The Economy

Discussion in 'Politics' started by Nrets, May 16, 2010.

  1. Nrets

    Nrets Member

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    I don't like starting new threads, and there are probably 1000 others out there on this subject, and maybe 3 that I actually started myself. I want to hear from people who know why the economy is still in trouble. Personally I feel the economy is still in serious, serious trouble and would be surprised if we don't see the beginnings of a second dip next week. The deficit is nothing to sneeze at. The new jobs could get cut quickly if the bailout in Europe doesn't take quick effect and slow down the waves of economic fallout that will inevitably circle the globe. And finally there just isn't much economic growth to pay off the debts of every Tom, Dick and Uncle Sam.
    Whadya all think?
     
  2. D_Aston Asstonne

    D_Aston Asstonne Account Disabled

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    This country goes through this every few years.it always fixes itsself.all in good time.
     
  3. rob_just_rob

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    God is punishing America for making a black man president.
     
  4. Bbucko

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    Economics is not one of my strong suits (I find it bewildering, actually) so I'll refrain from making any assertions that aren't part of conventional wisdom and accepted as reality by left, right and center.

    In autumn 2008 the world economy began the largest, deepest crisis since the Great Depression began in 1929. With a very few exceptions, the world's largest economies did not completely recover until after the post-WW2 recession of 1945 ended: nearly twenty years.

    It's symptomatic of our instant-gratification ADHD culture to come to any hasty judgments one side or thee other in fewer than 24 months.
     
  5. sargon20

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    Drop the Double Dip

    The good news is that the U.S. economy is unlikely to slip back into recession. But the unemployment rate will probably remain as high as 8.5% even into the end of 2011.
     
  6. Jason

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    The topic is too huge for a simple answer. But its tempting to try!

    My take on the global economy is that right now it could go either way - come out of the doldrums and life goes on as usual, or crash. A lot depends on what is happening in the Eurozone. Greek default - either within the Euro or on a new drachma - now seems pretty much inevitable. The problem is how it is managed to stop contagion. Portugal, Spain, Italy and Ireland all have dire problems, and there is no sense of the Eurozone bailout being sufficient or even workable. There is now talk of a scenario that leads to the Euro breaking up spring 2011 (it was in today's Observer). If this happens we all have big problems. On the edge of the Eurozone is the UK, with an economy wrecked by a profligate socialist government but now getting sensible treatment from our new Liberal Conservative Coalition. There is some good news!

    The USA surely needs some tough measures to get its economy looking right. Seen from the outside the USA needs some tax increase - but on sales not income or profits. The obvious is tax on petrol (gas) which is a tax that would change lifestyles and promote a green agenda. Maybe the US should pay UK tax levels on petrol. I've just filled up in the UK at £1.26 a litre. Not quite sure of the conversion, but is that in the ball park of $9 per gallon? Now that sort of increase really would bring the revenue in!
     
  7. dandelion

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    Im not an economist. Some economists say the world is in trouble. Most politicians say theres a problem but it is being handled. But then, politicians are renowned liars. They might be hyping up the problem for their own ends, or desperately trying to stop everyone panicking.

    Next, you need to note that the economy is a frail beast. I earn some money. So I buy something. So someone else gets paid to make another one. So hes got some money and buys something. So someone else is paid to make another.... But if I dont get paid, thats an awful lot of people suddenly out of a job along the chain. So politicians might have good reason to lie. If people believe there is a problem and stop spending, there is a problem. The problem now did not start like this, but whether people believe it is getting better or worse might be enough to make it get better or worse.

    Some American banks hit on a scheme to make money. They would lend to houseowners, then sell on the debts to other banks. That way they didnt need lots of their own money to lend. Lend it, sell the debt and make some commission on the sale. Great little earner. The trouble was, not needing to wait for the borrowers to repay, they didnt care if they ever could. Eventually this was going to come to grief, and it did. Before it did, lots and lots of banks made lots of money selling on this debt. But when the music stopped, quite q few banks found themselves holding a vast amount of debt which was never going to be repayed. They were bankrupt. Actually, given time to pay they could probably pay it all off, because they make truly vast amounts of money. But they didnt have time, and certainly no banks could give them a bridging loan. The only people who could were governments.

    Since the banks defaulting would cause untold carnage in the financial trading business, which would have 1)stopped all financial transactions dead unless in cash which no one had in their pockets. 2) bankrupted everyone else in the world whose money was in a bank (which could no longer pay out) 3) immediately stopped the very large amount of tax revenue going to governments. Governments decided therefore that the only possible course of action was to give the banks the loans they needed. Which meant they took onto their own books the money owed by the banks.

    Banks suddenly stopped lending. If they had no money, obviously they couldnt lend. But even when they did have money, they now took a different view to loans. No longer was it a good idea to make bad loans. What had been happening to those loans? Why the people who got them had been spending them. Then the people who received that money also spent it. Much of it trickled into the hands of governments. Armies of carpenters and kitchen fitters were employed fitting out new homes. No loans, no cut for the government. revenue drops. No carpenters needed, unemployment rises. Tax revenue drops and expenditure goes up. People get jittery and suddenly decide its a good time to pay back loans, not take new ones. Tax revenue drops.

    The banks were not the only ones living on a bubble of unaffordable debt. The economy was too. Suddenly governments have taken on massive new debts, but simultaneously there has been a structural drop in their incomes. This means many are now racking up more debts fast. This can not go on. They have to raise taxes or cut spending. Now we get unemployed civil servants, who are not buying goods, so no one is being employrd to make them....and government revenue drops further.

