Many threads have touched on (and possibly been derailed by) discussions related to the economy.

When measuring the strength of the economy, several factors must be looked at:

Unemployment
Growth rate of the GDP
Interest rates
Income levels
Productivity levels

Other factors which relate to certain groups can also be examined, such as the number of people below the poverty line.

I'm going to hold off on my analysis for the time being, but the question for debate is:

How is the economy doing as of September, 2005?

Is the economy stronger or weaker than it was when Bush took office?

How is the economy doing as of September, 2005?

Not terribly well. Using the factors in your original post:

Unemployment

4.9% in August 05 (before Katrina and Rita)
400,000 new claims as result of Katrina

Unemployment has varied from a low of 3.8% to 6.3% during George’s reign BLS. From 1995 through 1999, it was far more stable and never even got to 6%. Just an observation.

Growth rate of the GDP


Taking these factors into consideration, the GDP will continue to fall, as consumers tighten their belts, and government spending spirals out of control. The prediction of $5/gal gas, housing prices and interest rate hikes alone will probably slow GDP growth. Regular Joes and Janes are not going to be spending like they used to. Monster SUVs will no longer be marketable.

Income levels

While the figures may show a small increase, salaries are not keeping pace with inflation and overall cost of living (Source)and it can only get worse.

Productivity levels


A factor that was left out: Consumer Confidence


There’s a whole boatload of charts on the BEA and BLS pages. I’ll leave it to the economists among us to figure them out. All I know is that incomes are stagnant, consumer prices are skyrocketing, government spending is out of control, natural disasters are stacking up, airlines are going bankrupt (even though individuals cannot), and it seems we are up the proverbial creek without a paddle. Interest rates are creeping upward, and inflation is on the horizon. Can a recession be far behind?

And, oh, yeah, how could I forget that expensive war?

And it still remains to be seen how large the financial impact of Katrina (and Rita) will be.

Is the economy stronger or weaker than it was when Bush took office?
Weaker. See above.

I'm not sure that using number immediately post-Katrina is indicative of the overall state of the economy...

Let's start with unemployment. According to the Department of Labor, from it's August 2005 summary Employment Situation Summary:



For reference, there were 330,000 discourage workers in 2000 (when the unemployment rate was 3.9%)

Here is a graph of unemployment rates over the past 10 years. We are currently below the rate we had in 1997 and before. Our current unemployment rate is 4.9%. By comparison, Canada's unemployment rate is about 7%.

The economy boomed in the late 1990s (partially due to some major accounting creativity) so it is very hard to compare objectively today's numbers to those of the late 1990s. Compared to the averages over the past 50 years (even the decade of the entire 1990s), today's unemployment numbers are very good.

Worker productivity:

Worker productivity has grown in the 2000s at rates higher than in the 1990s: link

GDP:

GDP growth was 4.2% last year. By comparison, the European economy grew at 2.3%, which was considered "strong". Canada's GDP grew by 2.8%.

Wages:

Real wages (adjusted for inflation) have been stagnant. This is probably the biggest knock on the economy. Businesses have been streamlining for years, and many have been reluctant to rehire people that they have operated without for the last few years.

Interest rates:

Interest rates remain historically low link, although above their all time low. Savings accounts are finally a better option that a nice comfy mattress.

CPI

Consumer prices have been going up at a reasonable rate (and a reasonably constant rate) for the past decade. There has not been a dramatic upward push in consumer prices. It has been in the 1-3% per annum for almost a decade.



Incomes (adjusted for inflation) are stagnant. Consumer prices are not skyrocketing, they are rising at the same rate as incomes. Government spending is not as bad as you think (probably better addressed in another thread). Interest rates are increasing, which is not a bad thing if you are an investor (or have a savings account). Inflation is historically low and has been fairly flat for years now.

The economy is doing fine.

The rest of your statement (natural disasters, airlines) has nothing to do with the topic at hand.

How is the economy doing as of September, 2005?

Well it is now October but I'd say pretty poorly. The following report was sent from Merrill Lynch to their clients recently - source.


