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U.S. Economic Crisis - All Things Related


lockmat

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I'm hopeful about the highway thing -- if it's done right. There are portions of the American freeway network that are atrocious. Of course, with one hand he's talking about expanding highways and with the other telling us we need to wean ourselves off of oil. If he was serious about putting together a cohesive transportation policy, he'd include a rail element.

The internet stuff is nothing new. Bill Clinton promised that exact same thing. Remember how all public buildings were going to be connected to the "Information Superhighway?" The plan went away when there were too many TV reports about schools hooked up to the internet that couldn't afford computers and schools where the kids had computers, but not desks and chairs and books.

I don't think installing new light bulbs will create all that many jobs.

Again, the stimulus thing might be good, but it should be broader. It should be more like the WPA, which created a diversity of items from bridges to parks to poetry.

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I'm hopeful about the highway thing -- if it's done right. There are portions of the American freeway network that are atrocious. Of course, with one hand he's talking about expanding highways and with the other telling us we need to wean ourselves off of oil. If he was serious about putting together a cohesive transportation policy, he'd include a rail element.

The internet stuff is nothing new. Bill Clinton promised that exact same thing. Remember how all public buildings were going to be connected to the "Information Superhighway?" The plan went away when there were too many TV reports about schools hooked up to the internet that couldn't afford computers and schools where the kids had computers, but not desks and chairs and books.

I don't think installing new light bulbs will create all that many jobs.

Again, the stimulus thing might be good, but it should be broader. It should be more like the WPA, which created a diversity of items from bridges to parks to poetry.

I know traveling to Arkansas this past year, 59 north is horrible.

But yes, I'm very interested in knowing how much trains and public transportation will be involved.

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Again, the stimulus thing might be good, but it should be broader. It should be more like the WPA, which created a diversity of items from bridges to parks to poetry.

I notice that most of what Obama is proposing is an investment that is intended to promote productivity growth. If he's giving us a kind of mission statement, here, then the overall strategy seems like a good one. These may not be very sexy avenues of investment, but they act to help the economy grow in the long term. Now realistically, I expect that very many of the individual projects that get undertaken won't even come close to penciling out in a realistic cost-benefit analysis, but the strategy is sound.

In contrast, parks and poetry are clearly intended as straight consumption items that will never feed back into higher economic output or tax revenue. They aren't going to help us pay down the massive burden of entitlements for baby boomers.

Another thing: many of the projects undertaken back then were intentionally constructed very inefficiently. There are buildings in Houston from that era where not a single window frame was set to the same dimensions. This was done to increase the employment numbers required and delay the completion of the project.

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If it is true and it really happens that this will be the "single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s," then, wow.

Some info I've found on that:

June 29, 1956. On this day the Federal-Aid Highway Act of 1956 set things rolling. $25 billion was earmarked for the project. Over 41,000 miles were planned, all with the following design standards:

a minimum of 2 lanes in each direction

a 12 foot width for each lane

right paved shoulders of 10 feet in width

design speeds of 50 to 70 mph

------------------------

While the initial cost estimate was $25 billion for building 41,012 miles of interstate over 12 years, both the costs and the necessary construction time climbed. By the early part of this, the 21st, century over 42,000 Interstate Highway miles had been completed at a cost of $129 billion. And new construction continues, but now on a much smaller scale.

-----------------------

The initial cost estimate for the system was $25 billion over 12 years; it ended up costing $114 billion (adjusted for inflation, $425 billion in 2006 dollars[14]) and taking 35 years to complete

-----------------------

Sources:

http://www.loti.com/fifties_history/1950s_...hway_system.htm

http://en.wikipedia.org/wiki/Interstate_Highway_System

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More numbers thrown around by the economists.

http://www.chron.com/disp/story.mpl/business/6157114.html

I looked at the Bureau of Labor Statistics numbers last week. Though the two numbers that are always reported are the layoffs (533,000 in November) and the unemployment rate (6.7%), if you look at the number of unemployed/part-time/not looking for work but would like to numbers, 1 in 8 workers or wannabe workers is out of work or can only find part-time or under-employment. And all predictions are that it gets worse through at least March.

