How bad is it?
The economy, I mean. The President-elect warns that “the worst is yet to come” and “millions of jobs” might be lost. Olivier Blanchard, head of the International Monetary Funds, agrees: “The worst is yet to come,” he told a German newspaper recently. Type “economy bad news” into your search engine: you’ll find plenty more where that came from. Jim Cramer, the excitable, “progressive” financial analyst, set the tone some months ago with his “this-is-Armageddon” video.
Maybe so.
Or maybe the current turmoil is, well, the current turmoil.
Let’s get a bit of perspective on things. Yes, yes: my 401K is a 201K now, too. As I write, the market is hovering around 8000, down from a high of more than 14,000 not so many months ago. In October, unemployment jumped from 6.1 to 6.5 percent–ouch! Inflation this year is about 3.7 percent, up from 2.7 percent last year (and 1.6 percent just a few years ago). Not good, what? How does it compare with, say, the golden age of Ronald Reagan. Well, by the end of 1982, unemployment was 10.8 percent, up from 8.6 percent the year before. The Dow was 700–that’s seven hundred . Inflation peaked in 1980 at 14.76 percent, dropping over the course of 1982 from 8.39 to 3.83. Thinking of buying a house? The prime interest rate in 1980 touched 21.5 percent. In 1982, it went from a high of 17 to a low of 11.5 percent. It is about 4 now.
What, Sherlock, do you make of all these numbers? Here are two things: One, the market, and all associated economic indices, fluctuate. Two, we are a lot richer now than we were in in 1980.
Should we expect more volatility in the market and in the economy in general? Absolutely. Is it, as Jim Cramer said, “Armageddon”? Absolutely not. I’m not saying that things are wonderful. They aren’t. But I despise all the media’s trash talking the economy: it’s just prurient sensationalism. There’s plenty of blame to go around here. Personally, I’d start with people like Barney Frank and Christopher Dodd. But I also think that one should keep a sense of perspective on the current mess–perspective, and also humor. I’ve linked to this splendid skit by “the two Johns,” Messrs, Bird and Fortune, before. It dates from several months ago, before the really huge blood-letting of the last 6 weeks, but it still helps explain what happened. The dynamic English comedy duo reprised their act recently to compass some late-breaking developments: you can see it here. The whole thing is sharp, amusing, percipient. But I think my favorite exchange was this:
Interviewer: So the situation is if you make profits you keep them, if you make losses we pay for them.
Investment Banker: That sounds good to me, yes.
It sounds good to Detroit, too, I gather. Are we really going to present the taxpayers with a multi-billion-dollar bill to reward these poster children for financial mismanagement? I feel a Cramer moment coming on. When, Oh when, will the folly of Detroit be recognized? Consider:
* They build cars that consumers do not want
* Labor costs for an American-built car from the (formerly) Big Three are twice as much as for an American-built Toyota or Honda (around $70 per hour as compared with $35 per hour).
* Detroit entered into unsustainable pension and health-care obligations that add something on the order of $2000 to the cost of every car.
How can Detroit possibly compete? Chapter 11 was custom-made for a situation like this. Why should taxpayers foot the bill for such inflated labor and benefit costs? They shouldn’t. It looks like the Bush administration is likely to show some backbone on this issue. I hope Obama will as well.
Roger is right, as usual, with a caveat: some of the Big Three make really nice cars & trucks in one way or another: GM more reliable, but less stylish; Chrysler weak reliability/ flashy designs; Ford somewhere between on both. (Check out Consumer Reports ratings.) However, cost v. value is the killer. Even if GM sold every car they could build they would still lose money. Ford/Chrysler just a bit behind. As Walter Williams points out, bankruptcy is not destruction, but rather recycling productive assets to more efficient use. Chapter 11 will be painful, but inevitable.
On the larger economy: recovery will begin when the big players are sure it will not get worse. That means injecting liquidity wherever needed: banks, insurers, credit unions, etc. It does not mean more consumer cash, nor public works projects, a la Works Progress Administration (WPA) (known then as “We Putter Around.”
Seems unfair, but reality can be that way.
thank you very much for telling us about Bird and Fortune!
