The Current State of the US Economy

Discussion in 'Business & Economics' started by joepistole, Jun 15, 2015.

  1. joepistole Deacon Blues Valued Senior Member

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    This thread is intended to be a discussion of the current state of the US economy and as free as possible from political demagoguery. It is intended to help individuals sort through all the misleading nonsense which dominates this space and make rational decisions based on truthful and relevant data.

    I'll start by giving a link which summarizes conventional thought on the matter:

    http://www.goldmansachs.com/our-thinking/pages/midyear-outlook-2015/index.html?videoId=105294

    There are three things weighing on US stocks this week.

    1) The Federal Reserve Meeting which begins tomorrow. The fear is and will be for some time now, the Fed will raise the Federal Funds rate which will drive interest rates higher and slow the economy. The Fed has said its decision to raise interest rates will be data dependent, meaning the economy will be able to support higher interest rates without significant growth drawbacks. The Federal Reserve will make their announcement Wednesday afternoon around 2 PM Eastern.

    2) The possibility of a Greek debt default and withdrawal from the EU. This upsets some investors, although I think it is insignificant on the longer term, a Greek default and ejection form the EU is believed to be very negative for the stock market. There is a fear among some that it could set off a series of debt defaults in Europe. Ass I said, I don't share that concern and feel any consequences should be manageable assuming reason prevails. We should hear something significant on this front by Thursday of this week.

    3) Future interest rate increases. Interest rate increases increase the cost of doing business and lower earnings. They slow economic growth. Interest rates have been extraordinarily low for a very long time. So when they occur, it will cause some disruption to the economy. Holders of bonds and "bond equivalents" will be hurt. Any Fed increases will likely be small to mitigate any disruptions to the economy. But there is some uncertainty, and markets dislike uncertainty.
     
    Last edited: Jun 15, 2015
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  3. joepistole Deacon Blues Valued Senior Member

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    One more potential threat on the horizon for the US economy is a potential debt default in the 4th quarter. Most people don't think Republicans are so stupid as to actually cause a debt default, but even if they threaten to put the nation into default as they have in the past, it will have very negative consequences for the US economy.
     
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    On the OP's point three, I think it worth noting that the government is hurt too. I.e. the cost of "rolling the debt" as treasury bonds mature increases. At some point, that can have an adverse negative feed back. I.e. if any significant number of bond investors conclude the government will need to issue even more bonds to pay the greater interest on bonds cost, they may set interest rates higher than the government desires. They are sometimes called the "Bond Vigilantes." If they refuse to buy bonds so only the Fed is buying new treasury issue, (paying old debts by "printing" money) one MAY be starting down the road, well trod in the past, to hyper-inflation.

    The hope of course is that despite the higher interest rates, the economy grows and with it the tax revenue so the government can pay the increased cost of "carrying the debt" from the growing revenue it collects; however, that is just a hope, not a law of physics.

    My main fear that it is indeed only hope, is based on the fact that the US is no longer unique. Not the most economical producer of many things, not the only supplier of services like computer code writing, modern drugs, even financial services, etc. I.e. we were, but have been "resting on our past excellence" for too long as others educated their populations better, developed medical services delivery systems* that cost less than half the US's yet deliver 2 to 3 years more life expectancy, and have social structures that, as the pope said very recently, focus more on the common welfare and less on corporate profits, which are increasing transferring wealth to concentrate it in ever fewer hands. That is sustainable for a dictatorship / oligarque /etc. but not for a broadly based consumer society like US once was when it had a growing (not stagnate or shrinking) middle class.

    * This becomes increasing more important as the average age of the population increases.
     
    Last edited: Jun 21, 2015
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  7. Michael 歌舞伎 Valued Senior Member

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  8. joepistole Deacon Blues Valued Senior Member

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    Well, that is more than a little misleading. First, Bloomberg nor the US Bureau of Labor Statics did not create your chart. Two, just what is the relevance and significance of the labor force participation rate Michael? It's not like it hasn't been explained to you umpteen times over the course of the years.

    What the labor force participation rate shows is the effect of the Baby Boomers on the workforce and the entry of women into the workforce. Baby Boomers entered the workforce in the 70's and now they are withdrawing from the labor force and the labor force participation rates are becoming more normalized.

    Please Register or Log in to view the hidden image!

    http://data.bls.gov/pdq/SurveyOutputServlet

    So unfortunately for you there is nothing disturbing or dire in the labor force participation numbers. Your chart mixes disparate data sets and is intended to mislead and confuse in order to sell an investment scheme or some "investment" advice to ignorant fools.

    http://www.usnews.com/news/articles...-big-part-of-labor-participation-rate-decline
     
    Last edited: Jun 28, 2015
  9. joepistole Deacon Blues Valued Senior Member

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    It takes more than an expansionary monetary policy (i.e. printing new money) to cause inflation. I am glad you used the word “MAY”. Two, if these mythical “bond vigilantes” ever materialize; they would drive up interest rates. They wouldn’t stop buying US debt; they would just demand higher returns on their bond investments. Those increased returns would be reflected in the price bond buyers pay for US bonds, not the interest rate paid by the US Treasury on those bonds. Instead of selling for a premium, they would sell at a discount to par.

