Is this finally the economic collapse? -- CNN

[ResearchMonkey]

Is this finally the economic collapse?

FORTUNE -- The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return.


On July 2nd, we cut both our third quarter 2010 and full year 2011 GDP estimates for the US to 1.7%. At the time, the consensus around US economic growth estimates was about 3%. Now we're starting to see both big brokerage analysts and the Federal Reserve gradually cut their GDP estimates, but not by enough. Even our estimate for 2011 is still too high.

--snipperoos--

With 40.8 million Americans on food stamps (record high) and 45% of the unemployed having been seeking employment for 27 weeks or more (record high), what's left if (or when) QE2 doesn't kick start GDP growth? Should we start begging for QE3? Should we cancel the bomb of the National Association of Realtors' existing home sales report, scheduled for public release on August 24th? Or should we bite the bullet and accept that current economic policy dictates 0% returns-on-savings, even as Washington continues to lever-up our future to the point of economic collapse?

< has more...
​

Oh it's getting better all the time.

 

[MrBishop]

Your economy is fucked...no shit sherlock. We've only been discussing it for almost 2 years now.
It's a waste of breath to try and point fingers and say "It's all _____'s fault"

Someone's trying to fix it... bail-out the sinking ship. The alternative is to let the ship sink and become another Greece.

Germany can't come along and bail you out...it'd have to be China. How'd you like to have China dictating how America works much like Germany dictates how Greece works?

 

[ResearchMonkey]

So you're saying someone's trying to fix it?

Who would that be?

 

[MrBishop]

The Economy doesn't turn on a dime.

You've got high unemployment...which means low spending, low manufacturing and low GDP.
People tighten their belts and buy cheaper goods (if any) - which means imports (China). Local manufacturers (USA) stall production in order to avoid having too much depreciating backstock and longer sales-cycles, which means more unemployment.
You had a credit crisis, so companies and individuals couldn't secure loans for housing, infrastructure, raw materials etc...

All these have to be addressed in order. Build the economy back up from the ground and try and make it more stable in the meanwhile.

The first part was to stabilize the banks - give them some security in order to open lending again.
The second part kick-starts employment..even temporary employment through large GVT sponsored infrastructure projects (Keep as much tax-payer money in the USA as possible with the Buy American plan). Hire people, pay them and watch them return to the stores...which will enable employment both in stores and in manufacturing.
GDP will start rising as a consequence, but %debt needs to come down.
That's why you're seeing the Fed Reserve trying out tbills - much longer debt-calendar. 2-10 years.
You need to pay off debt.
Lower costs and more tax revenue.
Leaving Iraq will help lower costs. Ditto for Afghanistan. War is expensive.
More employment will mean more tax dollars coming in.
Allowing the tax-cuts for the rich to expire will help as well.

Take expensive pie-in-the-sky projects and mothball them.
Although the health-insurance initiative is a good idea, it's the wrong time for it.
Knock 20% off of military spending.
Rein in NASA

 

[Winky]

Bish at least you are
100% wrong

 

[MrBishop]

Illuminate me, oh wise one.
How does one increase GDP and employment in a credtiless economy?

 

[Winky]

slash government spending and
cut taxes

real simple

 

[Winky]

oh sorry I left out the third vital bit

stop government regulation of business

Do those three things today and you will
see an economic turn around over night!

 

[Gonz]

12 months...no personal income tax, no tax on investments. Slash government spending, ala Calvin Coolidge.

Look ma, a recovery.

 

[MrBishop]

slash government spending and
cut taxes

real simple

Works great (not really) on the gvt/taxes side of the equation, but does SFA for the SMB (small and medium business) side of the gdp.

For every dollar of taxes that you cut, you have to cut $2.50 in GVT spending..just to break even. That does nothing to actually cut the deficit though, or pay back existing debts.

So... how much tax revenue should be cut, where in the budget will you cut 2.5X that amount?

 

[ResearchMonkey]

I dunno, buying our own debt seems like a great idea, it will be puppies and sunshine in no tiem. :/

 

[MrBishop]

oh sorry I left out the third vital bit

stop government regulation of business

Do those three things today and you will
see an economic turn around over night!