“On the larger economy: recovery will begin when the big players are sure it will not get worse.”
Do you know what this really means on a practical level? This simply is another way of saying that the overall investment community and other financial experts are hoping that Barack Obama lied during his campaign for president. Subconsciously, if not even consciously, these people want the newly elected leader to be a secret conservative Republican! Everybody possessing a lick of sense rejects the foolishness of a command economy. The only exceptions are those who will be directly rewarded by handouts from the taxpayers.
This speech by (R) Rep. McCotter during last week’s hearings is worth listening to :
http://www.youtube.com/watch?v=U7YBjjLKLd0
The Big 3 are doomed unless we have some sort of national health care plan and force the UAW into it, otherwise no amount of money is going to save them because it will keep the money factory going for the UAW and little else. If Obama truly wants to keep his campaign promise here is his chance. He can force the Big 3 to provide the seed money for this huge new government supervision and then force all the other union health care funds to pony up as well. The force the insurance companies to compete nationally by making them offer a minimum plan for a set price. If you want more you pay more the seed money is for the poor who can’t or won’t pay. Then everyone gets to play along through their companies, which will have allow every employee access to the minimum plans and can work with the employee for upgrades. Would it be a huge pain in the butt, sure. Would it allow US companies to start competing globally again, maybe.
If we want things to get better then we have to change certain fundamentals in the new global economy. American manufacturing must not be burdened with health care for life for people that are no longer adding to the bottom line because we are the only ones in the industrial world that doesn’t have some sort of national health care. Am I a socialist, no but rather a realist. If you want to be competitive in the world market then you have to cut costs for companies to do business here. The non-union companies pay good wages and provide health care, but aren’t expected to do so for life. That is the sole reason that the non-union plants are doing well, while the Big 3 are headed for the toilet. If you have better ideas lets hear them because this isn’t going to be solved by Washington anytime soon.
Another ruse run up the flag pole by the media for the Obama rubes so that no matter what happens with the economy, Obama either takes credit or rejects blame to the Bush era. And the feckless libs will believe it – guaranteed.
If you want a demonstration about the economic expertise of libs, ask them what policy Bill Clinton implemented to give us the wonderful economy of the ’90s. Invariably, you’ll get the deer in the headlights look and some melee-mouthed answer about controlled spending.
Don’t buy a word about that “Great Depression Crap” yet. We haven’t even made it to the malaise of the Jimmah Carter era.
Let’s see now. Combined personal, corporate and government debt in relation to GDP has climbed steadily since the early 1980′s to heights orders of magnitude higher than anything seen before in the history of the U.S. Now we have a rumored $7.4 trillion more in debt since September. And, as no one seems to want to do, let’s look into the near future. The existing surplus from FICA revenue vs SocSec expenditures begins to shrink starting in 2010, thus shrinking overall tax revenue to cover annual USG expenditures. By 2017 this relation turns negative, i.e. FICA receipts cannot finance SS expenditures under the current system. And, really, there’s no need to bring up Medicare/Medicaid and any new universal health monstrosity dreamed up by Obama and Congress. But, hey, as that Harvard educated intellectual, Alfred E. Neuman, once said, “what, me worry?”
The Big 3 are doomed unless we have some sort of national health care plan and force the UAW into it, otherwise no amount of money is going to save them because it will keep the money factory going for the UAW and little else.
What happened to “Big Three go bankrupt and the UAW has to accept a reasonable compensation structure”?
I’m more concerned that certain Democrats are floating the idea that the government will take over management of privately held 401(k)’s and IRA’s. I guess so they can place it in the same “lockbox” with the social security “trust fund.” You know, the one with the IOU at the bottom.
I will cash in my accounts faster than a kulak can turn a pig into ground sausage. I would rather pay a penalty and have something, anything, than rely on government promises that might amount to nothing when I’m due to retire. Just think for a moment what would happen if 10, 20, or 50 million Americans like myself suddenly pulled our pensions out of the stock market. Armageddon would look mild compared to that kind of wealth destruction.
Barney Frank wants me to trust him with my money. My money! I call breach of contract. I was promised control over every dollar I set aside. I’ll be damned if I surrender a nickel to the looters. The arrogance of our political leaders is breathtaking. I will not submit to a government hijacking of my assets for any reason. Not ever.