I wouldn't say that is a very good report card for the economy and you shoudl note that all of the statistics suggest things were much better in the past, in other words before Bush took office.

Good afternoon, CJ, I'm a little confused. The statistics you left discuss the economy during this administration and I'm unclear why you lambasted GW on this one.

Frankly, let's use the Dept of Commerce as an objective source;
http://www.bea.doc.gov/

1. Real GDP increased at an annual rate of 3.3 percent in Q2 2005, according to final estimates.
2. Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $59.3 billion in the second quarter.
3. Personal income for the nation grew 1.5 percent in the second quarter of 2005, an acceleration from the 0.6 percent growth of the first quarter.
4.Personal income increased in all but two of the nation's metropolitan statistical areas (MSAs) from 2002 to 2003.
5. The U.S. current-account deficit decreased $3.0 billion to $195.7 billion (preliminary) in the second quarter of 2005.

I don't know what else you need?

I personally believe that the economy is largely independent of the administration, and as a true republican it's become apparent that Mr Bush is far from being aligned with sincere republicans. However, there are so many economic factors that impede/assist in economic growth and/or health. I think this site and the information given is a good barometer...

It's tough to use a 30-day window as an indicator, as many factors can change as time waines, hence why we generally measure success in qtrs.

However, this chart shows the debt as a percentage of GDP increasing.


However, this chart shows the trade deficit increasing as a percentage of GDP.


However, consumer savings is at -%0.7 even though income grew. Thus, people are spending even more money that they don't have.


However, personal income went down after that.


Could you provide a link for this?


I used to think this too. However, the President and Congress are on a spending spree like there's no tomorrow (perhaps, they hope they'll be raptured like the dinosaurs were). Not only that but tax receipts are not commensurate with spending. Thus, while I agree that in most cases the President doesn't directly affect the economy, in this specific case I believe the policies of the Executive branch are having a direct effect.

As I was considering your post logophage posted some very good rebuttals so I'll let those stand. However I did want to say that nowhere in my post did I lay blame solely on the administration nor do I believe the administration controls the economy. But it is a fact that policy decisions made by the sitting administration, whether they are intended to effect the economy or not, have an impact.

I'm by no means an economic expert, but I am smart enough to recognize one when I see one. Alan Greenspan is an economic expert. By now, his picture is probably next to the term in the dictionary and he had some very interesting things to say about the American economy recently. An economy by the way he termed "impressive" in it's performance over the past two decades. Pretty interesting read that can be found here.

From that article......



How much of this is government policy or not is debatable, but it does seem as though we are on the right track.

I think the US economy is horribly weak and vunerable, and won't take too much to knock us off the top at this point-

When you have super high productivity that we have, at some point, if wage increases don't reflect the productivity, to some degree at least, then you will lose that productivity at some point- poeple don't keep improving thier work habits and work like dogs for nothing forever! At some point, you become third world, and lose that edge. Any businessman knows that- the US economy has not rewarded productive behavior on the part of the producing employee in this economy- and that is as big an indicator, at the visceral, "what do I invest my money in, how do I make money" sense as a person that has some disposable income.

I just have just tried to find my demograph among a poorer customer to compete, to folks who weren't so poor before.

You can't look at the marching away of good jobs and replacing them with marginal, barely living jobs as a good, healthy thing in America- to say so boggle my mind, like a country full of Wal mart greeters won't implode at some point?

We just had a huge thread on GMs losses- with folks trying to blame it on the Unions- even though they are some of, if not THE most productive work force on the planet!

Yet, why is GM losing massive market share- these are the questions we should be asking as a nation and our economy- some things that contribute to a decrease in standard of living would be population pressures globabally- certainly not controlled by GWs actions- but things like massive deficit spending by his admin is NOT good. And we will have heck to pay when it comes due, and GW will blame someone else for it of course LOL

My over all feeling is that the US economy is an aging racehorse- still fast, but declining quickly, and someone is going to come along and put us out of our misery- we are, as a nation, simply working too hard for too little right now.

I am rubber you are glue...everything you say bounces off of me and sticks to you.

