Rolling US Economy Into The Shitbin Thread

Part of what is going on right now is that money already in the system is being used to retire debt, most notably paying off credit card debt, rather than buying things. Retiring debt (somewhat paradoxically) removes money from the economy.

right. and, as i understand it, much of the money that was handed to, say, banks in the broader bailouts of the past few years was -- contrary to its intended purpose (lending) -- used to pay down debt or accumulate cash. i heard an economist discussing this, who said, "right, well, that's really what they should do, isn't it? we justifiably criticized banks for making imprudent loans, and now they're overall just less likely to loan, as the citizen is less likely to spend." there's certainly an internal logic to it. it also makes me think of an episode of the west wing, when the president intervenes on behalf of a staffer who has some tax difficulty. the president works out the numbers, and the staffer is overjoyed that he's actually getting a rebate. he says, "i think i'll save it!," to which the president replies, "well, we'd prefer you spend it, but okay."

Esquire:
The Commission to Balance the Federal Budget: The Results
How to Balance the Federal Budget (in Three Days)
http://img685.imageshack.us/img685/3383/budgetresultschart1110x.jpg
they didn't even touch universal health care

google "the paradox of saving"

most salient thing for average Joe re deflation: part of the costs being reduced will be their paycheck (including any benefits). which will make paying off their debts more onerous.

reading a book that came our earlier this year, winner-take-all politics, by two poli sci professors, jacob hacker (yale) and paul pierson (berkeley), who claim ~
"The top 0.1 percent-—one out of every thousand households—-received over 20 percent of all after-tax income gains between 1979 and 2005, compared with 13.5 percent enjoyed by the bottom 60 percent of households. If the total income growth of these years were a pie, in other words, the slice enjoyed by the roughly 300,000 people in the top tenth of 1 percent would behalf again as large as the slice enjoyed by the roughly 180 million in the bottom 60 percent."
no wonder we're so fucked. not entirely brand new news to me, but its reiteration makes me want to go mug some rich asshole

color me surprised

i'm still waiting for it all to start trickling down

maybe we need to lower taxes

esp on the wealthy, cuz, y'know, they already pay so much it's not fair to them

they are the job generators. taxes hurt their feelings

Speaking of deflation:

http://www.nytimes.com/2010/10/17/world/asia/17japan.html?_r=1&src=me&ref=homepage

The thing I never get about this is that I thought we were a very import heavy country, in which case you'd think the benefit of increased exports would be canceled out or outweighed by the higher prices Americans would pay for foreign goods (although I guess the hope is that we'd start importing less and exporting more).

The idea is to make the US less import dependent, although the problem is twofold: 1) there aren't easily accessible substitutes for a lot of US imports; 2) Every other economy is working hard to make their currency weaker.

Point 1 is structural and is what happens when you spend 30 years with a laissez fair attitude to maintaining competitive advantage wrt other countries.

Point 2 is a sign of the times and a macroeconomic game of chicken, which will end in tears (probably inflationary tears in the US and a real estate crash in China)

xxp Aimless and Daniel

The article is about a month old, but the statistic of Americans off debt is mostly due to some of them defaulting and the credit asset being written off:

Defaults Account for Most of Pared Down Debt

0.08% — The annual rate at which U.S. consumers have pared down their debts since mid-2008, not counting defaults.

The sharp decline in U.S. household debt over the past couple years has conjured up images of people across the country tightening their belts in order to pay down their mortgages and credit-card balances. A closer look, though, suggests a different picture: Some are defaulting, while the rest aren’t making much of a dent in their debts at all.

http://s.wsj.net/public/resources/images/OB-KB753_number_E_20100917220343.jpg

Something that's just occurred to me and now seems amazing that I'd never thought about before:

I know basically two things about Japan -

It has been for many years in 'a cycle of delation'.
Tokyo is incredibly expensive to visit or live in.

How can the two co-exist? I get that a cycle of deflation also deflates wages, but wouldn't these 'downwards pressures on prices' also have affected rents, pints of beer, etc?

Imagine what it was like in 1989 before the cycle of deflation.

