I don't think that's really true. With the exception of the lates 70s early 80s, post war America was realtively a golden age. If we restrict our attention to white males then this is doubly true. Now how much of the change in circumstance is due to the civil and women's rights movement I am not sure. Few people really want to investigate that, including myself. But demand curves do slope downward, so its hard to image that ending an effective cartel on certain types of work didn't hurt the cartel.

Things are changing. I had much of the perspective you are pushing throughout the 90s and even early into this decade. Now hopefully we are witness a second order effect and it will go a way on its own. But it may not and I think its important to take that possibility seriously.

1/1/2008 10:59:50 AM

Quote :

"... post war America was realtively a golden age ..."

Post WW2 was indeed a golden age for the middle class worker. America had the only production capabilities that weren't bombed out. The union movements were in full swing. You could raise an entire family from a single factory workers salary. Also, the GI bill moved vast amounts of the population toward higher levels of education. Of course, expectations were different. Most people raised their families in a 1000 sq. ft. house.

With globalization comes a shift toward requiring educated labor - because simiskilled labor is cheaper elsewhere. Wikipedia puts a lot of references in one place:

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

1/1/2008 12:42:21 PM

Interesting read with respect to foreign debt purchases & USA impact

http://www.ft.com/cms/s/6667a18a-b888-11dc-893b-0000779fd2ac.html

Quote :

"An Ottoman warning for indebted America By Niall Ferguson Published: January 1 2008 18:37 | Last updated: January 2 2008 08:07 Future historians will look back on the current decade as a turning point comparable with that of the Seventies. No, not the 1970s. This is not going to be another piece pointing out the coincidence of an unpopular Republican president, soaring oil prices, a sagging dollar and an unwinnable faraway war. I am talking about the 1870s. At first sight, the resemblances across 130 years may not seem obvious. The 1870s were a time when conservative leaders such as Benjamin Disraeli, British prime minister, were powerful and popular. It was a time of falling commodity prices, after the financial crash of 1873 and the opening up of the American plains to agriculture. And it was an era of currency stability, as one country after another followed the British lead by pegging to gold. Yet, on closer inspection, we are indeed living through a global shift in the balance of power very similar to that which occurred in the 1870s. This is the story of how an over-extended empire sought to cope with an external debt crisis by selling off revenue streams to foreign investors. The empire that suffered these setbacks in the 1870s was the Ottoman empire. Today it is the US. In the aftermath of the Crimean war, both the sultan in Constantinople and his Egyptian vassal, the khedive, had begun to accumulate huge domestic and foreign debts. Between 1855 and 1875, the Ottoman debt increased by a factor of 28. As a percentage of expenditure, interest payments and amortisation rose from 15 per cent in 1860 to 50 per cent in 1875. The Egyptian case was similar: between 1862 and 1876, the total public debt rose from E£3.3m to E£76m. The 1876 budget showed debt charges accounting for more than half of all expenditure. The loans had been made for both military and economic reasons: to support the Ottoman military position during and after the Crimean war and to finance railway and canal construction, including the building of the Suez canal, which had opened in 1869. But a dangerously high proportion of the proceeds had been squandered on conspicuous consumption, symbolised by Sultan Abdul Mejid’s luxurious Dolmabahçe palace and the spectacular world premiere of Aïda at the Cairo Opera House in 1871. In the wake of the financial crisis that struck the European and American stock markets in 1873, a Middle Eastern debt crisis was inevit able. In October 1875 the Ottoman government declared bankruptcy. The crisis had two distinct financial consequences: the sale of the khedive’s shares in the Suez canal to the British government (for £4m, famously ad vanced to Disraeli by the Rothschilds) and the hypothecation of certain Ottoman tax revenues for debt service under the auspices of an international Administration of the Ottoman Public Debt, on which European bondholders were represented. The critical point is that the debt crisis necessitated the sale or transfer of Middle Eastern revenue streams to Eur opeans. The US debt crisis has taken a different form, to be sure. External liabilities have been run up by a combination of government and household dis-saving. It is not the public sector that is defaulting but subprime mortgage borrowers. As in the 1870s, though, the upshot of this debt crisis is the sale of assets and revenue streams to foreign creditors. This time, however, creditors are buying bank shares not canal shares. And the resulting shift of power is from west to east. Since September, Middle Eastern and east Asian sovereign wealth funds have made a succession of investments in four US banks: Bear Stearns, Citigroup, Morgan Stanley and Merrill Lynch. Most commentators have been inclined to welcome this global bail-out : better to bring in foreign capital than to shrink balance sheets by reducing lending. Yet we need to recognise that these “capital injections” represent a transfer of the revenues from the US financial services industry into the hands of foreign governments. This is happening at a time when the gap between eastern and western incomes is narrowing at an unprecedented pace. In other words, as in the 1870s the balance of financial power is shifting. Then, the move was from the ancient oriental empires (not only the Ottoman but also the Persian and Chinese) to western Europe. Today the shift is from the US – and other western financial centres – to the autocracies of the Middle East and east Asia. In Disraeli’s day, the debt crisis turned out to have political as well as financial implications, presaging a reduction not just in income but also in sovereignty. In the case of Egypt, what began with asset sales continued with the creation of a foreign commission to manage the public debt, the installation of an “international” government and finally, in 1882, to British military intervention and the country’s transformation into a de facto colony. In the case of Turkey, the debt crisis was followed by the sultan’s abdication and Russian military intervention, which dealt a lethal blow to the Ottoman position in the Balkans. It remains to be seen how quickly today’s financial shift will be followed by a comparable geopolitical shift in favour of the new export and energy empires of the east. Suffice to say that the historical analogy does not bode well for America’s quasi-imperial network of bases and allies across the Middle East and Asia. Debtor empires sooner or later have to do more than just sell shares to satisfy their creditors. The writer is a professor at Harvard University and Harvard Business School and a senior fellow of the Hoover Institution, Stanford Send your comments to Niall Ferguson http://www.niallferguson.org "