That is my basic summation of the US economy right now. That is is extremely flexible and pliable and it is difficult to call which direction it will go in or to try and influence it or contain it. Also which ever way it bends or twists it will not remain within our borders. I don't think it is useful for us to examine faults or concerns we may have with the economy without taking a more global view.

Simply stating unemployment is X number is not really useful data without some form of comparison..to other industrial nations how is unemployment in the US rated? To the natural rate how is the actual rate comparing? Are we achieving full employment?

And it should be considered that mucking around with the unemployment rate is considered to be a economic tool so different economic philosophies support different rates of unemployment or full employment.

So really it is not all that crazy to see unemployment make a small little creep upwards because the US economy does in fact need to stabilize consumption.

So for the pallbearers who had the funeral parade of personal income going down, higher energy prices, increased unemployment, Consumer Confidence dampening...I say GOOD. You can't complain about the trade deficit and then in turn complain about lowered consumption. If you want to see a decrease in the deficit then you should welcome indications that consumption will begin to decline.

I think somethings are heavily influenced by gov. policy and somethings are not. I don't believe the current account deficit is anything any US gov. policy can attempt to take any kind of control of or persuade in any sort of direction as it is , to me, heavily influenced by global conditions. It's uncontrollable now is my view. The only thing that will reign it in is...gravity. Yet I do feel the gov can implement policies to prepare us for what has to happen eventually.

I don't mean to appear to veer too off topic, but I do try and view this is a more global context and to me one of the most bothersome economic conditions right now is.. the need for currency revaluation most specifically China with the rest of Asia following the leader. And I wish we would get some guts on this issue and step up and make some demands. This is one area I feel would have a profound impact and something I feel is a policy our government could employ.

This is a good point. The trade deficit and consumer spending are inextricably linked. However, what does concern me is that consumers are spending more than they earn and corporations are doing the opposite: saving more than they spend. This means that the US economy is driven by consumers and not business. Moreover, the consumer debt numbers, I believe, are artificially low, that is, I believe consumer debt is much, much higher than is currently being measured. Why? Because much of that debt is offset by property valuation (which in my opinion is artificially high). People are borrowing against their property anticipating it will continue to go up. Signs point to the real estate leveling out and starting to drop. Thus, I fully anticipate the spending spree to stop as folks look to pay off their debts. The economy will have a hard landing.

Well if we are going to look at Greenspan as the all-knowing economy guy, let's look at a more complete picture.


Greenspan Renews Warning on Budget Deficits

He is sharply critical of the rising spending of the US government and has dire warnings about where our present path will take us.

That is one of the sources of my uneasiness as well- I think debt is horribly, horribly understated- the whole nation seems to be living paycheck to paycheck, and whenever those paychecks don't come, we are in a world of hurt and it is a vicious cycle when it happens I think- I am lowering all my debt on all my properties to pre-90 value levels as much as possible- figuring for inflation- so, even though real estate poeple in circle I run with think I am not leveraged enough- I am still going down as much as possible- trying for some security to some degree. I plan on a 15-20% vacancy rate as a "cushion" even though I think that is unrealistic in this state- we are growing too much population wise- and folks need cheap apartments- but if I have to lower my rents drasticallly in 4 or 5 years, I am covered at this point!

But I am a pessimistic optimist- I plan on the worst and hope for the best LOL

Be careful you aren't just grabbing only the statistics you need to make your point, and ignoring their historical trends, means, or other factors.

Amlord summed up the current health pretty well. A current snapshot of the US economy is good. Relatively low unemployment, low interest rates, low inflation, and moderate growth.

Our economic concerns long-term are more dire. This is what Greenspan was referring to, and what others have touched on. We cannot continue to rely on debt-financed consumption and government-spending. The trade deficit is not long-term sustainable.

The difficulty is searching for fundamental causes. Many people think the imbalance of trade and access to cheap, easy credit are a product of global imbalances in savings and consumption. The Economist recently devoted an entire issue to this topic. Briefly, foreign nations do not have enough domestic demand, so they have excessive savings, bought as dollars, thus holding up the dollar, raising our export prices, providing us with cheap credit, and financing our overconsumption.

