Bernanke's inflationary policies could actually cause more problems, depending on the issues occurring with the financial markets, some would actually argue that the financial markets aren't really working well at all and thus Bernanke's efforts to stabilize them are doomed to failure and all he is doing is increasing inflation.
http://econlog.econlib.org/archives/200 ... radeo.html

Honestly, I am not going to make arguments for either side as this is a difficult situation, as the drop in the dollar AND the financial crunch are both major problems. I am only going to say that this is not a situation with an easy solution, and I would perhaps be more against Bernanke than for him, but I do think he is doing what he thinks is best in this situation, and given how it is somewhat analogous to the Great Depression in the financial issues, I am giving him more leniency because Bernanke is a depression expert.

All of this is correct, and important to remember. I am incredibly worried about political maneuvering, such as stimulus packages and stuff like that. Frankly, we would be a lot better if we simply stopped thinking about this mess and in essence pretended it wasn't happening as this is terrible but suffering will happen.