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Post by Klipkap on Aug 4, 2011 20:27:19 GMT
My view of the latest international economic developments takes on board the following realities. Without them, I can’t make sense of most of it: 1) The national debt of Greece per capita and per GDP unit, is very similar to that of the USA. In other words, the USA’s financial position is roughly equivalent to the bad kid on the Euro block. I am not pointing fingers; I am just looking at the raw facts. I did the math. Extrapolate what you wish. In terms of total IMPACT, the economy of Greece is roughly that of North Carolina. 2) Greece took off when the Euro became the common currency. In the subsequent ten years she has obviously been unable to manage her new-found wealth. The same might happen to Spain, Portugal and Italy. They need financial controls appropriate to the Euro-zone and not the slack systems relating back to the pre-Euro Latino eras when you covered your arse by letting your currency crater (Lira; Drachma; Peseta; Escudo, etc). 3) The USA debacle is MUCH older. It dates back to the first oil crisis in the mid-1970s and was turned into a national disgrace by Reagan (NOTE: not Carter). Take a look at this Wiki chart of the US debt. Look again if you live there, because it encapsulates huge amounts of very pertinent US history:  4) This graph tells us that the US has been maintaining its lifestyle for over 30 years by borrowing. It also tells us that the only president to do anything sensible since the oil crisis was Clinton. Then Dubya came along. He undid all of Clinton's good efforts (besides undoing a huge amount of other things). And then came 2008. NOTE: I did not write "And then came Obama". 5) Obama made 2 huge mistakes. a) He did not remind Americans every week (as Reagan did) that in his first two years he was wading through the goop left by his predecessor (like the US property finance debacle ... what's it called, Fanny something), and b) he didn't fix the Dubya disasters before embarking on his own implementation of Utopia. The BBC got it dead-wrong tonight. The cratering of the DOW/SPX has nothing to do with Euro-worries. What is has to do with is that America is deep in the poo-poo if it can't borrow money to finance its lifestyle, and even deeper, when it has to start paying off its "Credit Card debts". The investing public can't see where the Nania-style growth is going to come from in the next 5 years. Nor can I. I am short on ETFs. But we could have predicted this 6 years ago. That Is why I still play meleers and my 64-year old brain has more trouble with spell book management than with economic realities. |
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Post by FunkySwerve on Aug 4, 2011 20:43:07 GMT
While I think your comparison of the US to Greece is inapt in many ways - they've been leading the life of riley with regard to working hours, benefits, and retirement - I think you're dead on about the debt. 30 years of supply side policy have left us in a massive demand hole, with productivity making massive gains and nearly all of the resulting GDP from those gains going to the top 1% of the nation's wealth-holders. We have the capacity to produce FAR more than we currently demand, as a result. For a while, that 'demand gap' was being filled with debt spending, but credit is tightening up and too many households are underwater right now for that to last much longer. Until we see some serious stimulus spending on the order of WWII to stimulate demand, we're going to continue to see see economic stagnation. Which, of course, is what the republicans were after, and why the market is continuing to crap out. Boehner gets 98% of what he wanted, and the rest of us get screwed.
Funky
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Post by shardelay on Aug 4, 2011 21:30:56 GMT
1) The national debt of Greece per capita and per GDP unit, is very similar to that of the USA. In other words, the USA’s financial position is roughly equivalent to the bad kid on the Euro block. I am not pointing fingers; I am just looking at the raw facts. I did the math. Debt as a percent of GDP is apples to oranges. Debt is a fixed amount TODAY, GDP is over a year. For example, find the average responsible person with a reasonable mortgage. I'll make up some numbers here as an example. Say you earn 100k per year. You buy a 250k$ house. You put 20% down on that house (50k), you take out a 200k mortgage. This mortgage costs you 1500$ a month to service. Your 100k per year is (lets wave our hands) 65k after taxes (35% bracket to be aggressive). That means you make 5400$ per month after taxes adn you pay 1500$ a month to pay off your mortgage. In this example, your debt is 200k, and your income is akin to your gdp, which is 65k. Your debt per gdp is 200/65, or about 307%. The number being bandied about for debt to gdp as a talking point is 100%. This is meaningless because 1 year is arbitrary. If we talked about GDP in terms of 6 month measurements, then debt to gdp would be doubled. What is more meaningful is the 1500$ payment vs the 5400$ income. In that case, it costs you 1500$ to service your debt. This is 28%. The Congressional Budget Office estimates that net interest on the debt would be $225 billion for fiscal year 2011. www.cbo.gov/ftpdocs/120xx/doc12039/01-26_FY2011Outlook.pdf That is about 1.5% depending on GDP estimates and is the lowest it has been in any time since the 1970s. Why? Because rates are so low right now. Is this an argument that we dont have too much debt? No, not at all, in fact I think the gvt has too much debt, however any argument abotu how much debt is too much debt needs to include figures on the cost of servicing the debt today as well as tomorrow as a % of gdp. Never mix oranges with your apples. 