Greenspan's critics (yes, not everyone thinks he's a genius) often blame him for pumping too much money into the economy, which they say financed the stock market bubble of the 90s and is financing the asset bubble of today. Well, like any complex issue, everyone has different theories.

Our most dire concern is how these imbalances will correct. When, and how abrubtly will our currency, consumption, and other factors fall into line?

Bucket hit on this. (She has impressed me several times as a "liberal" who understands economics... breaking the stereotype. ) An exchange rate revalutation with the RMB is sorely needed, but if it occurs too rapidly it may cause more problems than it solves. But it does need to happen.

As for the administration, it's true the economy largely moves on its own. But don't think that government has no effect. If the federal government all-of-a-sudden ran a balanced budget next year, the loss of input into the economy would cause a shock. Tax codes affect how people use their money. Many have argued that our tax code favors debt and punishes savings and investment. Of course how the deficit is financed affects markets and rates. And our foreign policy affects how other nations may view the debt they are currently holding, and any desire they may have to sell it off.

Other long-term concerns are the expected rapid rise in entitlement payments with baby boomer retirement and deficiencies in our infrastructure investments and education system, which may weaken productivity in the future. (Also things Greenspan has mentioned.)

So, in sum, and to answer specifically the questions asked: we're doing pretty well right now, but we've got major issues to straighten out before things happen we can't control.

PS On wages, this is still something I am exploring. The CIA world factbook has an interesting take on it. Basically, in their brief description of the US economy, they attribute imblances in wage growth to an insufficient education system, resulting in too few people chasing high-skill jobs and too many chasing low-skill jobs. By supply and demand, this means high-skill workers will realize higher wage growth than low-skill workers. (I love to beat the education drum.) Oh, and Greenspan has said this, too.

Long-term, the growing disparity of wages and wealth is, I think, of grave concern to maintaining a functioning Republic. I would rather see it corrected by market forces and better education than by forced income transfers, which I suspect to are a large extent are ineffective in actually changing net income. But this is off-topic.

Yes they call this believed cause..the global savings glut. And I agree with this being one of the factors but not because of the Bush admin's reasoning..which is more global growth and spending would help balance our deficit. True it would but it would probably be a very insignificant change and global growth would have to coincide with America experiencing a slow down in growth in order to make any sort of balance occur. Yet I would like to see more growth in our service surplus. And that isn't going to happen if Europe keeps squirrelling away.

Yet the savings glut is effecting our debt in the sense that everyone the world over loves holding USD assets. I think this is a topic that never gets much discussion when we make mention of the trade deficit. The reason our currency is so popular has a lot to do with the fact that outside the US things are a lot more gloomy and outside looking in the US' economy looks good.

As Eeyore's quote from Greenspan points out..."Protectionism in all its guises, both domestic and international, does not contribute to the welfare of American workers," Greenspan said. "At best, it is a short-term fix at a cost of lower standards of living for the nation as a whole."

So I don't really know what any of you who fear the trade deficit so much believe would be a better alternative? The US does not restrict foreign investment or have many protections or restrictions in place to limit foreign investments. We are an open market with little restrictions compared to most others. It is part of our nature. And other nation's who practice stricter policies of protectionalism or tariffs or who encourage almost total dependency on exports..I think we all know who i am referring to...just further promote the US dollar's popularity.

So essentially again I believe that the policy we need to pursue is a more global one. I think we need to encourage other nation's to have better more enticing economic conditions with less restrictions so that investments are not all be placed in one location causing the great imbalance we see today.

Also I think another interesting trend is the increase in private investments over what they call official investments. Meaning more and more it is individuals who are making these investments. purchases and consumptions and not nations and it is becoming harder and harder to view global data in nationalistic terms. This is even becoming more and more true in Asia. So again..don't want to seem obsessed but currency reevaluation would be nice

Working backwards, the link is included. All information I used was off the Dept of Commerce's web page. If you don't like the results, please don't lambast me, but rather harass the bean-counters in Washington.

Secondly, personal savings have little to do with Government intervention. CJ, I hate to tell you, but the reality is that the economy is largely driven by the US itself as opposed to the Government.