1/3/2008 9:18:50 AM

Ah, but you need to see that it is quite different. American citizens can default on every debt they owe and not threaten the American government's AAAA bond rating.

Secondly, the U.S. Government wants what Americans produce and therefore only wants to borrow dollars, which it can always borrow from Americans if foreigners decide the risk is too great.

The Ottoman Empire was not an economic powerhouse that made everything, like the U.S. both at the time and now. When the Ottoman Empire borrowed money it was to purchase what foreigners made, not what it itself made. This is why the Ottoman Empire borrowed money denominated in Dollars, Pounds, or Francs. America, on the other hand, only borrows money denominated in its own currency, Dollars, which it can print to pay back if WW3 breaks out.

1/3/2008 11:18:13 AM

1/3/2008 11:21:21 AM

Quote :

"Since September, Middle Eastern and east Asian sovereign wealth funds have made a succession of investments in four US banks: Bear Stearns, Citigroup, Morgan Stanley and Merrill Lynch. Most commentators have been inclined to welcome this global bail-out : better to bring in foreign capital than to shrink balance sheets by reducing lending."

Just for my information...How would these investments be done? Are they buying stocks or is the company issuing corporate bonds?

1/3/2008 11:49:19 AM

^

A hybrid. Indeed, the invest in Citi was corporate bonds which will automatically convert into stock. However, in general you can expect that the investment by Sovereign Wealth Funds will be equity investments.


In contrast to "An Ottoman warning for indebted America" I actually though what we saw in the last year was dark matter in action. http://www.businessweek.com/the_thread/economicsunbound/archives/2005/12/dark_matter.html

The biggest driver behind the positive income flow to the US is that despite being a "net debtor" to the rest of the world, the rest of the world is earning a horrible return on its investments in the US while the US is earning a nice return on its foreign investment. This is a prime example of how this happens. Sovereign Wealth Funds are tripping over themselves to take big investments in established US names despite the shaky financial situation those names find themselves in.

My advice to the banks and the brokers is to take as much of these guys money while the taking is good. The honest truth is that enough equity investment fix any solvency crisis.

1/3/2008 12:07:07 PM

Does that mean that the worst case scenario is that the investors get an annual percentage on the bonds, but if the bailout works and the stock price goes up they will be able to convert it to stock and reap greater benefits?