Regulations (such as they are) are there to do more than hobble profits. Your current recession/credit crisis is caused by deregulation, much like the credit-crunch was caused by the S&L deregulation.

Do you seriously think that corps can see past the end of their noses (profit) or even care to do so?

I suppose that giving free rein to the market, no holds barred, would fit well into your dream of the great fascist state.

 

[MrBishop]

I dunno, buying our own debt seems like a great idea, it will be puppies and sunshine in no tiem. :/

Controlling your own debt is far better than allowing China and S.A. to do so.

The debt is there. You can't pay it back, but better to take ownership than to accept being pwned.

 

[Gonz]

For every dollar of taxes that you cut, you have to cut $2.50 in GVT spending..just to break even.

OK

Just remember, tax cuts are not expenditures. They are not even lost revenue. The dollars that are saved by the earner/investor will put people to work.

 

[ResearchMonkey]

Broke people create so much wealth :/

 

[Winky]

OK we get it
A: you believe the commie props a ganda
and
B: really haven't a clue

This is an exercise in futility but here goes any old way.

Regulations (such as they are) are there to do more than hobble profits.
We don't need our profits hobbled that you very much.

Your current recession/credit crisis is caused by deregulation,
Wrong just the opposite, if you don't know mebbe monkey will splain it to ya

much like the credit-crunch was caused by the S&L deregulation.
gawd you people are shills, it WAS the govt that caused the S & L thing

Do you seriously think that corps can see past the
end of their noses (profit) or even care to do so?

Having owned one, yes and the purpose of a business it to make a
profit it isn't a welfare scheme.

I suppose that giving free rein to the market, no holds barred,
would fit well into your dream of the great fascist state.

That comment is just off the hook crazy! And wrong.

 

[MrBishop]

OK

Just remember, tax cuts are not expenditures. They are not even lost revenue. The dollars that are saved by the earner/investor will put people to work.

Tax cuts are not expenditures..they are cuts in revenue for the gvt.

That last statement is a falacy. You are assuming that the earner/investor will spend every dollar saved (100% re-investment), when, especially in a recession, earners/investors are far more likely to NOT spend or invest but will instead bank the difference.

You might get 10-15% of savings re-invested, but the Reagan-esque trickle-down theory didn't work then and certainly wouldn't work now.

 

[ResearchMonkey]

You might get 10-15% of savings re-invested, but the Reagan-esque trickle-down theory didn't work then and certainly wouldn't work now.

10-15% for a minute maybe, once a real recovery begins people spend lots trying to catch the wave and ride it back up. -- a wave of production and private infrastructure = $$$$ and tax revenue

Recovery is the time to spend, you build up your business in hopes of catching as much of your market as you can.

So Bishy, are you saying you approve of the track the US has been following under Obama?

 

[MrBishop]

Investors are notoriously hesitant in trying to catch the wave, as you call it... there might be a few early-adopters, but most will try and catch the wave long after it's passed through..which is why you saw a lot of layoffs but few recalls. Granted, a depression is the perfect time to invest in marketing and R&D.. place your company's name top-of-mind for when the recovery begins and be ready to capture market-share with new products, but marketing and R&D are far too often losers when it comes to employment. They're cash sinks as far as many CEOs are concerned. In point of fact, this kind of market is the best time to head-hunt marketing people, and R&D geeks. When your competition is laying them off, your HR people should be snatching them up and thus get an edge and inside information of the competition. In addition, you get more loyalty from the people you hire in bad times.

The track you've been following was pre-determined by both the previous administration and by the limited choices/tools that can be used to turn around a market. Low interest rates for borrowers and an artificially depressed inflation are two of the biggest tools being used right now. The former is there to prompt production and infrastructure work. The latter to help consumers maintain their spending habits.

There have already been tax cuts to the lower and middle classes. There are programs in place to help small businesses open and others to stay open. Programs to help people keep their homes and avoid bankruptcy. Many of these programs are great steps toward recovery.

There have been a few mis-steps by the Obama Adminitration. Nobody's perfect. Some timing issues (The Health insurance initiative coming too early) - but for the most part, I'd say that it's done a fairly good job thus far.

It's a bit early in the game to see how the full brunt of the initiatives will bear fruit. Some aren't even in play yet as far as I know.

 

[ResearchMonkey]