“…by making them offer a minimum plan for a set price.”
So-called minimum plans are against the law in most, if not even all states. Insurance companies are forced to provide coverage for a number of medical procedures ranging from aromatherapy to acupuncture.
David Thomspon:
Yes – it’s all the fault of those jerks who insist on aromatherapy and acupuncture to be covered by their health insurance companies. A brilliant bit of deduction. If only all of our problems could be reduced to a gross misunderstanding of basic economic principal!
Our ongoing economic chaos has a lot to do with the Keystone Cops in charge:
http://greensrealworld.blogspot.com/2008/11/americas-real-economic-chaos.html
What happened to “Big Three go bankrupt and the UAW has to accept a reasonable compensation structure”?
A Democrat got elected, that’s what happened. As much financial sense as it would make to let Chapter 11 restructure the UAW contracts to something more reasonable, politically I suspect Obama and his Chief of Staff will not let the crisis go to waste.
Armageddon or not, with Socialists in charge of the government, we will likely not recognize this country in 4 years.
Sadly, I think #14 JMH is correct.
Someone 75, David Thompson is correct. In New York, it is impossible for me to buy a simple catastrophic medical plan, thanks to the legislature. I’m not saying such a plan is right for everyone, but it would be for me. Instead, I’m stuck paying for what New York allows me to have.
The “fault” is the Legislature’s. Everybody wants something for nothing, but there aren’t many providers at that price. The Legislature wants re-election, so they mandate goodies. The people go along, because they like free stuff. The providers shift costs to others, sell unneeded tests, or whatever to make enough to stay in business, or get out. It’s elementary.
Well the US numbers are bad but the Global numbers aren’t pretty either when it comes to bad loans. The Baltic Dry Index for shipping just keeps on dropping.
If you have money where do you invest it for good ROI is the enternal question.
We might hit a bottom and just bounce along on it a good while unless there is some tech breakthrough like railroads, autos, computers, and the internet was to create new wealth. It looks like we’ve pretty much rung the majority of the “productivity” benefits out of the IT age. Most of the new stuff is still stuck on the lab bench because of the stuff won’t upscale or costs to much.
Tex you typical pig in a poke conservative moron. Calling liberals melee mouth would actually be a complement. It is the exact opposite of what you meant to write which was “mealy mouthed”.
Anyway, any child could tell you why Clinton left office with a surplus and Bush Jr with a record deficit. Clinton didn’t spend it all on stupidly executed wars. And He left alone that socialistic 39% tax rate which was put in place by Bush the Elder. Bush the Elder was a sharp guy. He made sure we got our money’s worth from Gulf War I.
Tex Troll,
Calling liberals melee mouth would actually be a complement.
You mean like a compliment Troll? Now who is the moron again?
Clinton left us with a tech bubble, leading to the first dam bursting. He also left us with a gutted military, Al-Queda, and a few unmentionable serial rapes.
Clinton was a facade as are all libs…look no further than the patron saint of libbie economics, Robert Rubin. Citigroup anyone?
How Bad is It ? Naaaa….not that bad. Except for the trillions in debt we hand to our grandchildrens children. No problem.
On the breakdown of the cost of a vehicle from Detroit….. everyone seems to know what the labor and legacy costs are per vehicle but does anyone know the cost per vehicle of upper management salary, perks and bonuses??
DaveinPheonix – “How Bad is It ? Naaaa….not that bad. Except for the trillions in debt we hand to our grandchildrens children. No problem.”
If you listen to what passes for informed thought on the part of the left. we won’t be having so many children and grandchildren because it pisses off Mother Earth. One of these days there will be one guy not on the government payroll and Congress will be constantly debating whether his exhaling as he walks to work is harmful to the environment.
Regards
The economy is certainly not so good but as Mr. Kimball pointed out, it ain’t near as bad as in the late 70′s and we are a hellava long way from the 30′s. Stop and think what 25% unemployment would be like today. You gotta remember that in the 1930′s a much larger percentage of the population lived and supported themselves in rural areas. In other words they were self sufficient. Now take that 25% unemployment. Most women were home makers and not in the labor force so if we had that same kind of unemployment today it would be nearer to 40% unemployment. Tossing around words like “depression” like the media did to help get Obama elected is irresponsible to the max. We may get there but we ain’t there yet.