Washington can change the health of our economy in a few ways, but really Mr. Greenspan and crew hold the reigns. The White House/Congress can change federal trade laws (like tariffs), taxation, and federal spending (which is far more complex as to whether it helps/hurts).

The Treasury sets the pace of borrowing via the interest rate, hence if Americans are borrowing more and saving less- there may be a coorelation.

However, the reality is that the American consumer isn't forced to do anything. Inflation, trade deficits, decreased interest rates, and the devaluation of the dollar are all interesting points in reference to the economy.

I think that the American public has come full circle in the discussion of economics, ironically when most have little understanding (not us necessarily).
I'll try to use easily understood analogies even though we really cannot make this into an economics lesson on America's debate. However, the fact is that just like personal fiscal health, investments take time to come to to fruition. If you put $50/month into a mutual fund for the next 60 months, with a nominal return, you won't see any real change in wealth for quite some time; in which case as you take the money out and pay off debt, purchase a home (or whatever), the real-life effect takes place far from the initial investment, right? This is essentially what happened during the 80's really. Reagan and congress (a democrat-controlled congress to boot) took the opportunity to build a national culture of top-down spending to boost US industry and competitive spending that didn't exist during the late 60's and 70's. So- just like personal investment, we saw some periods of relative comfort (so to speak) during the 90's and early 2000. Of course... this is as simplified of an analogy that I can make. It doesn't discuss the world market, the introduction of the Euro, the war, and the emergence of the Chinese market and it's role in the world market economy... but hopefully y'all get the point.


The truth is that it probably has everything to do with what stats you decide to list, what websites that you subscribe belief in, and where you stand financially and politically. But the point is that we were talking about the economy in recent terms, as this board was talking about September... not the past decade.

All true conservatives aren't GW fans, so I'm not defending the administration, but rather trying to pull the partisanship out of this one.

Perhaps I'm slow, but I can't seem to suss this particular conclusion from the link you gave. If you could walk me through this, it would help me understand better. And, BTW, please don't read my rebuttals to your statements as "harassment". I think you're making good points; I just believe there is sufficient contravening data to conclude the opposite of your position.


I disagree that Greenspan and crew holds the reigns. While the Federal Reserve Board holds a lot of power, it can only raise and lower interest rates on a few key indicators. The federal government holds at least as much if not more economic power should it choose to exercise this power: taxation and borrowing.


I'm not sure if you're referring to my post(s) or not; if you are, then I disagree with your assertion that I'm employing confirmation bias. First, I want the economy to grow; yet, I want it to grow based on tangibles and not debt. Second, I believe that the US economy is mostly independent of who's in political power except under certain conditions (like massive borrowing). Third, the numbers I cited demonstrate the longer term trends of the economy and not the short term -- stat of the month -- sort of numbers.


Great. I think we can do without these "backhanded compliments" on this debate forum.

No, I was referring more to aevans use of selective quarterly data.

I agree with you that the Fed's influence is often overestimated. They set only the target overnight rate, but as recent years have shown, have little control over long-term bond rates... which are what affect mortage rates and other means of long-term financing. This was the conundrum Greenspan refered to recently. Despite raising its short term rate, long term rates have remained low.

As for personal savings, well, it's a little harder to find a source of blame. Some would attribute it to tax policies that reward debt and punish savings, but these have been in effect for decades. More likely, it is the historically low interest rates which have driven the recent growth in overconsumption... as aevans said, it's not in the government's control.

That's not to say were just a ship drifting with the economics winds. One could probably make the case that if the Fed hadn't dropped rates so low we would have had a worse recession, but the other imbalances would not have grown. Ditto if the administration had been more hostile to China's echange rate regime.

As for the backhanded compliment, sorry bucket if you were offended. I meant it as light-hearted joke, but it was a little underhanded.

Sorry I hadn't seen this reply the first time.



The economy is also driven by productivity , R&D research, FDI, interest rates, exports..we have a lot going for us so it is unfair to think one thing will cause every thing to crumble.

Think of it..where else does the world investors..not just our homegrowns..but the entire world's have to put their money right now?