[Edited on January 3, 2008 at 1:28 PM. Reason : l]

1/3/2008 1:27:29 PM

^ Yes. It is a very rosy position compared to other stake holders in these banks, but it is still quite bad compared to stake holders in companies that are not in trouble.

1/3/2008 1:31:56 PM

Quote :

"Does that mean that the worst case scenario is that the investors get an annual percentage on the bonds, but if the bailout works and the stock price goes up they will be able to convert it to stock and reap greater benefits?"

Well, in Citi's case the conversion is automatic, but general it works like you described. The advantage of doing it first as bonds and then as stock is that you get an equity investment that allows you to write off the dividend.

Usually dividend payments are taxable at the corporate level but interest payments are not. So you sell a bond which issues interest and is therefore tax deductible which later turns into a stock. That way for a brief period you are writing off that interest.

Also, remember that the worst case scenario is always default and then even bond owners are left holding the bag.

1/3/2008 1:59:18 PM

I wish I had money to play like that. I read about something similar back in the 80's when Salomon Brothers offered bonds to Warren Buffet to prevent a hostile takeover. Sounded too sweet to be true. Somewhat interesting considering Salomon Brothers is part of Citigroup now (one of the banks mentioned in that article.) We see how well it went for Salomon in the 80's.

I wonder how this will play out in the stock market? My first thought is that these companies will be crippled by having to pay back the bonds, but if the stock does go up then converting the bonds to stock could represent growth and potential regime change. It's a tough call.

[Edited on January 3, 2008 at 2:03 PM. Reason : l]

1/3/2008 2:02:34 PM

Maybe some sort of entity can use its money to quietly pump up the stocks of companies that are going to fail.

1/3/2008 3:51:40 PM

most of you are probably too young to remember, but back in the 80s the Japanese were buying a lot of stuff in the US. it wasn't during any sort of financial distress, but people back then were sounding the same alarms about power shifting to their hands.

i don't think power will shift away from the US per se. especially not to those chaps in the desert - they'll run out of the black stuff soon enough.

on a relative scale however, certain countries (mainly China and India) might be gaining a larger piece of the newly increased parts of the pie than the US. those two are giants that have hibernated way too long.

with China and India we're looking at a multi-decade (perhaps spanning multiple centuries) of expansion. in terms of acquiring resources they may act as imperialists during their expansion; and we don't have a crystal ball, but i don't think looting and enslaving, or manifest destiny is written into their cultural DNA.

1/3/2008 4:32:32 PM

I'm seeing a lot of Americans investing in foreign businesses while trying to capitalize on foreign growth.

I think with the dollar being so weak foreigners are going to use their increased buying power to buy pieces of American companies at a greater rate than we buy from them for a while.

Quote :

"Also, remember that the worst case scenario is always default and then even bond owners are left holding the bag."

I didn't see this before, but don't you think we would see a government bailout if any of those companies came close to defaulting?

[Edited on January 3, 2008 at 4:55 PM. Reason : s]

1/3/2008 4:51:27 PM

Quote :

"I didn't see this before, but don't you think we would see a government bailout if any of those companies came close to defaulting"

I don't think we would but one can't be sure. Now, no one wants to see Citi shutter its doors and layoff all of its workers. However, I could imagine an orchestrated merger with Bank of America and a diversture of all of Citi's branches, perhaps to Wachovia and Wells Fargo or something like that.

1/3/2008 7:12:39 PM

http://www.msnbc.msn.com/id/22476544/

won't quote the whole article but:

Job creation down, unemployment up, recession very likely and decent chances that we're already in it but we won't know for a while because statistics are always slow to come out.

1/4/2008 3:05:20 PM

Yeah, the Fed is probably gonna cut rates again because of this.

I know economies are pretty dynamic, but this U.S. Economy is far from impressive RIGHT NOW

1/4/2008 4:35:41 PM

Orignally I called for a US recession begining late Q2 early Q3 of 2008. Now it appears that my forecast was probably too late. Given the latest data a US recession now seems imminent. There are a lot of charts I could display but this is the most telling



This is the unemployment rate since 1945. Note that unemployment has never made a false bottom with the possible slight exception 1965 -66 when recession was delayed by escalation of the Vietnam War.

While I think it will be another month before we can say for sure that the US economy is entering recession, I now believe that we will be in recession by the end of the Q1, and there exists a strong possibility that the recession is begining in Jan.