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By the way, I hope all you rich liberals out there are going to pay a bunch of taxes because Joe Biden said it’s your patriotic duty to do so and I am waiting for my share of the free stuff Obama promised me.
GUEST COLUMN by Steven Earl Salmony
November 26, 2008
Chapel Hill(NC)News
http://www.chapelhillnews.com…
Billions end up paying for excesses of the wealthy on Wall St.
Our lexicon of business activities is being expanded daily, thanks to the “wonder boys” on Wall Street. We are learning about derivatives, collateralized debt obligations, credit default swaps, recapitalization, puts, short selling and so on. We are gaining a new vocabulary from the recent meltdown of the financial system and expected slowdown of the real economy worldwide.
Where did this debacle begin? Well, it began in the center of the human community’s banking and investment houses in the financial district of NYC. Supposedly, the “brightest and best” among us go to Wall Street, know what they are doing and do the right thing. Unfortunately, such assumptions turn out to be colossal mistakes.
How did this calamity occur and why is the human family in such dire economic straits? It appears that grotesque greed and a culture of corruption have come to dominate significant operating systems of the global political economy.
Powerful people in high offices within huge business institutions with access to great wealth are recklessly and deleteriously manipulating the unbridled expansion of the global economy in the small, finite planetary home God blesses us to inhabit.
Self-proclaimed Masters of the Universe have surreptitiously “manufactured” a subprime “asset bubble” and perversely fostered its uneconomic growth within the world economy. Not unexpectedly, this asset bubble did what bubbles do. The subprime bubble burst and made a mess. Global credit markets have frozen, stock prices are tumbling and the value of the dollar is gyrating.
Evidently organizers, managers and whiz kids overseeing the global economy, and the unraveling (i.e., deleveraging) of the worldwide subprime swindle are running the artificially designed financial system of the global economy as a pyramid scheme. This is to say that the international financial system is being operated so that most of the wealth funneled pyramidally into the hands of a small minority of people at the top of the world economy where this wealth is accumulated and consolidated. Note that 30 percent of annual corporate profits end up in the accounts of a tiny number of people. At the same time, the vast majority of people on Earth, near the bottom of the global economic pyramid, are left with very little wealth. Does the economy of the family of humanity exist primarily to provide wealth to the already stupendously wealthy? The “bankstas” among us evidently think so.
In the 1980s, this extremely inequitable method of distributing wealth and arranging business activities was called a “trickle-down” economy. We have been repeatedly told how this ‘rational’ economic scheme is good because it “raises all ships.” And yet, from my limited scope of observation, the billion people living on resources valued at less than one dollar per day and the additional 2.7 billion people being sustained on two dollars per day of resources now appear to be stuck in squalid conditions. The ‘ships’ carrying these billions of less fortunate people (i.e., more people than lived on Earth in the year of my birth) do not appear to be lifting them out of poverty.
Steven Earl Salmony
AWAREness Campaign on the Human Population,
established 2001
http://sustainabilitysoutheast.org/content.html?contentid=1176
FYI (Share the News):
From American’s Must Know – http://americamustknow.com/
11/25/2008
Cort Wrotnowski’s case from Connecticut is now in the Supreme Court. That’s 3 cases in the Supreme Court Against Barack Obama!
11/25/08 – After another battle with Mr. Bickell, the clerk that has a bad habit of obstructing justice, Cort Wrotnowski, with the help of Leo Donofrio (attorney handling the New Jersey Case), appealed his case from Connecticut to the United States Supreme Court. His case was docketed at 12:38 PM on 11/25/08 and Honorable Associate Justice, Ruth Bader Ginsburg will be looking at the case.
From Atlas Shrugs:
“Also remember that on December 13, the Electoral College meets to casts its votes. If it has been determined that Mr. Obama is an illegal alien and therefore ineligible to become President of the United States, the Electors will be duty-bound to honor the Constitution.”
http://www.earthfrisk.com/blog/?p=124