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  • 3 weeks later...

This statistic is a little frightening...

Thirty-six buildings totaling 7.68 million sq. ft. are currently under construction. Of these, eight buildings consisting of 1.73 million sq. ft. (22.5%) are build-to-suit projects, while the remaining 5.95 million sq. ft. (77.5%)

(from CBRE's office outlook report)

Also...

Seventeen buildings were planned to deliver this quarter; however, only nine buildings, or 1.25 million sq. ft., were completed with 238,000 sq. ft., or 19.1%, having been leased. No office construction broke ground this quarter and it is anticipated that very few proposed projects, if any, will commence during 2009.

Also...anyone know where the healthiest market(city) in the US is right now? Any predictions who it will be in 8-12 months?

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Thanks for posting that Brian.

My question is, when will the breaking point be? If the current deficit hasn't made the govt. crumble , when will it? Is it a magic number? I think part of the reason the govt is so irresponsible with the money is they have never seen any real consequences. This video says our debt is the scariest thing behind a terrorist with a nuclear weapon, but how so? Look...we're still here. Sure we're in a recession now, but most people seem to think we'll pull out of it. I'm not saying it's not going to bite us in the butt, but it's almost like the fiscal conservatives are crying wolf. If the nation has only not had a surplus once, what makes anyone think we're actually going to go under now? To me, it's almost all a lie. Will it be when a country we haven't paid back is fed up and decides to attack us? This is an honest question. If we're really in trouble, when will we see this trouble? In what form will it take place?

Another question...anyone know of a website that shows all countries and their deficits/surplus'? How many other countries are in a similar problem?

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Thanks for posting that Brian.

My question is, when will the breaking point be? If the current deficit hasn't made the govt. crumble , when will it? Is it a magic number? I think part of the reason the govt is so irresponsible with the money is they have never seen any real consequences. This video says our debt is the scariest thing behind a terrorist with a nuclear weapon, but how so? Look...we're still here. Sure we're in a recession now, but most people seem to think we'll pull out of it. I'm not saying it's not going to bite us in the butt, but it's almost like the fiscal conservatives are crying wolf. If the nation has only not had a surplus once, what makes anyone think we're actually going to go under now? To me, it's almost all a lie. Will it be when a country we haven't paid back is fed up and decides to attack us? This is an honest question. If we're really in trouble, when will we see this trouble? In what form will it take place?

Another question...anyone know of a website that shows all countries and their deficits/surplus'? How many other countries are in a similar problem?

A government entity is not run in the same way as a private enterprise, does not use the same accounting rules, and is not subject to the same legal treatment.

If you default on a note, your creditor has a right to repossess your assets. If the government of Chad defaults on its debt to Saudi Arabia, the Saudis shrug and stop lending to Chad. Nobody invades anybody over unpaid foreign debt. It does not happen. Look at how much it has cost the world's largest superpower to invade Iraq for the purposes of ousting a dictator and setting up a democracy; how long would it take for us to recoup the expense of war (probably a much longer and bloodier war) much less foreign debt that was defaulted on by even a country rich in resources!? It just doesn't make sense.

The consequence of too much foreign debt is that demand for our debt declines and that interest rates must go up in order to entice continued debt issuance at high levels. As interest rates increase, it looks less attractive to borrow money than it does to tax our own citizens and so the government borrows less and taxes more to pay its bills. Ceteris paribus, it makes us somewhat worse off. At the Federal level, seigniorage is also an option, which basically makes everyone's Dollars worth less in real terms, has the short-term effect of stimulating consumer spending, screws owners of debt and rewards those that owe debt.

