The U.S. Economy: Stand by for more worse news

While I agree that the policy has helped averted a "financial apocalypse", I don't think the current situation is very clear at all.

The Labor Department has stated that its estimates have a margin of error of about 100,000 jobs. Instead of adding jobs, we could very well be slowly bleeding jobs or standing pat.

 

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Meanwhile...


The US is in the danger of losing its status as one of the most reliable borrowers of capital in the world.

Moody's, the credit rating agency, on Wednesday threatened to downgrade the country's AAA credit rating, saying there is a small but rising risk that the US government may default on its debt.

The announcement by Moody's came just before Barack Obama, the US president, convened debt talks that turned into what a Republican aide said was the tensest session in four straight days of meetings.

The warning sent the US dollar tumbling against most major currencies and gold climbing to a record high. Stock futures and debt prices also fell.

The president and lawmakers met for nearly two hours on Wednesday to try to agree on a deal to reduce the deficit.

The deal that Obama wants - a $4 trillion, 10-year deficit-reduction proposal - would eventually increase taxes, reform social entitlement programmes such as Medicare and Medicaid and cut government spending.

Republicans have balked at the idea of raising taxes on the highest earners and wealthy corporations as part of any plan to slice deep into government spending, saying that doing so would smother job growth.

http://english.aljazeera.net/news/americas/2011/07/2011714092534273.html

 

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Show us. Don't just give us your pie in the sky, everything is really really great, de-nile is a river running in my back yard slice of delusion, give us data that shows the US is generating jobs to replace those that were lost as opposed to jobs steadily declining or maintaining the lousy status quo. You seem to be a part of the fantasy world were inflation isn't happening and the real unemployment rate is 9% as opposed to the 16.6% reported by MSN http://articles.moneycentral.msn.com/learn-how-to-invest/The-real-unemployment-rate.aspx.

You seem to be one of the vegged out americans who believe any official narrative without evidence, yeah like the ones who swallowed weapons of mass destruction and Saddam in bed with bin Laden:

On its face the official narrative is false to a laughably Orwellian extreme. The recession is over; the recovery is well underway, they say. However, as The Wall Street Journal reports, the recovery is slow and mainly benefiting big business. "While the US economy staggers through one of its slowest recoveries since the Great Recession," the paper wrote July 5th, "American companies are poised to report strong earnings for the second quarter - exposing a dichotomy between corporate performance and the overall health of the economy."

http://english.aljazeera.net/indepth/opinion/2011/07/201171162151617377.html

Because everywhere you look there are people reporting other than the line you are supporting:


Last week's surprisingly sharp decline in the unemployment rate from 9.4% to 9% and equally surprising anemic job growth -- 36,000 new jobs -- left a lot of investors scratching their heads. How could the unemployment rate plummet so significantly while a such a trivial number of new jobs were created?

If we simply extrapolate those numbers, we get some nonsensical results. If adding 36,000 jobs to the 139 million jobs in the U.S. economy lowers the unemployment rate by 0.4 percentage points, then adding just 720,000 jobs should lower the unemployment rate by 8 points -- from 9% to only 1%.

Yet the Bureau of Labor Statistics data shows that 812,000 jobs were added in the year from January 2010 to January 2011 (138,511,000 vs. 139,323,000). Based on the unemployment rate announced last week, we could expect that those 812,000 additional jobs would have lowered the unemployment rate to near-zero. But of course, we know they didn't.

See full article from DailyFinance: http://srph.it/fn6pej

So please share us your source. I want to know who, other than Obama and bankers laughing to they cry, agrees with you. Just show us the data.

Also just for good measure, just to see what part of fantasy island you reside, please tell us whether the federal reserve is a government or private institution.

 

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In the Xinhua {Chin's official newspaper} commentary, China scorned the United States for its "debt addiction" and "short sighted" political wrangling.

"China, the largest creditor of the world's sole superpower, has every right now to demand the United States address its structural debt problems and ensure the safety of China's dollar assets," it said.

It urged the United States to cut military and social welfare expenditure. Further credit downgrades would very likely undermine the world economic recovery and trigger new rounds of financial turmoil, it said.

"International supervision over the issue of U.S. dollars should be introduced and a new, stable and secured global reserve currency** may also be an option to avert a catastrophe caused by any single country," Xinhua said."... " From: http://news.yahoo.com/u-loses-aaa-rating-g7-finance-ministers-meet-052230104.html

** Billy T comment: As it is not yet ready to destroy the dollar, China would rather have the US agree to this supervision by for example G-7 voting, but IMHO, there is less than a snowball's chance in a blazing furnace of that, so China will back the Yuan with gold in few years to destroy the dollar's role as the international reserve currency. More on this, especially in the quoted text of link below, and other things related at:

http://www.sciforums.com/showpost.php?p=2792780&postcount=249

 

It is often said that one can't eat gold. Though that is a little off in what it is trying to say, it basically makes a critically valid point. Gold is a bit like a Rembrandt in value--it is largely cultural or learned. It does have some very good uses like for electronics, but that doesn't come close to justifying making it a standard of value. The standard of value has to be more than a pretty, shiny metal.

