Good Layman's guide to the financial crisis

[SethB]

The number that I presented was inflation adjusted.

Changes in building codes and styles reflect consumer preferences for larger, more complex structures.

And 6% is cheap, compared to historical rates...

[Schmedlap]

Just saw this chart today, linked via an article at Barrons.com...



The chart is interesting, but I think the technical analysis folks would be wise to ignore any similarities between this market and any previous market. Changes in this market have been the result of reactions to government actions, followed by corrective pricing to securities after the initial euphoria or despair stemming from announcements of those government actions.

[Ski]

Saw that one last week.

The markets are still overpriced by 15-20%. Gold is well below where it should be. In other words, there is major manipulation of the markets occuring yet again. The structural issues that caused the problems over the last decade have not been fixed, indeed, the "plan" to bring economic growth back into the world seems to be nothing more than a return to what worked for the West in the late 1990's and early 2000's.

I remain very skeptical of this entire drama. The only real implementation so far has been to print a bundle of money and monetize a segment of debt. Inflating our way out of debt is probably not going to work - I don't know of anytime that it has worked.

[Ski]

Have seen this before but not from a publication with the clout of the Economist:
http://www.economist.com/surveys/dis...56650&fsrc=rss

Basically states that wages in the US have been at the same level for the last 30 years.

Anyone want to parlay whether the US will be able to even maintain this standard of economic stability over the next 5 years?

[selil]

Have seen this before but not from a publication with the clout of the Economist:
http://www.economist.com/surveys/dis...56650&fsrc=rss
Basically states that wages in the US have been at the same level for the last 30 years.
Anyone want to parlay whether the US will be able to even maintain this standard of economic stability over the next 5 years?

If 30 years ago you had said that American wages would not grow and that standard of living would remain flat and decline in some regions you'd have been flayed as a pinko red commie anti-American anti-capitalist jerk. With 30 years of data it is hard to refute.

If you say that economic viability of America will get worse over the next 5 years you will be labeled similar to above.

I would ask when looking forward five years. What fundamental change has occurred that will result in a swing away from the continued rape of the middle class by financial elites (of either political party) and will change the course of events in a way that will result in a different outcome? Asked another way what incentive to financial elites is there to change the headlong rush into economic chaos and totalitarian capitalism?

The economic system of American design has been legislated continuously to foment and support a pyramid scheme. All savings, retirement funds, forms of savings for school, insurance, trust funds and much more are by legislation forced to be tied to the stock markets. There is almost no savings mechanism NOT tied to the stock market. Seven years ago there was a huge move to transition the social security fund into the stock market. The battle to block that was almost lost.

I will let the conspiracy theorists consider why it is that federal government retirements for civilians and military are one of the last bastions of saving not tied to the stock market and fully guaranteed by the government. Though I would note that the personal incentive for bureaucrats to change systems is substantially less when their future isn't tied up in their decisions.

Personally I think we'll bump along where we are. Heck the stock market could scream to the top but the validity of that gain will always be suspect. A market based on emotion rather than facts is baseless and untrustworthy.
The very system is suspect. High leverage positions on stocks should be illegal as a form of ponzi scheme. Stocks should be valued on real value like dividends and company current value.

The market isn't over valued, or under valued. To get some percentage would be an error. You can't divide by zero. The same will be true five years from now.

[Stevely]

Sam, just note that the only retirements not tied to the stock market in the government are military; civil servants have had a 401(k) like scheme for quite some time now.

[Ken White]

Civil service people hired after 1984 have the Federal Employees Retirement System (FERS) which is Social Security and a joint employee-Office of Personnel Management 401-K like 'thrift' plan which provides choices between several alternative mixes of stocks, bonds and interest bearing accounts, US and overseas. A modified form of that also applies to Congress today. FERS applies to virtually all of today's employees.

Military personnel today can also opt into the thrift programs in addition to their Retainer Pay -- and the military retirement payment is just that, Retainer Pay. It is not an annuity or a pension. All military retirees are subject to recall up to age 65. It is also deferred compensation -- IOW, we're going to pay you less than the market rate for your work today but if you do it long enough, we'll pay you later in a reduced amount.