I don't believe a bubble burst is going to be as violent as many claim. America..property and investments has TRUE value. I know the creative mortgages or the low down payments required now to buy a home get a lot of people worried BUT I think it is important and beneficial to expand homeownership. I think it is best for our neighborhoods, our schools, our communities and ultimately our nation.

I like seeing new financial approaches and more opportunities made available and greater access to building assets is not a bad thing. In some cases I think a lot of people get a wee bit snotty and do have a few preconceived notions about who has the right to own a home and who does not. Well times a'changing

We have to remember there are many factors of advantage to homeownership..will they cushion the "hard landing" you claim will occur and balance it out? because many of them will be unaffected.

As I already pointed out a slow down in consumption is not a bad thing. At some point it needs to occur and not only will the real estate market determine this so will energy prices. And that's where corporate America steps in and does do something..they will likely cushion the US consumer from too high of a spike in inflation.

Here is an interesting debate to consider on the housing bubble:
The Fed claims it should not dictate policies or concern itself with asset bubbles..yet many claim the Fed is lying and has a horrible habit of going about bursting bubbles. So what will happen with the real estate bubble? Will the Fed intervene? And should they?

Bucket, I'm right there with you, in that there are some significant advantages to being a home owner. On the other hand, there can be significant disadvantages as well, particularly if you're in over your head on the mortgage, and a lot of folks are right now.

First, more loans are being made now on income that wouldn't qualify ten, or even 5 years ago. The standard used to be that no more than 25% of your income should go to housing. However, the average now, is around 35% and some people are getting mortgages where the payments are eating up as much as 50% of their take home pay.

Second, what kind of mortgages are these that allow that kind of mortgage burden? New and exotic types of adjustable interest loans, interest-only loans and the like. If long term interest rates take off for any reason whatsoever, or the housing bubble does burst, these folks are going to suddenly find out what it's like to be upside down in a mortgage wherein they owe a ton more than the house is worth, and they can't get out from under it.

The other thing to consider, is that a lot of mortgages these days are in the form of home equity loans. Folks with the idea that they have some real "wealth" in the form of their property, and have decided to use that equity to fund their lifestyle. These are the folks really fueling the economy right now. Again, if rates jump, or the housing market collapses, people aren't going to be so willing to borrow to buy that new furniture, make over the kitchen, or take that "dream" vacation, when they find out the dream is quickly turning into a costly nightmare. Heck, even if the market just slows down some, it could have a huge impact on the economy, if the home equity loans stop flowing.

In other words, GDP right now is really being propped up by the housing sector. Unless real spending in other sectors besides housing picks up, a slowdown in home buying and second mortgages will kill growth, and may well deepen the budget deficit and weaken the dollar.

Hello new recession. Maybe as soon as 2007.

I never suggested everything would crumble. I merely suggested that much of the current economy is driven by real estate and associated industries (like construction); much of the economy is driven by consumer spending AND the consumer spending is debt spending -- not just income spending. This is unique.

Yes, the world is investing in the US. China is a HUGE investor in the US bond market. Economists claim this is against China's economic interest. However, it does serve to keep the yuan essentially pegged to the dollar. While the dollar is stronger than it was a few years back, it's still a bargain as long as the foreign investment isn't in dollars directly but in tangibles (the dollar will weaken because of the US debt).

There have been productivity gains, however salaries have not increased commensurately. The job market is lopsided towards the housing/construction industry growth (as well as the service industry). What happens when the housing market stops growing? I'll tell you: those jobs will dry up.

I agree that R&D is still part of the US economy. But, R&D has traditionally been driven by corporate spending. Right now, there's a HUGE savings glut on the corporate side, meaning businesses are not spending, meaning that R&D is affected.


I don't buy the "real estate is true value" hypothesis. Land speculation is just another type of tangible investment. Speculative bubbles in property value have been around for as long as property could be owned. Right now, most everyone would agree that there has been an unprecedented rise in the world (including the US) housing market. The key word here is "unprecedented". Surely, that should cause some level of concern amongst investors.