1/5/2008 3:23:57 PM

Nice graph. We can really see how recessions have become both less severe and less frequent.

1/5/2008 6:13:28 PM

Recessions are only 'not severe' if you're not affected by them. Let's just hope this is quick and relatively painless so we can move on after a bit.

1/5/2008 6:32:52 PM

But I can still make statistical generations about recessions: The 2001 recession was less severe than the 1991 recession because it affected fewer people.

1/6/2008 2:11:52 AM

that chart is begging for a democrat to win in 2008

[Edited on January 6, 2008 at 3:10 AM. Reason : ^did you mean generalizations? not trying to be a nazi, i like u as a poster of tsb]

1/6/2008 3:07:27 AM

^^^^

The one ray of hope, although not an extremely strong one, is that the Fed is acting preemptively in lowering the Fed funds target rate. They have typically in the past not lowered rates until we were actually in a recession. Further, short term interest rates are much lower than they have been during the majority of past recessions.




^ drunknloaded, tell me again how a democrat would help?

[Edited on January 6, 2008 at 8:23 AM. Reason : .]

1/6/2008 8:21:29 AM

Well, the concern is two fold.

One, in the past recessions were essentially purposefully created by the Fed to bring down infaltion. That's not the case right now.

Two, the concerns that promted me to predict recession in Q2 and the Fed to cut rates have not come to fruition yet. The CP spread and the TED spread takes at least 6 - 9 months to work through to the real economy.

The concern for me is a recession within a recession.

Also, short rates are lower primarily because inflaton is lower. Real short term rates are not that much lower.

1/6/2008 11:18:02 AM

Quote :

"recessions were essentially purposefully created by the Fed to bring down infaltion"

?

1/6/2008 2:04:53 PM

Quote :

"recessions were essentially purposefully created by the Fed to bring down infaltion"

I wouldn't go that far... the fed raises interest rates to bring down inflation

1/6/2008 6:47:43 PM

I agree, the TED spread is very concerning. I definitely am not ruling out a recession and think the probability has risen significantly with the data we have seen released in the past month.

Regarding real short term rates, it has been a mixed bag. We are about where we were in 2001, but are below where we were prior to the 81-82 and 90-91 recessions. (to get the below, I took the 12m moving avg of the 90-day T-Bill rate and subtracted the 12m moving average of CPI-U. Using 3M USD LIBOR yields roughly the same results, even with the relatively large spread)





[Edited on January 6, 2008 at 6:52 PM. Reason : .]

[Edited on January 6, 2008 at 7:03 PM. Reason : .]

1/6/2008 6:49:55 PM

Regarding the Fed and recessions, I wouldn't characterize the Fed as intentionally causing recessions. Slower growth is merely a bi-product of removing excess liquidity in the market (with the aim of lowering inflation). For the long-term health of the economy, inflation is a much bigger threat than short-term growth.

1/6/2008 6:59:10 PM

Can we agree yet that this thread and the original post was a big joke?

1/8/2008 1:46:58 AM

http://news.bbc.co.uk/2/hi/business/7176255.stm

ML says we're in the first month of the recession now.

1/8/2008 9:26:58 AM

Quote :

"regarding the Fed and recessions, I wouldn't characterize the Fed as intentionally causing recessions. "

Not in the sense that the FOMC says, "hey lets cause a recession. It will be good for the lazy to get a taste of the unemployment line"

However, the actions to raise the funds rate, or in Volcker's case reduce the growth of the money supply were deliberate and they led to recession. In this sense the Fed essentially purposefully caused the recession.

The point is that this implies the Fed can undue the recession in a fairly straightforward manner. Its not so clear when the economy is declining in the face of a responsive Fed, as we are seeing now.

1/8/2008 10:35:42 AM

^^ Okay, I've been trying to give TSB a break from me, but that post is ridiculous.

1. The unemployment rate, which is a lagging indicator, is at 5%. The average unemployment rate for decades has been around 6%--so we're obviously below the historical average.

2. It's only Q1 of '08. Until I see two or more consecutive quarters of flat or negative growth in the GDP, a recession has not happened. And even if it does, the impressive U.S. economy will weather it well. I mean, how many economies would have remained as good as the U.S. economy has with all that it's been through these last few years?