    The only way bond investors would stop buying US Treasury debt is if folks like Canadian Ted and his Republican cohorts were to intentionally cause a US debt default as it would be a clear demonstration to the world that the US would no longer be capable of effective governance. That is the only thing which could cause bond investors from investing in US bonds.

    Three, US debt as a percent of GDP is modest when compared with those of other developed economies and unlike some other developed economies, the US population is still growing. So I think your debt fears are more than a little over blown. The US has the capacity to service its debt. The real question is, does it have the political ability to do so? Does the US have the political will to impose the taxation needed to pay its bills? Does the US have the political ability to go back to Reagan Era tax rates? Does the US have the ability to raise taxes on its richest citizens? Those are the real questions. In the past the US has had much higher levels of debt to GDP. So servicing the US debt without causing adverse economic impact (i.e. deflation or excessive inflation) is certainly possible. We have done it in the past. The only question is our political ability to do so. In a word of Republican entertainment are we still capable of responsible governance?
    Yes, economic growth is the best remedy for government debts as it reduces public expenditures for safety net programs while revenues, ceteris paribus, rise. Unfortunately, in the past as revenues rise, our government has been using those increase revenues to fund tax cuts for our wealthiest citizens. If we want responsible fiscal policy, that must stop.
    Well, you know pre WWII Japan and Nazi Germany thought the similar things about the US. The US has its problems. It has always had problems. But it has always been able to pull it together and it remains the world’s only super power. After WWII the US was the preeminent global economic power and accounted for more than half of the global GDP. The world is returning to a more normal state. The US now accounts for about a quarter of world GDP. The question I have, is can the US survive the crazy Republican entertainment driven and led Republican Party, and I think it can. The US has the ability, but does it have the political will? And I think it does. I think Republicans are in for some difficult times in the coming decades.
     
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    More money moving slower as people and corporations are scared.
     
  11. Michael 歌舞伎 Valued Senior Member

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    LOL - the America and the Americans of the early 1900s are nothing like the America and Americans of today. They raised the children who fought in WWII. Many American children today are shoveled into Day Supervision Centers, raised by strangers (some of whom don't even speak English), dumped into poorly run Government Schools, fed anti-depressants, and likely to graduate 12 years later functionally illiterate.

    Two totally different countries and people.

    Turning this ship around is like trying to turn the Titanic around AFTER it hit the iceberg. Only in this case the fat greedy bankers RAN the ship into the iceberg AND had the audacity to steal all the life rafts, leaving the poorest, the women and children - to go down with the ship. Hell, even this analogy doesn't do reality justice. It's even worse than THAT if you can imagine so. They SOLD the children FOR the lifeboats, trampling their bodies dead as they scurried to secure extra space for their belongings, their extra houses, vacations and bonuses. THIS IS the America of today. So, if you're an ex-banker all high and dry or you had your financial assets bailed out - then the system worked for you, IS working for you, now you just sit back in your nice little raft and enjoy your life...boat.
    Ride it out....
    As long as the poor don't swim over and tip your raft, then it's smooth sailing. All the way. Or, unless a demagogue doesn't reach out a helping hand, you know, just as they're gulping water and watching their children drown. People get desperate. Desperate people are just as likely to take down the person trying to save them as they are to be helped to safety. Like wild animals. And, Demagogues are pretty good about making sure The People / The Worker are way too weak to do anything other than hold on: For dear life.

    The question I think is worth asking is: Are Americans desperate enough yet? Weak enough?How much longer can they paddle in place? 20 years? 30? 40? That's what I want to know.
     
    Last edited: Oct 6, 2015
  12. joepistole Deacon Blues Valued Senior Member

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    Well that is only because you believe in an alternative reality which isn't supported by evidence and reason. WWII wasn't the only war Americans have been involved in, there were two relatively recent wars. You may have heard of them, Iran and Afghanistan and the young folks who fought in them weren't around in the early half of the last century.

    Is there anything wrong with daycare? Evidence suggests daycare is a good thing, not a bad thing.

    No, they aren't. The country has changed. But the people are the same. There hasn't been any mass alteration of the gene pool. People are still people with the same wants and needs. What has changed is people are living better and longer. People are more productive and more efficient because of the tremendous advancements in technology and the sciences. When I went to middle school, I was taught there was nothing smaller than an atom. That didn't sound right to me then, and we know now that isn't the case. We were unable to manipulate DNA. Human DNA was a mystery. We had no medicine to treat viral infections, the best we could do were vaccinations and treat symptoms, the old chicken soup remedy. Open heart surgery was non existent, now it's commonplace. In a few years we will all be riding in self-driving vehicles. Those people of the WWII era had to drain water out of their radiators every night to prevent freezing. We have come a long way from WWII.

    That's nonsense.

    Well here is the thing Michael, you are one of the biggest demagogues I know. Your beliefs are just as magical and just as wrong as those of our communist brethren and for the same reasons.

    The growing wealth inequality will eventually become a huge problem, and maybe sooner rather than later. But the biggest threat to the health and well-being of the country comes from right-wing nuts and the entertainers and wealthy folks who lead and fund them. Carl Ichan, a famous and successful investor, and I are in full agreement on this one. At the moment we have a bunch of misinformed outraged idiots running around in tricorne hats who if left to their own devices would send the country back into the Stone Age and then ignorantly wonder why they have no running water and no gunpowder for their guns.
     

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