US debt default

[kgambit]

The US Economy has been recovering quite well.  That is happening in spite of a ridiculous government.

 

Let me fix that for you:

 

The economy is not recovering quite well and it's happening because of a ridiculous government. 

 

You're kidding yourself if you think this is full blown recovery. 

 

 http://www.washingtonpost.com/wp-srv/business/the-output-gap/

 

 

The nation’s economic woes boil down to this. Compared with a healthy economy, about 7 million working-age people and 5 percent of the nation’s industrial capacity are sitting idle, not producing what they could. The economy is growing again, but at a rate — less than 2 percent in recent months — that’s too slow to keep up with a population that keeps increasing and workers who keep getting more efficient.

 

 

http://www.forbes.com/sites/jessecolombo/2013/09/27/bubblecovery-why-our-economic-recovery-is-actually-an-illusion/

 

....... growing post-2009 economic bubbles are helping to foster an illusion of economic healing by creating temporary economic growth, new jobs, and rising asset prices.

 

 

http://online.wsj.com/news/articles/SB10001424052702303816504577311470997904292

 

How many times have we heard that this was the worst recession since the Great Depression? That may be true—although the double-dip recession of the early 1980s was about comparable. Less publicized is that our current recovery pales in comparison with most other recoveries, including the one following the Great Depressionh.

 

 

http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html?pagewanted=all

 

With the Dow Jones industrial average flirting with a record high, the split between American workers and the companies that employ them is widening and could worsen in the next few months as federal budget cuts take hold.

 

That gulf helps explain why stock markets are thriving even as the economy is barely growing and unemployment remains stubbornly high.

 

 

 

 

I don't know if I'd go so far as to say "quite well", but I agree that the economy has been getting better.  Anyone that thought in 2008 that is would be something that could get fixed in 2 or 3 years then we'd be in the clear and back to the way it was before was living in a fantasy world.  This is going to take over a decade, maybe multiple decades.  

 

 

I agree. 

Edited October 17, 2013 by kgambit

[Walsingham]

So, what you're saying is that we have a stock market bubble of over-optimism?

[Gorgon]

We're at a point where single digits have been determining whether we call it a recovery or a depression and where what we are calling it influences the outcome. 

 

People are unlikely to trust even a 'real' recovery though. Consumer confidence will take a long time to bounce back. 

[Walsingham]

I'm getting the chance to see high street spending at the moment, and it's really changed. Pretty much everybody is counting the pennies. Especially the middle classes, who developed expensive tastes during the boom and can't really satisfy them any more.

[kgambit]

So, what you're saying is that we have a stock market bubble of over-optimism?

 

The corporate profits are real, and they do drive the DJIA.  What it doesn't represent is the entire US economy - just the corporate sector which has captured most of the economic gains while holding salaries (and benefits) down and deferring expansion.  Without new industry or corporate expansion, US job growth is stagnant.  A significant portion of the DJIA increase is being fueled by improvement in the Global economy: the rapid growth rate of markets in China and India help fuel the DJIA but don't do much for enlarging the domestic job market. 

 

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966.    

 

In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

 

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

 

http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html?pagewanted=all

 

 

The GDP growth rate (and housing bubble) that fueled the pre-2008 stock market rise was significantly higher than it is now and look what happened in 2008.

 

I'm not saying that we're looking at another bubble.  But I do think the economic growth is far poorer and slower than some people think it is.  We're still looking at shortages in manufacturing jobs and those are going to be tough to replace. 

 

Edited October 17, 2013 by kgambit

[Hurlshort]

I don't know, I'm not much of an economist.  All I know is you guys keep posting lines that look like this: /

 

It would be bad if the lines were like this: \

 

And it would be stagnant if they looked like this: -

 

Maybe it is because where I live, housing prices are on the rise, inventory is moving at a fast rate, and all of the dotcoms that survived the bubble bursting are now stable.  Also I'm stuck in a ton of traffic every day and the malls are a pain to go to.  

[Walsingham]

*begins costing a move to Gilroy, CA*

[Raithe]

Heh, for the slight divergence.. It looks like all that debt talk drove someone nuts..

 

 

House Stenographer Loses it During Shutdown Vote

 

 

A stenographer for the House apparently lost it Wednesday night as lawmakers passed a government funding and debt limit deal, Roll Call reports. The stenographer began shouting about God and the Freemasons as the vote took place.