One way or the other, however, the citizens of the United States should not concern themselves with the government going bankrupt (it'd only print more money--because it can) or with another country invading us in some kind of militaristic repo scheme (because the repo would be more expensive than the repoed assets). There are plenty of other related and valid concerns; these aren't among them.

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Debt as percentage of GDP

The problem with that list, however, is that it is from 2007. The crisis exploded in mid 2008. The US debt, for instance, was up to about 69% BEFORE the bailouts started. It is probably over 80% now, and likely will exceed 100% by the end of 2009.

Yep. And look who is #3 on that list... Japan. Another picture... showing "total" US debt as % of GDP...

usdebt.serendipityThumb.jpg

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Sure we're in a recession now, but most people seem to think we'll pull out of it.

Actually, most people do not think about it, or have the mindset that the US is some sort of magical economy that cannot be defeated. 25 years of free credit will do that to you. But, credit is still tight, housing starts are plunging, credit limits are shrinking, and a consumer driven economy that needs cheap credit to continue functioning will contract as long as those realities continue. The fact that you may hear some people talk as if the recession is not hurting them does not mean that it is true. There have been numerous polls over the years showing that most people lie about their financial well being. In a country that has tied self worth to net worth, it is not hard to figure out why. Most of the big effects on consumers are less than 6 months old. It will take a while before the new austere reality sets in.

That said, we probably will pull out of it, but we will look different once we do.

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Actually, most people do not think about it, or have the mindset that the US is some sort of magical economy that cannot be defeated. 25 years of free credit will do that to you. But, credit is still tight, housing starts are plunging, credit limits are shrinking, and a consumer driven economy that needs cheap credit to continue functioning will contract as long as those realities continue. The fact that you may hear some people talk as if the recession is not hurting them does not mean that it is true. There have been numerous polls over the years showing that most people lie about their financial well being. In a country that has tied self worth to net worth, it is not hard to figure out why. Most of the big effects on consumers are less than 6 months old. It will take a while before the new austere reality sets in.

That said, we probably will pull out of it, but we will look different once we do.

A good 50% or more (my estimate) of the news outlets seem to be reporting that things are stabilizing and could get better in 2009.

I agree, that we have not seen the worst of this and things are going to get MUCH worse before they get better.

Combined with the fact that gasoline is getting more expensive (up 12 cents in the past 2 weeks) and we're in for a roller coaster ride. The DOW seems to be a bit more stable, but even it's up and down daily.

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Found this chart on wikipedia. Sorry for my ignorance, but this is basically who's lending us money, right?

A couple other questions:

1. Does a country need a surplus in order to lend money? Even though in debt, can/does the US lend? If able to, how is that possible?

2. Why would a country lend to the US? I guess they're banking on the fact that we will eventually pay them back, and b/c it will take so long, the added interest will surely give them a boost?

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A good 50% or more (my estimate) of the news outlets seem to be reporting that things are stabilizing and could get better in 2009.

I agree, that we have not seen the worst of this and things are going to get MUCH worse before they get better.

Combined with the fact that gasoline is getting more expensive (up 12 cents in the past 2 weeks) and we're in for a roller coaster ride. The DOW seems to be a bit more stable, but even it's up and down daily.

Two things are happening though. The worst of the financial panic seems to have passed. Credit indicators are improving daily and for some numbers are nearing pre-crunch levels. The past couple of weeks have seen huge drops in CDS prices and spreads for lower grade credits have also improved markedly. This seems to indicate that bank lending will start to free up.

All that said, the "traditional" recession trailing the financial panic may not be near bottom yet. In general though policy makers are probably more confident about the playbook for dealing with a recession than they were with the panic, which was new ground. The bad news is that recessions following financial crises tend to be deeper and last longer, but it is still too soon to make an assessment here.