The real problem for the dollar's value is that the production potential of the USA has plummeted over the years, despite the USA not having yet depleted its natural resources. And why not, if you are already well-off, why risk what you've got to get more that won't really help you, and may hurt you by trying. That is why China and India have more valuable currency in reality. The people there generally still live in desperation. So they have good prospects for future productivity.

Now, it is possible to possess vision and keep pushing to improve to benefit humanity. Alas, most people don't see life that way. If we had in the USA, the dollar might have held up.

 

There is nothing new in this China has been envious of The United States for decades. They would love to see the US loose it's reserve currency status and would love to see US military power wain especially at a time when it is expanding its military power and flexing it's military muscle to enforce its extraterritorial claims.

The problem for China is that it cannot conduct its hugely profitable trade surpluses without US deficits.

 

A falling dollar has helped keep the US manufacturing base. The US is still the worlds premier manufacturer of goods and services. The Swiss are suffering from a strong currency. It is endangering their manufacturing base. That is why the Swiss central bank took action to devalue it's currency this week.

 

The current situation is much better than what Obama inherited when he took office. However, we still face serious challenges. This little stunt Tea Partiers played these last few months - threating an intentional default if they did not get 100 percent plus of everything they wanted - is a game changer.

I don't think we have felt all of consequences of that stunt. I would not be suprised to see a further slowing of the economy in the following months. We may even move back into recession. This little Tea Party stunt, in my view, is going to be expensive to the nation. Now I sincerely pray I am wrong. But I think this stunt is going to be very adverse to the economy.

Tea Partiers who control the House, are unwilling to do the things that need to be done to save the economy this time around. And the Fed has done just about everything it can to save the economy and the nation.

Obama and Bernake are going to have to get very creative to prevent the economy moving back into recession prior to the next election. Republicans are betting on recession as a way back into political power. It is going to be damn difficult for Obama, Bernake and the nation these next 20 months.

It is a damn shame we don't have Republican/Teabaggers back in Washington that are willing to do what is right for the nation versus what will help them the next election.

 

Since the Swiss aren't the host of the world's universal currency, so to speak, devaluation of the Frank ought not cause a widespread griping. The USA might become free from that responsibility soon, however. The USA lost the goodwill it used to have when it went into Iraq. The deck seemed to be stacked against it from then on, contributing a lot to the present day economic situation. I trace the looming downfall of the USA to that unfortunate war. It almost seems the invasion of Iraq was intended to seriously harm the USA.

 

i don't know if you are reading this Joe . We could be friends you know . I am pretty easy to get along with . I like to think I am tolerant of others even with Me big mouth . Tell us what you think about standard and poor dropping the U.S. credit rating ? That certainly can't be good at all.
Has someone started a thread yet ? It should be an interesting one

 

after further reading . I guess I am in the right place . Good trickery Me old foggies . I would have never guessed

 

your are looking like an intelligent person . I applaud your post . It has a feel of realism to it

 

Currently true but not cast in stone.

China is well aware that it must loan the US the funds to buy with, and is very unhappy about that. So with impressive speed, China is growing it internal demand and increasing its trade with other Asian nations (which don't need loans to buy as they sell low value added sub components to China, like resisters and cooling fans for Chinese electronics etc.). Salaries in many rural areas are up in real terms more than 15% * and out of pocket medical cost now are only 1/3 of the total cost, not 2/3 as they recently were so the Chinese no longer need to save 50% of their income. It is not just cars in which China has become the world's largest market.

For example S. Korea now has China instead of the US as its most important trading partner. China and India agreed last year to increase their annual mutual trade by 100 billion dollars (and to cease using dollars for it)**. China has signed 8 "free trade" bilateral trade agreements with other Asian nations.

Soon China will tell the US:
Go to Hell - we don't need you to buy our production - your green paper is worthless to us. We will not finance your debts anymore.

Then only the FED will be buying US Treasury bonds in large volume. (Trying to pull the US economy out of deepening recession by its own QEx bootstraps.)

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Or full table and my comments at my post here: http://www.sciforums.com/showpost.php?p=2791469&postcount=441

** China has made "currency credit swaps" with the central banks of about 25 nations (Brazil being one). For example, a Brazilian company which wants to import Chinese cars can get Yuan credits from Brazil government (the central bank, I think) for his Real and pay the Chinese exporter in Yuan. Dollars are no longer needed for trade with China. As Real accumulate (in Brazil's side of the swap they are sent to China so the Chinese importer of Brazilian soy etc. can get Real from his government to pay the Brazilian exporter with.) HSBC also facilitates this direct "dollar less" trade accounting.

BTW, like S. Korea, Brazil two years ago had China replace the US as it principle trading partner. China is rising even faster than the US is falling.

 

Thank you. You just made my day very good.