 

"He will not be mocked. He will not be mocked. Don't touch me. He will not be mocked," the stenographer shouted as she was taken away by U.S. Capitol Police. "The greatest deception here is not 'one nation under God.' It never was. Had it been, it would not have been."

 

She continued, "The Constitution would not have been written by Freemasons. They go against God."

She went on, "You cannot serve two masters. Praise be to God, Lord Jesus Christ."

 

Lawmakers watched silently as the scene unfolded before them. After the stenographer was removed from the chamber, House members turned to each other.

U.S. Rep. Joaquin Castro, D-Texas, said the woman had a crazed look on her face, according to the Associated Press.

 

[kgambit]

I don't know, I'm not much of an economist.  All I know is you guys keep posting lines that look like this: /

 

 

 

And that's exactly what the DJIA and the housing market sales charts looked like just before the 2008 bubble burst.  So much for that type of simplistic analysis. 

 

We're just going to have to disagree Hurl.   I am going to trust the actual economists as opposed to some anecdotal comments about trafiic patterns (in a state with notoriously long commutes) or increased housing sales (which may be due to still suppressed prices).  Maybe California is different but nationally the picture isn't that rosy.

 

Yep, the latest trend is up but the prices are horrendously suppressed to previous values.

 

 

Okay the trends are up but look how suppressed the sales figures are - especially for new home sales.

 

 

 

 

 

 

 

Edit:

 

Nope.  It isn't happening in California either.

 

New housing starts substantially below historical trends

 

 

Housing prices are recovering but still suppressed relative to 2004

 

 

Edited October 17, 2013 by kgambit

[BruceVC]

 

So, what you're saying is that we have a stock market bubble of over-optimism?

 

The corporate profits are real, and they do drive the DJIA.  What it doesn't represent is the entire US economy - just the corporate sector which has captured most of the economic gains while holding salaries (and benefits) down and deferring expansion.  Without new industry or corporate expansion, US job growth is stagnant.  A significant portion of the DJIA increase is being fueled by improvement in the Global economy: the rapid growth rate of markets in China and India help fuel the DJIA but don't do much for enlarging the domestic job market. 

 

As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966.    

 

In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.

 

Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.

 

http://www.nytimes.com/2013/03/04/business/economy/corporate-profits-soar-as-worker-income-limps.html?pagewanted=all

 

 

The GDP growth rate (and housing bubble) that fueled the pre-2008 stock market rise was significantly higher than it is now and look what happened in 2008.

 

I'm not saying that we're looking at another bubble.  But I do think the economic growth is far poorer and slower than some people think it is.  We're still looking at shortages in manufacturing jobs and those are going to be tough to replace. 

 

 

 

Sorry Kgambit but I have to disagree with you if you don't think that the US economy isn't recovering. I watched numerous interviews with authoritative financial experts this week like Howard Lutnick, CEO of Cantor Fitzgerald and Lloyd Blankfein, CEO of Goldman Sachs and they all had the message. The USA is seeing an economic recovery albeit slow. They made several points that include

 

• Strong GDP
• Unemployment that is understandable and manageable. This still needs to be address
• Companies are profitable and have positive liquidity

 

Of course you can find fault but compared to most countries around the world the data isn't bad. The did mention this political fighting over the debt ceiling hasn't helped the economy as markets and investors don't like uncertainty but you should blame the conservative Republicans for that

 

I don't want to offend you (because you know I like you ) but it seems that this view from you and others that the USA economy isn't doing well is based more around the fact that to admit you are seeing a recovery is to admit Obama has done some things right. And the general consensus from Republicans is that Obama is the worst president ever and his policies and presidency are tantamount to economic suicide so you can't accept that maybe, just maybe his presidency is responsible for the economic recovery the USA needs?

Edited October 17, 2013 by BruceVC

[Hurlshort]

In terms of the housing market, I was completely screwed by the bubble bursting.  I ended up short selling my condo that had lost 75% of it's value and I'm nowhere near being able to buy again, despite having a healthy income.  But I see this as a result of the housing market being completely out of control before the collapse.  Right now it is stable.  It is slowly recovering.  It will hopefully never get back to the high points it was at, because that was an illusion.  

 

I imagine it will take a full generation for the housing market to really recover across the country.  People have messed up credit, they have lost confidence in property values, etc.  

[Walsingham]

Can I just say that this is the most graphs and bar charts I've ever seen in any discussion EVER.