Gravel Puzzleworth: inflation/deflation often refer to money supply growth/contraction, rather than price increases/decreases. The commentators I read often make the distinction explicit as "monetary inflation" or "price inflation" to reduce confusion.

Japan's main mistake was to prop up de facto insolvent banks, rather than allow them to enter bankruptcy and be restructured.
So they've languished with technically insolvent banks with huge non-performing loan portfolios they refuse to write off, and the banks are hence reluctant to lend and the money supply has hence barely grown, even declined. See how M2 (currency + a variety of bank accounts) has had little year to year growth in many years:

http://www.garynorth.com/public/images/5921a.gif

Instead, they've chosen for twenty years to stimulate their economy by government deficit spending. Sound familiar?

Some of the Japanese government's stimulatory infrastructure projects were just absurd - lining their rivers and streams with concrete was a big one. And now their national debt is twice their GDP, their aging population has stopped saving (so there's no one to buy the postal bonds), and I've read a 1% increase in government bond yields would increase their interest service to 60% of their national government revenue.

Some commentators say the reluctants to write off loans in default, and restructure the banks, is due to both the Asian aversion to "losing face", as well as the incredibly interlinked (and hence vulnerable) capital structures of the keiretsu (groups of corporations with reciprocal share holdings). The American acceptance of the process of bankruptcy in enabling fresh starts is actually a huge cultural advantage.

Japan's also suffered from imported wage deflation. As Korea and later China undercut both their heavy industry and consumer products manufacturing, their main hope was to remain a big producer of higher margin capital equipment (from automated machine tools to wafer fab equipment) to mainland Asian manufacturers. But capital equipment has also become pretty competitive.

The bank restructuring could be done. Japan's central bank can get heavily into quantitative stimulus to increase money supply (at a cost to savers). Japan's huge, insoluble problem is their aging demographics. Retired people don't produce much, indeed they're a liability for national income.

I see Japan as the canary in the Keynesian coalmine.

I wish Obama had the balls to tax the rich

xpost -- wait, you're linking a graphic from Gary North?

http://www.wired.com/science/discoveries/news/2000/01/33445

(Among many other things.)

Honestly, I didn't check the site. It was just a GIS on "japan monetary aggregates".

Here, is this better?

http://lh5.ggpht.com/_H262-zY4QpU/TDLxgcgpaQI/AAAAAAAAFQY/oFi7wFRtpv8/s1600/clip_image001%5B3%5D.jpg

don't you KNOW about ggpht.com??? j/k

japan concreting their rivers might sound like exaggeration but seriously, you have to see the destruction to believe it. ldp in bed with the construction industry hasn't helped the country these past 20 years

Japan's Concrete Coast - surfing here may be a bad idea.

How can the two co-exist? I get that a cycle of deflation also deflates wages, but wouldn't these 'downwards pressures on prices' also have affected rents, pints of beer, etc?

― Gravel Puzzleworth, Monday, 18 October 2010 21:17 (1 week ago)

Q: is this because there's a difference between deflation in terms of Japanese assets against Japanese Yen and the strength of the Yen versus the dollar? Or is Tokyo really expensive for Japanese people too?

depressing

i'm taking the day off, and should know better than reading the news/op-ed pages.

Concluding para from Friedman column linked by Daniel, Esq:

A dysfunctional political system is one that knows the right answers but can’t even discuss them rationally, let alone act on them, and one that devotes vastly more attention to cable TV preachers than to recommendations by its best scientists and engineers.

Hello, Tom? Just want to point out that this system is functioning just fine for a select handful of people, mostly very, very rich and very selfish, and those who do their dirty work for them to keep them that way. They don't see the problems in your column as being problems, so much as business opportunities that pour money in vast sums directly into their bank accounts.

Now, go forth and expose these people, Tom. Or is that just not how it's done in the fourth estate thes days?

"Fun Size" candy bars are way smaller this year.

"We love wealth and we hate poor people."
much love to m. taibbi
http://www.gq.com/news-politics/politics/201010/griftopia-matt-taibbi-breaking-america?printable=true¤tPage=2

i try to stay-away from contemporary political books, but i'm definitely getting taibbi's book.

lol
In your book, the second chapter is on Alan Greenspan and his mentor Ayn Rand—it's called 'The Biggest Asshole in the Universe.'