3. The following is from the article you posted. Leave out much?

Quote :

"[Merrill Lynch's] view [that the U.S. economy is in recession] is controversial, with banks such as Lehman Brothers disagreeing."

Quote :

"An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years."

Quote :

"But NBER president Martin Feldstein denied Merrill's claims. 'I think we're not in a recession now,' he told CNBC."

4. Your Bush derangement syndrome needs intensive treatment. ^^^ and ^^

1/8/2008 11:34:12 AM

hooksaw the current rut in the US economy is a conspiracy by the liberals to usurp confidence in the republican administration to help the democrats in the upcoming election right?

1/8/2008 1:48:23 PM

How is posting a link to a website so bad?

Quote :

""An official ruling on whether the US is in recession is made by the National Bureau of Economic Research, but this decision may not come for two years.""

Yes, this refers to an OFFICIAL ruling. There are several reasons to delay such a ruling into the future. That doesn't mean a recession isn't occurring now. I think that flat out denying a recession unless the gov't says there is one (in two years, by then the point is probably moot) is much more ridiculous than posting a link about an article where a major firm is saying we are in for a bit of a rough patch.

1/8/2008 2:59:03 PM

^^ Please STFU.

^ You don't have any knowledge concerning what you're posting about. Please STFU, too.

Quote :

"Founded in 1920, the National Bureau of Economic Research is a private, nonprofit, nonpartisan research organization [emphasis added] dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community."

http://www.nber.org/info.html

And from your link:

Quote :

"The feared recession in the US economy has already arrived, according to a report from Merrill Lynch. It said that Friday's employment report, which sent shares tumbling worldwide, confirmed that the US is in the first month of a recession. Its view is controversial, with banks such as Lehman Brothers disagreeing [emphasis added]."

Quote :

"But NBER president Martin Feldstein denied Merrill's claims. 'I think we're not in a recession now,' he told CNBC [emphasis added]."

http://news.bbc.co.uk/2/hi/business/7176255.stm

[Edited on January 9, 2008 at 12:36 AM. Reason : .]

1/9/2008 12:36:03 AM

Quote :

"Please STFU."

NO

1/9/2008 1:23:29 AM

Quote :

"Founded in 1920, the National Bureau of Economic Research is a private, nonprofit, nonpartisan research organization"

Yeah, because if their website says it, it MUST[emphasis added] be true.

Quote :

"The mission of the National Association for the Advancement of Colored People is to ensure the political, educational, social, and economic equality of rights of all persons [emphasis added] and to eliminate racial hatred and racial discrimination."

http://www.naacp.org/about/mission/index.htm

[Edited on January 9, 2008 at 1:42 AM. Reason : .]

[Edited on January 9, 2008 at 1:43 AM. Reason : .]

1/9/2008 1:41:24 AM

^ WTF?

1/9/2008 1:52:40 AM

I think my point is obvious.

I'm not even arguing about the recession stuff, just that quoting an org's opinion of itself isn't good policy

[Edited on January 9, 2008 at 2:07 AM. Reason : .]

1/9/2008 1:58:15 AM

^ Um. . .not really. The point of me posting the link to the NBER Web site was simply to show that it's not a government entity. Whether the NBER actually fulfills it's mission is a separate matter.

One problem I do have with the NBER is that it doesn't define a recession in the traditional manner: two or more quarters of flat or negative growth in the GDP. Until I see such a downturn in the GDP numbers, there is no recession to me as it relates to the generally accepted definition of the word.

[Edited on January 9, 2008 at 2:17 AM. Reason : .]

1/9/2008 2:10:28 AM

I'd be surprised if they didn't get government money. Most nonprofits have to be funded somehow.