[Gorgon]

I don't actually understand how a house to most people  is a loan you pay off over 30 years. I mean, I do,  It's just that you can build one in less than a week, and materials aren't THAT much. Where does all this extra astronomical cost come from. 

[Walsingham]

I don't actually understand how a house to most people  is a loan you pay off over 30 years. I mean, I do,  It's just that you can build one in less than a week, and materials aren't THAT much. Where does all this extra astronomical cost come from. 

 

I'm no expert, but I think a lot of it is location. And a lot of that is perception. I got a good deal on my place which in London would have cost roughly three times as much.

 

Of course in the UK it's also about the cost of land, and the government associated costs of building. But in general you're quite right. Building from scratch is actually pretty sensible.

 

Actually (excuse the braindump) I'd say the biggest reason was risk on your contractors. If you can't control your contractors then you could be left with a really crap house.

[kgambit]

 

 

 

The corporate profits are real, and they do drive the DJIA.  What it doesn't represent is the entire US economy - just the corporate sector which has captured most of the economic gains while holding salaries (and benefits) down and deferring expansion.  Without new industry or corporate expansion, US job growth is stagnant.  A significant portion of the DJIA increase is being fueled by improvement in the Global economy: the rapid growth rate of markets in China and India help fuel the DJIA but don't do much for enlarging the domestic job market. 

 

 

 

Sorry Kgambit but I have to disagree with you if you don't think that the US economy isn't recovering. I watched numerous interviews with authoritative financial experts this week like Howard Lutnick, CEO of Cantor Fitzgerald and Lloyd Blankfein, CEO of Goldman Sachs and they all had the message. The USA is seeing an economic recovery albeit slow. They made several points that include

 

• Strong GDP
• Unemployment that is understandable and manageable. This still needs to be address
• Companies are profitable and have positive liquidity

 

Of course you can find fault but compared to most countries around the world the data isn't bad. The did mention this political fighting over the debt ceiling hasn't helped the economy as markets and investors don't like uncertainty but you should blame the conservative Republicans for that

 

I don't want to offend you (because you know I like you ) but it seems that this view from you and others that the USA economy isn't doing well is based more around the fact that to admit you are seeing a recovery is to admit Obama has done some things right. And the general consensus from Republicans is that Obama is the worst president ever and his policies and presidency are tantamount to economic suicide so you can't accept that maybe, just maybe his presidency is responsible for the economic recovery the USA needs?

 

 

Bruce, you aren't offending me, but please reread what I wrote.  I did not say the economy was not recovering; I said the recovery was slow and sluggish which is exactly what your financial CEOs are saying. 

 

Just to remind you, here's exactly what I said:

 

 Yes, things are better, but this economic recovery is sluggish at best.  This is the slowest job market recovery since WW2. 

 

 

 

But I do think the economic growth is far poorer and slower than some people think it is.

 

 

That last comment was in reference to the folks in this thread posting rosey pictures of the recovery.  Maybe those comments come across as overly negative but they are not inaccurate. 

 

I actually agree with all the GS points:

• the strong GDP (although I think the growth rate is slower than it could/should be),
• unemployment is down (but still too high and the actual unemployment rate is higher than people think) and
• corporate profits are up

And I maintain that the signs of an extremely sluggish  (albeit improving) housing market and stagnation in job growth (as evidenced by stubborn unemployment numbers) are signs that the recovery is not as strong or as widespread as some folks claim it is.  Yes, things are better but they still aren't as good as they could be or need to be. 

 

I think we're arguing a matter of degree here.  There is no disputing the fact that the economy is improving, but there is also no disputing the fact that this is the slowest economic recovery since WW2.  That is just a fact.    

 

My comments are not because I don't like Obama (although it is true that I don't like him and that should be no secret to anyone).  It's because the recovery and economy are simply not as strong as they need to be.  Obama and a horde of poop flinging congressional monkeys are both responsible for slow improvement.  Obama doesn't get a free pass because someone else created the mess.  Period.    (And I think I've made my dislike of our current government more than clear.)

 

 

Maybe I'm being unrealistic in my expectations, but history would seem to be on my side in what a strong recovery should look like.   This isn't it. 