The old Civil Service Retirement System (CSRS) for Pre-1984 hires who did not opt to switch to the new plan was a defined pension plan and, like Social Security (today; since Lyndon...) is funded out of / is part of Federal general revenue. Persons who receive CSRS annuities and are also entitled to full Social Security take a 50% cut in the SS payment. Most folks have a mix of small CSRS annuities and SS, a good many have to work at other jobs. The number of CSRS retirees dwindles daily.

As an aside, unless one is a very senior person, one finds that either Military or Civil Service retirement will provide a car or a small roof, food and little else. If one wants a bigger roof, or a roof and a car plus the food -- and wants anything else, one will seek employment to bolster the retired pay. The biggest benefit of both retirements is really medical care (and that keeps getting whittled away). Like everything else, there are pluses and minuses...

[Surferbeetle]

From today's WSJ by Kris Maher: Homeward Rebound: Weathering the Storm With Kin

Families around the country are weathering out the recession by hunkering down with relatives and friends. It's not just a lower-income phenomena either. The homeward bound are former white-collar and blue-collar workers who believe they might have a better chance finding work in their hometown because they know more people, who, in turn, know still more people. But with jobs scarce, that doesn't always work, and rumors of jobs are just that. At home, though, they can at least get help with food, shelter and clothing.

"As Americans face tougher economic conditions, we'll likely see more of this," said Jim Toedtman, a vice president with AARP, which analyzed Census data. More adult children are living with their parents -- about 6.2 million in March 2008, the latest figures available -- up from 6.1 million the year before, continuing a gradual upward trend from 2000. The latest number doesn't include the most recent and most intense series of layoffs from the last three months, and is likely to be significantly higher now, says Mr. Toedtman.

[Ski]

Heh.

When the middle class dies off in this country, that's when you will see the collapse of the system. It's already occuring, just a matter of time before the whole enchilada implodes.

What exactly does the remainder of the middle class actually do? JAN 09 was the first time in the history of the US that showed more governmental jobs than manufacturing jobs. We're a service based industry that is rapidly losing services to provide...kinda hard when the credit dries up and wages have stagnated for 30 years.

If the powers that be had a clue on what to do with the economic mess, they'd really start focusing on rebuiling the middle class. This, of course, would mean a redistribution of wealth from the upper class downward, but the rich have gotten much richer over the last 30 years.

And if they don't, you'll see more rioting, targetted attacks and even terrorist attacks against the upper class. This isn't a hard thing to figure out.

If you say that economic viability of America will get worse over the next 5 years you will be labeled similar to above.

I would ask when looking forward five years. What fundamental change has occurred that will result in a swing away from the continued rape of the middle class by financial elites (of either political party) and will change the course of events in a way that will result in a different outcome? Asked another way what incentive to financial elites is there to change the headlong rush into economic chaos and totalitarian capitalism?

The economic system of American design has been legislated continuously to foment and support a pyramid scheme. All savings, retirement funds, forms of savings for school, insurance, trust funds and much more are by legislation forced to be tied to the stock markets. There is almost no savings mechanism NOT tied to the stock market. Seven years ago there was a huge move to transition the social security fund into the stock market. The battle to block that was almost lost.

[Ken White]

off and on since the 30s.

And if they don't, you'll see more rioting, targetted attacks and even terrorist attacks against the upper class. This isn't a hard thing to figure out.

Long time Populist prediction. We'll see.

[Stevely]

If the powers that be had a clue on what to do with the economic mess, they'd really start focusing on rebuiling the middle class. This, of course, would mean a redistribution of wealth from the upper class downward, but the rich have gotten much richer over the last 30 years.

They'd rather be billionaires in a country of paupers, than mere millionaires in a country with a healthy middle class. We default to thinking people that wealthy and connected take an interest in the stability and health of the society as a whole, but honestly it is getting harder and harder to see signs of any concern beyond maximizing self interest, regardless of the cost to the country.