While I agree that homeownership is good, I don't agree that it is good at all costs. In other words, homeownership has traditionally been a conservative investment. You get a mortgage and pay off your loan at some percentage of your income. You wouldn't do the following: get an interest-only loan to buy property beyond your ability to pay the full monthly amount OR refinance to speculate on more property. These were, until relatively recently, financial tools used rarely by the casual investor/homeowner. They are now very common, and if the real estate market changes (i.e. doesn't grow), some of those investors will be in an unsustainable financial position.


I don't know if you're calling me "snotty" but I don't believe I've ever stated anything about the "rights" of homeownership. I agree that there are intangible factors associated with homeownership. However, these intangible factors ought not outweigh a rational assessment of affordability. I don't believe that people have fully considered the risks associated with these new financial tools. All people have seen is that property goes up for the past 5-10 years ignoring the historical cycles of property going down too. And, yes, over the long term property does rise, yet that is not how people are treating their investments. Many of these interest-only/adjustable loans have windows of 5 years or less, that is, the expectation is that the property can be refinanced with a more reasonable loan structure. And don't get me started on institutions like Fannie Mae....


I have no idea what you mean here. How will corporate America step in to cushion the US consumer?


Greenspan has never been about preventing bubbles from occurring. He helped create the dotcom bubble and now the real estate bubble. Greenspan is all about managing bubbles. I suppose history will tell us whether or not this is a good strategy.

I have seen first hand, and made money off of, a housing bubble burst- it happened here in 86 when there was a "perfect storm" to burst the bubble- several factors made it burst big time- and then, there was even high interest rates, and STILL poeple were investing and over leveraging!

And right up until we had the largest regional depresion in our states history, folks were still heavily leveraging thier property, claiming that the economy "wasn't so bad"- with the exact same arguments that all is rosy today- so my personal experiance with the "joys of property ownership" is quite jaded -

And Bucket and logo both make very, very valid points. Home ownership is not only important for the economy overall, it is all part of the security of the buyer and his/her family- as an intangible "feeling"- nothing panics one that not being able to meet a mortgage payment!

The financing options have gotten as crazy as they were pre-depression- one of the big red flags SHOULD be the "no principle" loans- where you are only making payments to pay the interest- this is literally how we got the phrase "betting the farm" from the depression- pretty much every loan in the US prior to the depression was a "0 principle" loan- you paid the interest, and at the end, the principle was due, kind of a gigantic balloon payment, at which time, if all was going well, you made another loan to cover the principle. So all those folks "lost the farm"-

and that is where we are at today- we are over leveraged as a society, and it has scared me straight - I keep pushing down my leverage as much as possible, every year, to hedge my bet against a bubble burst. What I am actually trying to do is have no more in my rentals in leverage than the building was worth 10 years ago- so that if I need to drastically lower rents, I can keep the buildings and weather the storm and build back up my equity.

It is a very, very difficult economy to read, that I will admit to anyone, and anyone that thinks they truly have a handle on it is probably being foolish.

But I think, overall, the economy is pretty sick, with too many external, outside US forces coming together to knock us off the top, within the next 10 years.

I am focusing my business models on "the newly poor" in my own words- refurbishing old bikes, lower rent buildings that someone that just lost thier home can afford, parts for old bikes, machine shops that rebuild stuff, you know, a kind of backhanding recycling if you will.

You remind me that I have not read convincing arguments over why corporations are not reinvesting their profits? (A note here, by investment vice savings when refering to corporate profits, economists mean the company is putting extra profits into stocks, bonds, or other financial assets, but not using it to build new factories, for R&D, or other growth capital improvments.)

Some have hinted, but I don't think I've read it directly, that the increase in savings rate may be in anticipation of upcoming age districution imbalances. I know one article suggested that for this reason the glut of savings, and thus, lower rates, will be a long-term phenonmenon.

It may be that companies are keeping their extra profits liquid in order to finance either upcoming pension/medical costs, or because they are anticipating a slow-down or devaluation as the boomers retire. It certainly has been discussed for years, so perhaps it is not unreasonable to say the run-up in bond prices of late is a result of many companies and people moving their money into safe assets in anticipation.