 

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It is worse than it looks because:

(1) A greater fraction of the debt is due to payments like Social Security, that index with the CPI

(2) A greater fraction of the debt is directly indexed to the CPI (Treasury's TIPS, mainly)

Thus as FED / Treasury "print" more money, the value of each dollar decreases - i.e. the CPI goes up; so this indexed debt goes up too.

(3) Although the dollar currently wins the "least ugly" contest, China can when it is ready back Yuan issued bonds (for central banks only) with gold. Few will want to exchange interest paying Yuan bonds for zero interest, expensive-to-store, gold so not many more years of China being world's largest producer and also largest buyer of gold need to pass before China can do that.

China will accelerate the spending down of dollars in its reserves (More paying up-front for decades of imports it needs, like oil) AND build its internal market demand and exports to other than "broke US" nations first. July exports to the US slowed to 9.5 percent of the total, down from 9.8 percent.

When China is ready it can make the gold backed Yuan bond the preferred reserve for central banks to hold. Then it, rather than the US, will enjoy the privilege of annually importing nearly half a trillion dollars worth of goods and services, and paying for them with printed paper.

 

:bravo:

That is a valid observation! Consider this scenario: Pres. Bush represented the conservative business class including the military contractors. He also represented the militant religious minority. He appealed to them by his frequent references to "evil." He even declaired once he intended to "conquer evil!"
In the South, the Fundamentalist churches felt power for the first time. All over the South were signs out saying "God Bless America."

The enemy of these ultra-faithful is our science-secular ideology. So, what better way to weaken it and its evolutionists is there then to bog the nation down in pointless wars? Also, involving us in a created war in Iraq was sure to alienate Islam and magnify the threat of Islamic terrorism. Islamic terrorism is a boon to Christian conservativism as it creates fear and drives those who hedge and try to be both liberal christian and science/secular into choosing one or the other. This is what creates militancy, and militants rule even if indirectly. See what the Tea Party has done?

In "The Next Civilization," this process is referred to as "the Retaliatory-Antagonistic Alliance" and helps explain what is going on between Israel and Islam, especially the Palestinians.

 

Absolutely. It is becoming very obvious.

 

Except it hasn't - the USA produces more than ever before. Manufactured output has been steadily growing for decades. What's happened is automation - we don't employ nearly as many people in manufacturing, as we used to. But the actual production itself is still humming along.

And in the first place, what is the "problem" of the dollar's value exactly? Too high? Too low? Who is this a problem for?

Except they don't - China systematically depresses the value of its currency relative to the dollar, by a large margin. A dollar buys 45 Indian rupees.

Why do we want the dollar to be strong? If manufacturing and production output is the goal, then we'd prefer a much weaker currency, particularly relative to that of China.

The potential devaluation of the Swiss Franc is causing widespread griping exactly because it's widely held as a hedge on other currencies, "universal currency" or not.

 

No, it isn't.

They keep saying they're going to do that, that it's a huge priority, etc. But it isn't actually happening - the share of Chinese GDP coming from consumption has been flat or declining for years now, despite all of these pledges to the contrary.

What China has actually been doing is doubling-down on the investment and export-led growth strategy. Investment accounted for over 90% of Chinese GDP growth in 2009, and is currently a staggering 50% of the GDP - and growing.

China's entire growth model is premised on suppressing household income (and so, consumption) and transferring money into investment and exports. They have not abandonded that model, and show little signs of doing so, official statements to the contrary notwithstanding. See the FT for more:

http://www.ft.com/cms/s/0/cf36cf7c-69b2-11e0-826b-00144feab49a.html#axzz1UlMaB4xU

"First, China’s consumption share of GDP is unlikely to rise soon. Beijing has been eager to boost relative consumption since at least 2005, and during this time consumption has actually declined as a share of GDP from already alarmingly low levels.

It will remain hard to raise consumption by administrative means. The cause of low household consumption in China is the very low GDP share of household income, and constraints on household income growth are at the heart of its growth model. China has grown quickly, in short, largely because its institutional and financial systems transfer wealth from households to encourage and maximise investment growth.

Household consumption, then, cannot rise as a share of GDP unless those transfers are reversed, and one necessary consequence will be a sharp reduction in investment. But Chinese economic growth is heavily dependent on growth in investment.

Within China there is a vigorous and at times contentious debate about the need to reduce investment growth. But one thing is clear: because it will inevitably reduce growth sharply in the short and medium term, there is resistance from many key constituencies. So if the consumption share of GDP grows, it will take many years or much slower GDP growth before this happens to any significant extent."​

My own prediction is that we won't see consumption significantly increase as a share of the Chinese GDP until the current investment bubble pops (and it is surely a bubble - no country is so productive that fully 50% of the GDP can be pumped into investment without creating a massive amount of non-performing loans). Although, said bubble bursting is probably not too far away at this point; some analysts predict it will occur in the next few years:

http://www.parapundit.com/archives/008097.html

 

Now that is interesting . File that one for easy access