[Schmedlap]

The chart may show median income among men remaining "relatively" static. I have to wonder if that means anything because standard of living continually improves despite the gloom. Time-saving conveniences, variety of goods, novelty items, infant mortality, life expectancy, quality of health care available, etc, etc. And the safety net ensures a higher standard of living than most of the world's middle class.

Regarding the concern that we are a service-based economy, I think too many people regard this as a bad thing because when they think "service" they think "flipping burgers." College professors, many IT professionals, and private military contractors - just off the top of my head - are part of the service economy and so are other high-skill and/or high paying and/or highly credentialed lines of work. And we're pretty good at drawing people here to spend money on our services (for example, foreign students at our colleges/universities) and in enticing others to pay our people to travel abroad and provide services to them (for example, many oil-producing countries rely on our know-how to help them more efficiently extract their oil).

So manufacturing jobs are going to China and other countries? So what? That's because they're the ones with the less educated workforce that is willing to slave away in lousy working conditions, lower their life expectancies, and receive low pay, just to churn out cheap goods for us to buy while we focus on high-tech, innovative, and high-profit margin technologies and services. If we want to retain manufacturing jobs in this country, then we need to understand that Americans will demand that those manufacturing jobs be safer, cleaner, higher-paying, more environmentally friendly, and more expensive than our market is willing tolerate. Hello, price controls! Not going to happen, nor would it be a good thing if it did. China can have their manufacturing. I'm content to let them manufacture children's toys coated in lead paint and spoiled baby milk while we focus on building military hardware and networking equipment.

[Ski]

Except for one minor issue - it gets exported to the US.

I'm content to let them manufacture children's toys coated in lead paint and spoiled baby milk while we focus on building military hardware and networking equipment.

[Ski]

Different times, different population, an entire generation that knows nothing but good economic times.

I'd say current times have the most potential for this kind of stupidity to occur.

Hopefully it will pass.

off and on since the 30s.Long time Populist prediction. We'll see.

[Ski]

Very interesting work done by a couple of PhD economists showing that the current economic trends are either tracking with the Great Depression, or are in fact even worse:

http://www.voxeu.org/index.php?q=node/3421

Tip o' the Porkpie to Fabius Maximus

[Stevely]

Very interesting work done by a couple of PhD economists showing that the current economic trends are either tracking with the Great Depression, or are in fact even worse:

http://www.voxeu.org/index.php?q=node/3421

Tip o' the Porkpie to Fabius Maximus

Fabius Maximus runs a good blog. Not sure if it is small wars enough to make the SWJ blog watch, but every now and again he posts articles of interest to the community. The first reference to Col. MacGregor's "Refusing Battle" article I saw on his blog.

[Jedburgh]

GSD-RC, 5 Mar 09: The Impact of Financial Crises on Conflict and Social Stability

Query: Identify emerging analysis on the potential of the current global financial crisis to affect social stability, cohesion and exacerbate conflict and fragility, including lessons learned from previous regional and global economic crises.

Enquirer: AusAID

1. Overview
2. Empirical Research
3. Security Implications
4. Social Consequences
5. Migration
6. Blogs
7. Press Articles
8. Resources on the Impact of Economic Conditions on Political Stability
9. Further Resources
10. Additional Information

[davidbfpo]

A rather lengthy article, by Simon Johnson, with many insights and very political. Interesting options available now, scary I'd say and are our / your politicians brave enough? Anyway the link is: http://www.theatlantic.com/doc/print/200905/imf-advice

davidbfpo

[Ken White]

Good article. I'm an optimist but his bad scenario is the one I hope succeeds -- anything less and we'll all revert to business as usual because the Politicians, as he says, are aligned with the Bankers...

So, no, I doubt any Politicians are brave enough...

[slapout9]

A rather lengthy article, with many insights and very political. Interesting options available now, scary I'd say and are our / your politicians brave enough? Anyway the link is: http://www.theatlantic.com/doc/print/200905/imf-advice

davidbfpo

Should be read by all.....scary stuff.