    Government spending is leveraged. For every pound the government spends, some of it comes back to them from taxes so it does not cost them a pound. But if they cut a pound, it costs them in reduced revenue and they have to cut more. I dont know what the leverage levels are, but theyre quite big. So governments have been desperately trying not to cut spending. The idea is to borrow for the time being and hope that the rest of the economy will get back to normal and revenues will rise. Then they will not need to cut, because the economy will have produced enough extra revenue to bridge the gap, or they can make modest cuts as the economy improves and can trade off some of its improvements against the economic shrinkage which government cuts must inevitably cause. The problem is that to do this they must borrow, and there may not be enough money in the whole world to do that.

    Money supply is quite flexible, and depends at least as much on people believing it will be repayed as on any real supply issue. So, for example in the case of Greece, if banks come to believe there is no way the money can ever be repaid, they will stop lending. Obviously, they are businesses. So Greece defaults, it has no money. So banks are left with vast loans already made which will never be repaid. So they are bankrupt. So more banks go bankrupt. Borrowing becomes more difficult. Other countries cannot borrow. They default, more banks go bankrupt....The richer or luckier countries take on the further debt of their own banks to keep them going. They have to borrow more. Can they now do this?

    So the question seems to be whether countries have credible ways to balance their books. Greece doesnt, or at least banks do not believe that it does. It becomes a question of confidence. Debt can be made to disappear. Its called inflation, and it destroys the real value of debt.If you can keep thye balls flying for long enough, then everying may come out all right. Or it may not.

    In the case of the UK we have a house price bubble. The major shortage of property in the UK has induced a situation where people have borrowed as much as they can to buy property. Its a classic situation, where people rush to buy something because they believe it will go up in price. In this case with some justification because there is a genuine, government made, shortage of housing. But irrespective, should confidence ever fail the price will crash and most people in the UK will be bankrupt. Just before the world crash the bank of england was making noises of concern about the vast amount of money being lent on houses. Much better loans than those in the US, where the people concerned had good prospects of paying off those loans. But the amount of money needed for this was getting so vast they were worrying where it could come from. Not from within the UK. This was what happened to Northern Rock. When it could no longer get outside financing, it went bust. This happened because of what was going on in the US, not for internal British reasons. The internal British reasons are still there. For the house boom to return, lending must return to the previous exponential growth. It cant. Thats awkward. Government was getting its cut of the ever expanding private debt. Thats what UK growth is, booming private debt.

    Meanwhile, lots of other investments have fallen in value. So all the owners of those investments feel poorer and are not spending. Tricky.

    Some governments are better off than others. UK revenues have been hit disproportionally because we have a big financial sector and it has been making a few losses of late. Mind, bankers arent stupid, so theyre still paying their own salaries which were predicated on the presumption of limitless profitability. If i was a banker, I would be making some carefully judged investments intended to be collapse proof rather than buying that new villa with my bonus. This might include currency buried in the garden. Currently, british industry is busy paying off its debt as fast as it can. That talk about banks refusing to lend to companies which is depressing the ecobomy? Nah, theyve got more sense than to borrow when theres a recession on.
     
  8. dandelion

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    Lets hope the liberal influence means they do a better job of rescuing british manufacturing industry than did the last conservative government, which closed down most of it. About all that was left was financial services, government itself and all other sorts of services (coffe shops anyone?).
     
  9. lucky8

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    A combination of animal spirits and the fact that the entire basis of the American economy for the last 30 years has crumbled....the economy is beginning to slowly turn around, but you need to understand something: this isn't a normal recession. It's a worldwide economic slow down caused in large part by the mortgage market in America (the largest economy on the planet). Mortgage backed securities were a main driver of money flow both in and outside US markets. When money stops flowing, the economy stops growing. A very brief (and sloppy) explanation, but essentially the engine that kept America's economy going has burnt out...it's going to take years to fully recover...
     
  10. sargon20

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    Any kind of tax increase is political suicide and in the process the country is commiting suicide. So it shall be.
     
  11. Jason

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    IRELAND. The country realised it was up the creek without a paddle. The newspapers called it Direland. The government has brought in big tax increases and big cuts in public sector spending - and pay cuts. And people are accepting this. It is hard but the nation is pulling together. There is a good chance they might make it work

    GREECE. The people seem in denial at the magnitude of their problems. They were caused by someone else (the rich, the bankers, the politicians) and someone else should pay, be punished, or give a subsidy. Life's not fair! Boo hoo! Greece is committing suicide. To some extent the same applies to Spain and Portugal, maybe Italy.

    USA. Someone needs to talk straight to the people of the USA. Tax has got to go up. There is less public sector spending in the USA than (say) in UK or Europe, so there is less that can be cut here, though there still have to be cuts.

    EUROZONE. In denial. The problem is fundamentally one of political structures which are inadequate to support a single currency. It is not possible to get the political structures sorted out quickly, while the needs of the Eurozone are right now. The bailout is too little, too late. The chatter is that it will last until spring 2011 when Germany will pull the plug on the Euro. By then the world economy might possibly be far enough out of recession to take the wave of problems this will create. (No I don't believe this either.)

    UK. Well at least we are now looking in the right direction. I think there is realisation that there will have to be a little cut or two and a little tax rise or two. The problem is going to be the scale of the cuts and the rises. Basically a lot of upsets ahead, but we now have a stable government for five years that can get on and do what needs to be done. The UK problems are most serious, but I think we are actually in a better position than all the above. Which is amazing!

    The world economy really is in a mess. It hasn't the resilience to deal with shocks. The Greek tragedy has the potential to create international economic catastrophe. Things as unpredictable as volcanic ash do a lot of damage to the balance sheets of companies and to the world economy. If you want the overdue disaster it is an erruption of Vesuvius (now 10 years overdue) which would paralyse the economy of Italy.
     
  12. joeweekend

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    Geez, I ought to be thinking about the economy. But all I can do is check out Jason's package.
     
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