Edited October 17, 2013 by kgambit

[kgambit]

In terms of the housing market, I was completely screwed by the bubble bursting.  I ended up short selling my condo that had lost 75% of it's value and I'm nowhere near being able to buy again, despite having a healthy income.  But I see this as a result of the housing market being completely out of control before the collapse.  Right now it is stable.  It is slowly recovering.  It will hopefully never get back to the high points it was at, because that was an illusion.  

 

I imagine it will take a full generation for the housing market to really recover across the country.  People have messed up credit, they have lost confidence in property values, etc.  

 

Sorry about the condo situation.  That sucks. 

 

I agree that the housing market was out of control and the 2008 bubble prices were grossly overvalued. 

 

 It's just that you can build one in less than a week, and materials aren't THAT much. Where does all this extra astronomical cost come from. 

 

You must be kidding.   A week?  Actual construction times for a wood and timber frame house in the US can run around 2 to 5 months.  It varies a lot by area, contractor, and whether the house is custom or spec.  You might be able to cut the construction time substantially by using pre-fab materials and offsite construction as in Europe.  

 

I know very few people who are capable of designing their own house let alone building one.

 

I don't know about the relative building or material costs in Europe but for the US the price breakdown is typically 40% materials, 40% labor and 20% profit (the profit figure is substantially lower for major home building firms like Schumacher).  There are also land costs that need to be included and as Wals pointed out those can seriously inflate prices. 

 

My wife and I have done some overseas house hunting and we've been amazed at the prices per square foot (or sq meters if you prefer) for European homes.  They seem a lot higher than comparable US houses. 

 

sorry for the double post guys.

Edited October 17, 2013 by kgambit

[Hurlshort]

Thanks kgambit, I'm renting a beautiful house, so it's not too bad.  

 

Gorgon, location is a huge part of the value.  I work in Cupertino, which has some of the best schools in California, as well as being the home of Apple.  People pay a million dollars to live in modest homes here, and the property values never dropped like they did everywhere else.  Houses don't stay on the market longer than a week.  It's a bit crazy.

[kgambit]

Thanks kgambit, I'm renting a beautiful house, so it's not too bad.  

 

Gorgon, location is a huge part of the value.  I work in Cupertino, which has some of the best schools in California, as well as being the home of Apple.  People pay a million dollars to live in modest homes here, and the property values never dropped like they did everywhere else.  Houses don't stay on the market longer than a week.  It's a bit crazy.

 

Just for grins, I did a quick housing search for that general area.  A house comparable to ours (4 bedroom, 3100 sq ft) would be at least 2.5 times more expensive in Ca.    Crazy is an understatement. 

Edited October 17, 2013 by kgambit

[BruceVC]

 

 

 

 

The corporate profits are real, and they do drive the DJIA.  What it doesn't represent is the entire US economy - just the corporate sector which has captured most of the economic gains while holding salaries (and benefits) down and deferring expansion.  Without new industry or corporate expansion, US job growth is stagnant.  A significant portion of the DJIA increase is being fueled by improvement in the Global economy: the rapid growth rate of markets in China and India help fuel the DJIA but don't do much for enlarging the domestic job market. 

 

 

 

Sorry Kgambit but I have to disagree with you if you don't think that the US economy isn't recovering. I watched numerous interviews with authoritative financial experts this week like Howard Lutnick, CEO of Cantor Fitzgerald and Lloyd Blankfein, CEO of Goldman Sachs and they all had the message. The USA is seeing an economic recovery albeit slow. They made several points that include

 

• Strong GDP
• Unemployment that is understandable and manageable. This still needs to be address
• Companies are profitable and have positive liquidity

 

Of course you can find fault but compared to most countries around the world the data isn't bad. The did mention this political fighting over the debt ceiling hasn't helped the economy as markets and investors don't like uncertainty but you should blame the conservative Republicans for that

 

I don't want to offend you (because you know I like you ) but it seems that this view from you and others that the USA economy isn't doing well is based more around the fact that to admit you are seeing a recovery is to admit Obama has done some things right. And the general consensus from Republicans is that Obama is the worst president ever and his policies and presidency are tantamount to economic suicide so you can't accept that maybe, just maybe his presidency is responsible for the economic recovery the USA needs?

 

 

Bruce, you aren't offending me, but please reread what I wrote.  I did not say the economy was not recovering; I said the recovery was slow and sluggish which is exactly what your financial CEOs are saying. 

 

Just to remind you, here's exactly what I said:

 

 Yes, things are better, but this economic recovery is sluggish at best.  This is the slowest job market recovery since WW2. 