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Now this is depressing:

From the Fed's Beige Book survey:

Commercial real estate transactions in the Dallas District (which includes Houston) have reportedly ground to a halt.
Construction-related manufacturing contacts in the Dallas District reported that demand from commercial construction is shrinking rapidly.
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Found this chart on wikipedia. Sorry for my ignorance, but this is basically who's lending us money, right?

A couple other questions:

1. Does a country need a surplus in order to lend money? Even though in debt, can/does the US lend? If able to, how is that possible?

2. Why would a country lend to the US? I guess they're banking on the fact that we will eventually pay them back, and b/c it will take so long, the added interest will surely give them a boost?

1. A government can allocate its resources in any way that it decrees to be legal. Lenders to governments are typically private enterprises, and insofar as private enterprises do not consider there to be any material default risk or inflation risk as a consequence of lending during a deficit, the only consequences are relatively minor market distortions. Most assuredly, too much government lending could conceivably induce a deficit or worsen it, and possibly to the point at which private lenders to the government would re-evaluate risk on the basis of such a policy. But the odds seem really remote, barring some kind of gross/blatant/malicious/criminal fiscal mismanagement on the part of a government.

2. There are several contributing factors. A) For third-world countries, we are the debtor of first resort. Notes issued by the U.S. Treasury are considered to be the safest kind of investment there is with essentially negligible default risk or political risk. Unless the governments of those countries intend to do something we don't like, we usually don't freeze or nationalize assets; we don't have coups; and because the economies of many third-world countries either use US Dollars or peg their currency to the Dollar, unpredictable currency exchange rates aren't as much of a factor. B ) China, specifically, is propping up the value of the US Dollar. This is part of their national policy. A stronger Dollar makes goods denominated in foreign currencies appear less expensive to U.S. consumers, enticing us to purchase more of their goods and services. In so doing, China has a larger market for its goods, justifying industrial expansion, and U.S. consumers benefit by way of less expensive goods. Very few countries are large enough to have the leverage that China has. Such a strategy would be ineffective if carried out by a smaller economic power. C) Some countries purchase U.S. debt as a hedge against their own economic circumstances. Oil-rich countries, for instance, which endure highly volatile cycles of feast or famine are huge purchasers of U.S. debt. They use it as a sort of national savings account. D) The most important thing about foreign debt is that most of it is not issued to government entities, but instead to private entities. Their motive for buying our debt is essentially the same as the private domestic entities that purchase the majority of U.S. debt.

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  • 2 weeks later...

Man, when porn, gambling, booze and cigs are hurting, you know times are tough.

http://articles.moneycentral.msn.com/Inves...ers.aspx?page=1

Actually, the headline is slightly misleading, as booze and cigs are still selling, but people are swilling the rotgut booze instead of the good stuff these days. And, though it is not setting the world on fire, my Altria stock is trading 14% higher than when I bought it. Financing my smoke habit with my stock dividends...now that's living! :)

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Man, when porn, gambling, booze and cigs are hurting, you know times are tough.

http://articles.moneycentral.msn.com/Inves...ers.aspx?page=1

Actually, the headline is slightly misleading, as booze and cigs are still selling, but people are swilling the rotgut booze instead of the good stuff these days. And, though it is not setting the world on fire, my Altria stock is trading 14% higher than when I bought it. Financing my smoke habit with my stock dividends...now that's living! :)

The phrase 'flight to quality' in the context of Rick's is the funniest thing I've read all day.

Me, I quit smoking, so now I have more money for drinking and porn. Priorities, you know!

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A moderator asked everyone to keep this on-topic, yet some people decided to keep on chatting off-topic. Those posts have been deleted. More posts will be deleted if you can't keep it on time. You're just wasting your own time.

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The Q4 GDP estimate is preliminary only and there seems to be some expectation that it will be revised downward in February.

The bad news about the inventory build up is that is means production cuts are likely this quarter.

On the positive side of things, a couple of leading indicators are starting to trend upwards, albeit very feebly and from low bases. It's still way too soon to be ringing bells about it though - there are too many risks on the downside.

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