Market crash: are we there yet ?

[xort]

Wages are not down, they are up in 2007.

[Rickm505]

Here's our "Solid Economy" Sailaway. At some point you are just goint to have to concede on this subject

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Thu Jan 17, 8:49 AM ET

CLEVELAND (Reuters) - Cleveland Federal Reserve Bank President Sandra Pianalto said on Thursday the economy has shifted to a lower growth track given restraints led by weak housing prices and falling equities prices.
"The residential real estate market still appears to be in freefall," Pianalto said in remarks to the Association for Corporate Growth, her first comments on the economy in three months.
"We are also seeing a related slowing in consumer spending, perhaps in response to reduced household wealth. Tightened credit market conditions could also hinder economic growth this year for both businesses and consumers," she said.

Jan. 17 (Bloomberg) -- Manufacturing in the Philadelphia region contracted more than forecast in January to a six-year low, adding to evidence factories are throttling back as the economy slows.
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Jan. 17 (Bloomberg) -- Builders in the U.S. broke ground in December on fewer houses than forecast, making last year's decline in homebuilding the worst in almost three decades.
The 14 percent decrease to an annual rate of 1.006 million, the lowest since 1991, followed a 1.173 million pace the prior month, the Commerce Department said today in Washington. For all of 2007, starts were down 25 percent, the biggest decline since 1980, to 1.354 million.

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Hello Sailor. This is the short version. Google it and the explanations will be much clearer. I see two scenerios where this will severly hurt the USA.

Iran as of the middle of December refuses to accept USDs for oil. Euros only... Venezuala will follow suit if they haven't already. If, and I say IF... the rest of the oil producing states follow this lead it will mean that for the first time ever in modern times, the USD will cease to be the reserve currency of choice.

And... China is holding $1.5 trillion USD. Their oil deal is in place with Iran and African producing states. If they dump USDs our currency will plumment much further than is has already. Yes this makes our products cheaper abroad. But...what is it that we actually make these days? Not enough.

Instead what will happen is that Foreign investment in the USA will stop instantly. The reason is simple economics. It makes no difference if these investors buy US bonds or stocks and reap a 4% to 8% reward if our currency decreases by 10% or more. It would be a net loss on the investment.

Foreign investment is now the only thing offsetting our budget deficits and trade imbalances. If this stops, we are dead. Inflation will be 20% per year as the Treasury prints money to offset the deficits, much like what happened in the late '70s through the mid '80s.

[Rickm505]

Originally Posted by hellosailor

I just don't understand the assumptions of supposed Economists. If they really knew what they were doing, I can't believe The Economy would constantly be in such trouble. The basic premises are not always logical, much less proven valid.

I agree. Perhaps we can start by passing a law that prevents any employee of Goldman Sachs from becoming US Treasury Secretary? I think the last two were quite enough. Also we should probably find a way to prevent Ben Stein from appearing on any TV show outside the Mickey Mouse Club.

[hellosailor]

Rick, neither one of us is that naive.

What Iran and Venezuela do or don't do, is politics not economics. Both of them are openly hostile to the US and both of them openly "goad the tiger". Refusing to accept US dollars must be an especially sweet way for them to goad us. Neither one is what one might call an outstanding example of a mature or stable nation or government.

When I don't need what a store is selling, i don't buy anything from them. That's got nothing to do with the larger market value of what they are selling--or whether I'll be buying something from them next month or next year. I won't be grocery shopping today, but I still value the groceries. I just don't need more of them today. Does that change their value? No, not really. And even if they have a sale--that would be their mistake, devaluing their own goods in order to get me in today, when I'm going to be back there next week anyway at full price.

[Idiens]

Originally Posted by Rickm505

Iran as of the middle of December refuses to accept USDs for oil. Euros only... Venezuala will follow suit if they haven't already. If, and I say IF... the rest of the oil producing states follow this lead it will mean that for the first time ever in modern times, the USD will cease to be the reserve currency of choice.

Hmmm... Didn't Iraq try that trick before it got invaded?

[Rickm505]

Yes Iraq did and is probably one of the real reasons we invaded. Countries have been forced to keep large balances of USDs on hand to pay their oil bills. If they no longer need to do this... they won't. This kept our currency stable.

Whether this happens or not is quite frankly besides the point. Our domestic economic policies to this point have exposed us to this possibility. Regardless of who was occupying the White House.

Most of those economists who wrote paper after paper on Free Trade have disappeared. The results are in. It doesn't work unless you are a multinational company.

Free Trade means some countries win (those with cheap labor or resources) and some lose (everybody else). If you are a corporation in both countries, you reap the benefits and could care less what the unemployment rate is in the losing country. Unfortunately.. I do care.

[Rickm505]

Originally Posted by hellosailor

What Iran and Venezuela do or don't do, is politics not economics. .

??????????????? I'm lost here. If oil producing nations refuse to take dollars for their product, what is it that you think will happen???