 

 

 

But I do think the economic growth is far poorer and slower than some people think it is.

 

 

That last comment was in reference to the folks in this thread posting rosey pictures of the recovery.  Maybe those comments come across as overly negative but they are not inaccurate. 

 

I actually agree with all the GS points:

• the strong GDP (although I think the growth rate is slower than it could/should be),
• unemployment is down (but still too high and the actual unemployment rate is higher than people think) and
• corporate profits are up

And I maintain that the signs of an extremely sluggish  (albeit improving) housing market and stagnation in job growth (as evidenced by stubborn unemployment numbers) are signs that the recovery is not as strong or as widespread as some folks claim it is.  Yes, things are better but they still aren't as good as they could be or need to be. 

 

I think we're arguing a matter of degree here.  There is no disputing the fact that the economy is improving, but there is also no disputing the fact that this is the slowest economic recovery since WW2.  That is just a fact.    

 

My comments are not because I don't like Obama (although it is true that I don't like him and that should be no secret to anyone).  It's because the recovery and economy are simply not as strong as they need to be.  Obama and a horde of poop flinging congressional monkeys are both responsible for slow improvement.  Obama doesn't get a free pass because someone else created the mess.  Period.    (And I think I've made my dislike of our current government more than clear.)

 

 

Maybe I'm being unrealistic in my expectations, but history would seem to be on my side in what a strong recovery should look like.   This isn't it. 

 

 

I did misread some of your points, I apologize for that

 

And you do make some good points and some I agree with

[kgambit]

 

I did misread some of your points, I apologize for that

 

And you do make some good points and some I agree with

 

 

No problem Bruce, we're good.   

[alanschu]

 

 

Yep, the latest trend is up but the prices are horrendously suppressed to previous values.

 

 

Is the barometer for successful recovery a return to the pre-bubble-burst values?

[Zoraptor]

I have to agree in general with kgambit, though I'd go a little further. Not only is the recovery rather tepid, but it is largely predicated on the cheap availability of money which is being generated unsustainably and almost exclusively for the benefit of a small section of the economy. It's very easy to make profits and get a large scale share market recovery if the government is printing money/ using QE and you're getting, in effect, zero interest loans. While the US is buffered against some of the problems inherent in that due to being the reserve currency everyone ends up paying in terms of price inflation (and thus in a static job market, wage deflation). And it isn't even clear that it's at all sustainable in the medium term as the market throws a wobbly any time someone even hints at removing the teat, hardly a sign that the 'confidence' is real rather than illusory. That the people and sector getting the help are also the people and sectors primarily responsible for putting us in this mess in the first place is just another dollop of irony on the cake.

 

Overall it's like someone who has had a badly broken leg and is now on painkillers. At some point the painkillers have to be withdrawn, at which point we'll find out if the leg is actually mended and can be used properly or cannot bear weight without pain, and if the patient has got addicted to the meds.

[Wrath of Dagon]

I'm quite concerned about the appointment of Yellen as the Fed chair. At least Bernanke had some qualms about helicopter money.

[Hiro Protagonist]

In terms of the housing market, I was completely screwed by the bubble bursting.  I ended up short selling my condo that had lost 75% of it's value and I'm nowhere near being able to buy again, despite having a healthy income.  But I see this as a result of the housing market being completely out of control before the collapse.  Right now it is stable.  It is slowly recovering.  It will hopefully never get back to the high points it was at, because that was an illusion.  

 

I imagine it will take a full generation for the housing market to really recover across the country.  People have messed up credit, they have lost confidence in property values, etc.  

 

I'm surprised how properties could fall so much in the U.S.. 75% is unbelievable. During the GFC, property prices in Australia mainly stagnated and stayed the same or dropped slightly. I bought an investment property in Sydney during the GFC back in 2010. Now, we're experiencing a mini-boom mainly due to investors jumping into the market. But Australia is quite different with property bubbles as we don't have the big crashes like in the U.S. and Ireland. Mainly small corrections.

[Hurlshort]

I'm quite concerned about the appointment of Yellen as the Fed chair. At least Bernanke had some qualms about helicopter money.

 

I don't buy it.  Jim Rickards makes some very good points about the Fed, but I just don't see Yellen being different than Bernanke at all.  In fact she has a better economics background than him.  The idea that she will just flip on the printing presses full time has little evidence to support it.