2) Greece took off when the Euro became the common currency. In the subsequent ten years she has obviously been unable to manage her new-found wealth. The same might happen to Spain, Portugal and Italy. They need financial controls appropriate to the Euro-zone and not the slack systems relating back to the pre-Euro Latino eras when you covered your arse by letting your currency crater (Lira; Drachma; Peseta; Escudo, etc). I'm not sure that analogy holds true. I don't have the figures at hand right now, so i'd be interested in being proved wrong, but my impression was that greece's issue was more along the lines of how that debt was spent and why the gdp wasnt higher. i.e. retirement for hairdressers as hazardous empoyment, very low retirement ages, and massive tax fraud. I'm up for education on this front. The BBC got it dead-wrong tonight. The cratering of the DOW/SPX has nothing to do with Euro-worries. What is has to do with is that America is deep in the poo-poo if it can't borrow money to finance its lifestyle, and even deeper, when it has to start paying off its "Credit Card debts". I am afraid you are dead wrong on this one. This is all about Europe. For all the bad debt, the bad economy, and the utterly appalling politics that are happening in the us, it is just a shadow of the slowly moving disaster that is Europe's economy. US CDS's aer 55bps right now, Greece's CDS's blew out again today by 1.9% to 1735bps and ireland bumped by .7% to 842bps. The cratering is happening due to the concerns that the economic (not the systemic) fallouts from a real european collapse will impact the us. European banks lead this crash, they are still undercapitalized. They have massive amounts of PIGS paper on their books at par, which is a joke. They never marked down like the US banks were forced to do in 2008. The rest of the market followed. Trichet, this morning, offered banks unlimited money for 6 months and extended existing liquidity measures. This is an attempt to avoid a lehman situation, wehre the new lehman is southern european banks. Europe is screwed. We followed europe imediately on teh open, but we didn't gap down. The CAC is dow 3.9% today, DAX is 3.4% (10% on the week). The dax is off another 2.2% in the european post market while the us was open. It will open down tomorrow. Even gold came off today on the general de-risking that we saw. Everyone is leaving stocks and entering treasuries. This was a severe, but orderly down day, there was no flash crash here. Plain and simle this is a liquidation of equities and commodities. 10 year treasury notes are down 20bps to 2.43% today and 30yr dropped 22bps to 3.69. Teh 10 year right now is 4.3% below the average over the past 49 years when Eisenhower began his administation. Yield was as low as 2.41% today, the record low was 2.04 in 2008. This is not the us. The debt ceiling, while it was a potentially real issue, was a massive red herring. Europe, and what happens the the Euro is the story. The US is just trying to get out of the way. |
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Post by dragonledak on Aug 4, 2011 22:12:35 GMT
This is depressing the hell out of me, while I am glad for this information I thought I would lighten the mood with this video on while Anarchy will always fail. (out of sync but still funny)
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Post by FunkySwerve on Aug 4, 2011 22:27:19 GMT
I am afraid you are dead wrong on this one. This is all about Europe. I'm not really buying this, either. Some of this has to be reaction (and, indeed, over-reaction) to the US debt ceiling deal signing. Europe has been going on for quite some time, now. Indeed, the CNBC commentator just now did put Europe first in the discussion, but noted weak US demand as well, and companies hanging on to their money or investing where there IS demand - overseas. Funky |
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Post by FunkySwerve on Aug 4, 2011 22:28:06 GMT
This is depressing the hell out of me, while I am glad for this information I thought I would lighten the mood with this video on while Anarchy will always fail. Please stay on topic. Thanks, Funky |
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Post by gandoron on Aug 4, 2011 22:36:49 GMT
I pick my arguments with Shard very carefully. LOL.
-G
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Post by dragonledak on Aug 4, 2011 22:37:31 GMT
Sorry thought it was sort of on topic because their was mention to anarchy and it's problems, but I guess uncanny was off topic too then?
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Post by tomaan on Aug 4, 2011 22:55:28 GMT
I don't think it's appropriate to draw that conclusion based on that graph.
For example, Bush I's budget fight with Congress in the late 80s shutdown the Federal government. In the end, he "caved" and broke his "no new taxes" by signing the budget sent to him by Congress.