[Edited on January 9, 2008 at 2:13 AM. Reason : but i'm getting yall off topic, continue the recession argument. Im interested to see what ppl think]

1/9/2008 2:12:36 AM

^ Receiving "government money" =/= Government entity

1/9/2008 2:19:48 AM

Here's another one from a large entity which is predicting a recession.

http://www.msnbc.msn.com/id/22570624/

Quote :

"Goldman Sachs on Wednesday said it expects the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter. In a note to clients, Goldman said real gross domestic product would contract by 1 percent on an annualized basis in both the second and third quarters. For all of 2008, the investment bank said GDP would rise by 0.8 percent. The unemployment rate will rise to 6.5 percent in 2009 from the current 5 percent, it said. Story continues below ?advertisement The weakening economy will force the Fed to lower policy rates by an additional 1.75 percentage points from the current 4.25 percent. Starting in September, the Fed cut rates at the last three meetings of the Federal Open Market Committee, reducing the target rate on loans between banks by 1 percentage point from 5.25 percent."

And don't give me more bullshit about some companies disagreeing. They all have motives (even the ones pointing to a recession) just like the people who are saying there is no peak oil, there is no climate change, and jesus is coming soon.

1/9/2008 8:35:20 AM

Quote :

"I'm not even arguing about the recession stuff, just that quoting an org's opinion of itself isn't good policy "

NBER is about as rock solid as they come. Off the top of my head I can't think of an NGO with more credibility. Maybe UNICEF.

1/9/2008 8:38:52 AM

I don't think there's anything we could say to convince hooksaw that our economy is not impressive, which I agree with about 65%. It is very impressive the way it works. Some of us, however, hold it to a higher standard. My standard, considering the trend over the past 30 years or so, would be to expect 1 recession every 8-10 years. Recently, we've had 2 in 7 years... clearly underperforming by my standards. It's a difference of opinion and clearly hooksaw has lower expectations of our economy judging by his evaluation of its performance.

Also, that unemployment graph someone posted above almost perfectly illustrates that Republican presidents have higher unemployment. There isn't an exception after 1960.

1/9/2008 9:02:27 AM

Quote :

" Also, that unemployment graph someone posted above almost perfectly illustrates that Republican presidents have higher unemployment. There isn't an exception after 1960."

You haven't heard the republican argument against this? They say that it's always the predecessors fault. Even with 2 term presidents, I suppose.

1/9/2008 9:13:42 AM

^ A clear example of rejecting reality and substituting their own.

1/9/2008 9:27:34 AM

seriously what the fuck

Quote :

"A temporary increase in food stamp payments: The advantage of doing this rests on the assumption that families eligible for food stamps already spend some of their own money for food, Furman said. A temporary increase in food stamps could mean they spend less of their own money on groceries and can redirect their spending to other things or to afford rising heating and gas prices."

Could congress not think of a better idea to stimulate the economy??? Millions of middle class and upper class Americans are having their portfolios thrown in the gutter. Millions of lower middle class and working class Americans are losing their homes or $1000's on a deflating real estate market. Yet one of the top ideas is increasing fucking food stamps to Americans who probably are not doing much to help out the economy in the first place. I smell Pelosi all over this one.

http://money.cnn.com/2008/01/09/news/economy/stimulus_pkg_advances/index.htm?postversion=2008010911

Quote :

"redirect their spending to other things "

redirect their spending to other things

what thinks putting chrome spinners on their 89 buick cutlass, tickets to the next Tim McGraw concert, or a case of Natural Light.

[Edited on January 9, 2008 at 12:09 PM. Reason : a]

[Edited on January 9, 2008 at 12:09 PM. Reason : a]

1/9/2008 12:06:36 PM

Quote :

"that chart is begging for a democrat to win in 2008"

by that you mean that unemployment had dropped nearly consistently since the 2000 bubble burst?
oh wait that must have been the democrats....


imho dem/republican, neither have done enough in the past 50 years to make any sort of impact on the economy really

1/9/2008 12:37:07 PM

Quote :

"Millions of middle class and upper class Americans are having their portfolios thrown in the gutter. Millions of lower middle class and working class Americans are losing their homes or $1000's on a deflating real estate market."

Well here is the thing. Those people took risks. Taking economic risks is a big part of why they are more well to do than the average food stamp recipient.

Yet, with risks come the possibility of losing. I don't know if it is the government's place to bail those people out. However, when the poorest of Americans, those who didn't make a dime off of the real estate bubble or the bull market in stocks, start finding even harder to scrape by thats a serious issue.

If you are going to do some fiscal stimulus, which by the way will help everyone, then at least direct it at the most vulnerable population.

1/9/2008 1:19:02 PM