Couldn't agree with you more. Always doubt a "sure thing." I've heard too many people tell me to buy a house, theirs just went up 20%. Reminds me of the late 90s. Alas, I missed the time to buy.

Home values have not long-term sustained that kind of growth. One could argue, perhaps, that because of growth restrictions placed in some areas (California), that real-estate would become a scarcer commmodity. But there are so many other bad forces driving this upsurge that it's hard to know how much other fundamentals are really at play.



I am curious, too. How wo you think corporations will cushion? I'm not necessarily skeptical, just perhaps not smart enough to understand what mechanism you forsee.

I find your take on how your moving your investments interesting, too. Personally, I still suffer from reading a lot but not knowing what action to take, or at least, being too unsure to take an action. So most of my money still sits in index or large-cap growth funds. Well, I do have some international exposure, but that's the only hdge I've taken so far.

I would imagine the secret lies in productivity and the many goodies that go along with it.



Oh ok then have “a hard landing” Not that I believe everything is always sustainable..but I do believe much of the US economic growth has been broad based. We are not performing a tightrope act. You are trying to disprove this I guess...



Can you better explain your point on this? I don’t get your argument about not directly holding USDs. The dollar is back up again despite the rise in debt. I am guessing your comments allude to the idea that you feel the USD is a risk..opposed to what?

The whole system they got going over there in Asia is in my mind...bananas. I just don’t get it and I don’t know why anyone would describe it as a good thing Sooo...

I would really like to hear your argument as to why it is best to keep the RMB/yuan pegged to the USD. You can’t just casually say that as if it is a well known fact. Many don’t agree with you at all...me being one of them.

Also China, Japan, S. Korea etc. do not buy US currency and hold it in reserve because they feel the USD right now is a bargain. They do it because they have to because they have opted for a mercantilist sytsem..which is their loss our gain. And where else would they put their money? Japan ..the second largest economy in the world has 0% interests rates..not much domestic incentives going on in most industrial nations.



And really it is hard to discuss real estate bubble in a singular form because the real estate markets are so localized..as is the increase in construction based job growth. My area has not seen an increase in construction jobs..instead just a steady balance and yet we have seen tremendous growth in housing prices. Each area or region of the US has separate and distinct factors underlining their real estate markets. I don’t believe it will be an overall national effect. It won’t be one massive simultaneous *pop*
It will likely happen gradually by area and in accordance to each localized conditions. I have read it is already happening in some areas.

You also forget that many of the hot regions of the US for housing are being generated by a large class of migrant workers and when their jobs dry up they will likely go home. Not to mention construction jobs are already fairly seasonal (and migrational like I already pointed out) Then there is that whole mess to clean up on the gulf.
I seriously doubt we will find ourselves with a glut construction workers anytime soon.

As far as wage increases go productivity is a good indocator of wage growth but you neglect to take into account where these productivity gains have been coming from..generally the increase in IT. So much of the wage increases have naturally been focused more in this industry and have required a higher education or set of skills. You seem to always be very aware of what Mr. Greenspan is saying or highlighting and higher education and more training ...basically human capital investment... is a biggy with him right now.

Also productivity brings about other advantages ..advantages I would argue are far more advantageous then just wage earning increases. So I don't really feel you have shown why we must negate or discount productivity increases.

I am curious to see your sources on this. Business spending has been on the rise and that most recent data has been pushing past even the predicted numbers. R&D is also up and it is also really pronounced in certain industries.
And R&D is not only paid for by corporations but universities and the government (federal and military) The US is way above most nations in R&D spending we discussed this in the Germany export thread so if you are interested you can look my argument over there rather than me having to repeat myself.

Regarding my comments about corporations cushioning inflation and the massive rise in energy costs one word really sums my whole opinion up on this point...competition.
A competitive market is a healthy market and we can see with the rise in energy costs close to what 4% and the core price rose close to 2% that one is being cushioned or kept separate.

I will discuss the home mortgage thing later when I have more time but I must admit anyone who claims they do not favour fannie mae inst. and then also in return does not favor greater mortgage access and liberalisation seems to have a very restrictive view on homeownership.