When the economy took off in the 90s, those taxes generated much of Clinton's surpluses.
Furthermore, our aging population and extended life expectancies have put a strain on our entitlements, which is a major contributor to public debt.
You also can't ignore the cost of disaster relief and the financial bailouts, not to mention our many unfunded wars.
Lastly, and this has been mentioned earlier, the President can't do anything without Congress - it's not really fair to blame him soley for our debt or our deficits.
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Post by FunkySwerve on Aug 4, 2011 23:32:44 GMT
Sorry thought it was sort of on topic because their was mention to anarchy and it's problems, but I guess uncanny was off topic too then? In the extreme, yes. I figured shard's remark covered what needed saying there, though, so don't feel set upon.  Funky |
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Post by shardelay on Aug 5, 2011 0:42:55 GMT
I am afraid you are dead wrong on this one. This is all about Europe. I'm not really buying this, either. Some of this has to be reaction (and, indeed, over-reaction) to the US debt ceiling deal signing. Europe has been going on for quite some time, now. Indeed, the CNBC commentator just now did put Europe first in the discussion, but noted weak US demand as well, and companies hanging on to their money or investing where there IS demand - overseas. Funky What overseas investing is that? The entire world is derisking right now. The dirty truth in any discussion of WHY a marked moved is that any explanation is just a best guess/rationalization, so there isn't a right answer to this. But the evidence is pretty heavily weighted in this case towards this being europe. If this was a reaction to the US issues, why did treasury notes move the way they did, why did CDS's in europe move the way they did vs sovereign debt insurance in the us, and why did europe's equity markets lead the rundown and then continue on after the us closed. Don't misunderstand me, I'm not suggesting the US is strong, I'm just suggesting that europe's debt and currency issues are leading the way, and the result is that the US will become the least bad alternative. But, any way you cut it, today was a bloodbath. |
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Post by FunkySwerve on Aug 5, 2011 2:26:01 GMT
What overseas investing is that? The entire world is derisking right now. Mainly in China, according to that analyst. Mind you, I have no idea if that's true - just one talking head's opinion. Funky |
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Post by shardelay on Aug 5, 2011 12:38:43 GMT
What overseas investing is that? The entire world is derisking right now. Mainly in China, according to that analyst. Mind you, I have no idea if that's true - just one talking head's opinion. Funky The shanghai composite index is down 3% right now. This is also one hugely crowded trade that many many people are getting out of all at once. NOONE thought treasury yields could get any higher, but everyone exiting all at once has had a huge move. All those folks who were long the yield got out yesterday - that's alot of money that will need to go somewhere. Also, check out the unemployment and payroll numbers that just came out. HUGE numbers, US markets just gapped up by a percent. We'll see what happens. As a general rule, I find predicting the market to be a fools game, but it's informative to try and explain moves after they happen (though if anyone tells you they know the reasons for a fact - they are full of it) |
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Post by kaldair on Aug 5, 2011 14:45:03 GMT
I agree with bazukar, and have been thinking like this since the oil embargo, and the lack of a solution to that set of problems. I still find that whole lack of responsibility disgraceful and highly indicative of where we were headed - as has been born out by current realities ...
Kaldair =/
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Post by Deleted on Aug 5, 2011 14:55:50 GMT
It not only bears up, your scrutiny is proving my point. People are not mad at him for being the idealist that was the caricature he used of himself to get elected, people are upset at him for NOT being the idealist he claims to be. [quoteauthor=funkyswerve] That doesn't make any sense. You argued that the need to get reelected drove politicians to act like ideologues: The caricature is the appearance of idealism, of being an idealist; the reality is that Obama and almost every other Federal-level politician simply CANNOT get elected without support from the major lobbies and that support comes directly at the price of being the idealists/ideologues they paint themselves and each other to be. Those are the facts. I pointed out that this was nonsensical, because Obama has done the exact opposite, moving to the middle and governing as a pragmatic center-right leader, instead of adhering to liberal ideals. He isn't 'being the idealist/ideologue' he presented himself as - quite the opposite. Funky[/quote] That is what I am saying. He presents himself as one ideal and his political foes attack him for being that ideal; in doing so they present themselves as the opposite ideal. But neither side is either ideal- as you have pointed out. The only thing I am saying in addition to what you have said in this post, is that politicians are almost universally money-hungry liars who will present the image required to get elected and then turn around and simply act on behalf of the connections they have established to build their wealth and get elected in the first place. To give you a concrete point of reference to aim at, I think in the end, it all boils down to realpolitik over everything else. |
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