There are some excellent articles on this subject in both the New Republic or the New York Times, pick your poison.

Regardless of the political slant of the writing in the above mentioned publications, the conclusion is the same. It's declaring economic war on the USA. It will damage our economy. I's also one of the secondary reasons Neocons were trying to redraw maps in the middle east. That is it was plan "B" if they couldn't grab the oil itself. They are still working very hard on plan "A"

[wind_magic]

Originally Posted by hellosailor

Rick?

So how is it a bad thing, that they have lots of dollars that no one can use except (ultimately) here? And shouldn't that ultimately make us "rich", since we have lots of stuff that someone will need to buy--or, lots of paper money that someone will have to throw away, unredeemed?

I just don't understand the assumptions of supposed Economists. If they really knew what they were doing, I can't believe The Economy would constantly be in such trouble. The basic premises are not always logical, much less proven valid.

The economy isn't out of control.

Look, I hate to be the one tell you this.

Here is one possible explanation that fits the data.

Situation: You have a country that gets attacked, and you decide you need to go to war, but you know your people aren't going to support it. You've promised not to raise taxes and know that the people are going to be really pissed if you raise taxes for a war they are divided about in the first place, so raising taxes is out, but you have to pay a lot of money to fight a war. On top of this you have domestic problems too, you have an older population all retiring soon with their nest eggs and you know there is no way in hell that the few young people you have in country are going to be able to work while a huge percentage of the population sits around ordering margaritas and watching the sun go over the horizon. If you don't do something to transfer wealth your social network is going to implode. Thirdly you have the sympathy of the leaders of the world who want to help but their populations won't allow them to commit troops.

What do you do ?

Here, I will give you an idea about it. Below is a chart of gold, the universal currency, for the period in question. Note that gold starts moving up mid-2002 and breaks out of it's trading range in mid to late 2002 and really takes off in 2003. What was happening then ? Not September 11th 2001, that barely even affects the chart. And why is gold going up ? And why does everything else start going up at the same time including lumber, cows, foreign currencies, and all the rest ? And why is it all STILL going up ?

Do you remember the President standing up on television saying he wasn't going to raises taxes to fight a war ? Do you remember all the economists and people on television at the time saying that taxes had to be raised to do it ? Do you remember all those world leaders saying they'd like to help but that they couldn't commit troops ?

You can't fight a war without either A) raising taxes, or B) borrowing from willing lenders i.e. inflation

CLICK HERE TO VIEW CHART (it's too wide to post without messing up the thread)

[camaraderie]

Windy...Only flaw in that argument is that you seem to feel that raising taxes= raising the % charged to citizens.
Actually tax revenues are what support the war and social programs and thanks to low tax rate policies initiated by Bush/Congress...the incoming tax revenues have been at all time highs due to economic activity such rates generate. The problem has been uncontrolled spending (not just for war) not taxes that are too low.
I am NOT disagreeing with the debasing of our currency or the fact that our economy is in trouble...but higher taxes is not the answer.

[hellosailor]

"I'm lost here. If oil producing nations refuse to take dollars for their product, what is it that you think will happen??? "

First off, again, let's not confuse the issues. Iran and Venezuela could just as easily say outright "We refuse to sell oil to you" but that could lead to escalations like war, or trade embargoes, or naval blockades. So instead they say "we refuse to take dollars" and force US buyers to play currency exchange games and lose a percent on the trade. BFD.

But as to what I think will happen? I know what is going to happen, the only question for the past fifty years has been WHEN it will happen. The US will begin investing in synthetic fuels and alternate fuel sources. When will this happen? When either oil in the ground runs out, or oil costs hit $5/gallon for the refined fuel product--at which point existing synfuel processes become eocnomically viable. And make no mistake, the only reason OPEN doesn't charge enough to force $5/gallon pump prices, is because they know the same thing. Make it worthwhile to build fuel instead of shipping it in, and they'll kill the goose that's laying the golden egg.

As an economic decision, it pays for us to keep buying fuel stocks from them. As a LONG TERM economic decision, it probably pays for us to abandon them NOW and ramp up our own independent energy production. You'd need some fancy analysis to guestimate the exact price point. Tell them to go pound sand, and let the Chinese exhaust the rest of the petro stocks. Because no matter how you slice it--they will be gone, and then whatever alternatives we have, will be the new petroleum that someone else "must" buy.

While the endgame is being played out, I'll bet you see $5/gallon pump prices in the US for about a year, followed by a massive investment in synfuels, followed by a price DROP back to $4, which forces those plants into bankruptcy. At which point someone buys 'em up cheap...and the game is on again. The Saudis are masters at long-term gaming.

It would be real handy to have a couple of billion in unredeemed US dollars under the mattress when the time comes to snap up those bankruptcy assets, the synfuel plants, the coal mines, the garbage and offal rights. (Which are the alternate feed stocks for synfuels.)