I was a touch unsettled last week when a generally apolitical but conservative-leaning person I know from work sent me and some others an article saying how about it was interesting reading regarding the Tea Party, I feared some sort of NRO-like thing. Turns out it was Taibbi's Rolling Stone piece ripping into it all, so I took that as a good sign.

According to Glenn Beck and his research into inflation, a bar of Hershey's chocolate is going to cost $15 and a single ear of corn will cost $11 next year. IS THIS TRUE?

Yeah for him.

he just told me to DVR this whole week of his show because it will all become clear by the time he's done. also included: how the world is being trained to hate america because of this.

yes, he may be right.

. also included: how the world is being trained to hate america because of Glenn Beck.

Fixed.

It is a SOP for media types to View With Alarm anything which does not Warm The Cockles of Their Hearts.

taibbi for commerce secretary
http://www.rollingstone.com/politics/news/17390/232611?RS_show_page=0
Nowhere else on the planet is it such a crime to be down on your luck, even if you were put there by some of the world's richest banks, which continue to rake in record profits purely because they got a big fat handout from the government. That's why one banker CEO after another keeps going on TV to explain that despite their own deceptive loans and fraudulent paperwork, the real problem is these deadbeat homeowners who won't pay their fucking bills. And that's why most people in this country are so ready to buy that explanation. Because in America, it's far more shameful to owe money than it is to steal it.

excellent read, thanks for the link

this quote seems crazy to me, and not at all consistent with my impression of the current state of the economy

The ranks of the poor may be swelling and families forced out of their foreclosed homes may be enduring a nightmarish holiday season, but American companies have just experienced their most profitable quarter ever. As The Times reported this week, U.S. firms earned profits at an annual rate of $1.659 trillion in the third quarter — the highest total since the government began keeping track more than six decades ago.

i don't mean the widening rich/poor gap. i get that, but this seems to be part of a different trend. it's like the corporate sector is not just treading water, but booming?, and yet the economy is stagnant.

it's booming because of outsourcing and layoffs?

And the guarantee that they will never run out of credit thanks to our tax dollars!

Also most of these giant companies are international, so in a US recession/depression they don't have to worry because they can just make the majority of their profits from China and India.

makes me wonder if protectionism isn't at least a partial answer here, and what negative implications -- recalling of debt; internat'l tension; even war -- might be the consequence of a partial rollback of globalization.

and if not a partial rollback, then what?

the world eats itself in the pursuit of a fat bottom line

Companies are focused on improving productivity, and are in no hurry to rehire employees they've so recently had to lay off:

http://www.statesman.com/business/higher-productivity-feeds-profits-but-damps-demand-for-1076492.html

The economy has grown, at least in absolute terms, for over a year... It's the unemployment rate that's stagnant.

In this rare case, John McCain was sort of right: the fundamentals of our economy are strong. Assuming, of course, the fundamentals comprise the ability of money to generate more money, and corporations to profit, but do not address the inequitable distribution of wealth or general unfairness of the system as set up. I suppose the cold, hard truth - absolutist truth, if you will - of economics is that there is no moral component to capitalism, and that the good of the people come last as long as the principals (and principle) are flourishing. If anything, short of riots and whatnot, the growing poverty class is proving almost irrelevant to the political and economic discussion. Which, of course, only stresses the importance of a federal safety net for those millions getting squeezed out of the American success story. Depressing.

lots of people buying generic disposabilities = strong market

In this rare case, John McCain was sort of right: the fundamentals of our economy are strong.

is this true? i mean, it seems to me the big problem is that the vast middle of the economy -- the manufacturing jobs of the real boom years -- has eroded, while at the same time, american workers' expectations about their income has risen substantially. so if that's the case (and i'm happy to be disabused of the notion if i'm mistaken), then how exactly are the fundamentals of the economy strong? in some ways, i believe it, but then i get these depressing crises of confidence about it.

What do rising workers' income expectations have to do with whether there is a crisis?

makes it harder to adjust to new economic realities.

Because you're more disappointed? boo hoo..