How Boom of 2006 Ended - Article

[TromboneAl]

Comments on this?

How the boom of 2006 ended
Commentary: We should have seen it coming

By Marshall Loeb, MarketWatch

NEW YORK (MarketWatch) -- Anybody with a bit of imagination, with a feel for the future, can construct a plausible scenario. Like this:


We should have seen it coming.

We were living beyond our means, saving absolutely nothing, spending more than we were earning -- like there was no tomorrow.

Most Americans were doing that. Worse, the government was doing it -- piling deficit upon deficit. And at the end of 2005, the total federal debt per U.S. household was more than $450,000.

But, as it always does, profligacy caught up with us. And the economy, which had been growing at a comfortable 3 to 4% rate for many years, came crashing down last year, in 2006.

Full Article

 

[haha]

Well Al, after reading that, how come you are still smiling so happily in your picture?

Ha

 

[Cut-Throat]

Well, I could not read it, because I had to register, but I'm wondering what planet the guy must live on with a title like that.

The boom ended in 2000. We have been in a recession ever since. I don't care what phony numbers the government has been using to state GDP, but from where I stand we're in a recession. And it keeps going deeper every day.

 

[Spanky]

"Meanwhile, the rapid industrialization of China, India and some other developing nations continued to drive up demand for energy, metals and other commodities, thus adding to the price that the U.S. has to pay for them in global markets. Result: more inflation."

Maybe it's not too late to invest more into commodity and energy funds.

 

[TargaDave]

The boom ended in 2000. We have been in a recession ever since. I don't care what phony numbers the government has been using to state GDP, but from where I stand we're in a recession. And it keeps going deeper every day.

I think Greenspan just shifted the boom-bubble from stocks to real estate so in that respect 2006 sounds about right at least for the coastal regions.

I suspect worse than recession; stagflation for an extended time period. Worse because it's harder to invest in than a nice cleancut recession.

 

[wabmester]

Comments on this?

You didn't read the Bernanke spiel on the global savings glut, eh?   While it's true that our personal savings rate has fallen (currently negative) and our "internal" national debt has increased, the trend has been strongly countered by other countries buying our debt and equities.   Basically, we have become a debtor nation while traditional "emerging" economies have reversed their role and have become our creditors.

This isn't good for us, especially in the long term, but in the mid-term, it means we can stop worrying so much about our decreased savings rate and federal debt.   Deficit spending is *stimulative* to the economy.   And, perhaps for the first time in history, other countries are happy to loan us the money to keep it going.

 

[Dry Socks]

Comments on this?

... And at the end of 2005, the total federal debt per U.S. household was more than $450,000.

That number seems way high to me. Is it off by 10x ?

 

[wabmester]

That number seems way high to me.  Is it off by 10x ?

You're probably thinking of the deficit spending per household.

Last year, the debt was $473K per household. So, I guess the journalist expects it to go down by the end of this year.

 

[Michael]

The Economist had an article that suggested that it wasn't so much a global savings glut, as a dearth of investing.  Corporations are saving money, rather than investing in new production.  Either way, there is no shortage of capital, so the US non corporate savings rate is irrelevant.

I wouldn't be surprised to see a drop in 2006, since this is the usual pattern.  Followed by a ramping up in 2007 and 2008 for the next Presidential election.

 

[Dry Socks]

You're probably thinking of the deficit spending per household.

Last year, the debt was $473K per household. So, I guess the journalist expects it to go down by the end of this year.

I guess I'm confused.

According to:
http://www.brillig.com/debt_clock/

The federal deficit is almost $8Trillion or $27K per citizen.
At $450k per household, that would be around 17 citizens per household.

I guess I've been missing some deductions

 

[wabmester]

Hmm, you're right.  The federal debt is "only" $8 trillion.   The $450K per household number apparently comes from $53 trillion in unfunded liabilities, which include about $30 trillion for medicare, $12.7 trillion for social security, etc.

article

 

[Michael]

What a relief. My check for 27k is in the mail.

 

[ProfHaroldHill]

The $450K per household number apparently comes from $53 trillion in unfunded liabilities, which include about $30 trillion for medicare, $12.7 trillion for social security, etc.

article

These kinds of projections may not be terribly useful. At the present rate of increase in the cost of medical care, and the present rate of increase in US GDP, the cost of medical care (not just Medicare) crosses GDP somewhere around year 2020. Clearly, this is not going to happen. So the real question concerns the form of the inevitable paradigm shift.

HH

 

[Michael]

...the cost of medical care (not just Medicare) crosses GDP...

Even the medical lobbies don't have that much power. The other lobby groups will want a share of the GDP also.

 

[Ol_Rancher]

Well it is interesting to read that someone else sees stagflation as a probable economic senerio for  the nation. Although there is a case for it beginning now or having begun already, I foresee it more clearly in the not too distant future.

Worst probable case: Republicans lose white house. Tax increases follow, entitlements come due, government prints money to pay it, benefits are trimmed, earnings fall, market moves sideways for a long time, unemployment worstens, productivity keeps pace or improves to mitigate recession ...

I avoided terrorist disruption or real estate collapse as maybe an even worse senerio is possible but I hope not probable.

I am now in 25% cash (MMs, CDs,) for the first time rather than nearly all equities. My pension valuation serves as my bond portion of portfolio. Even my equity positions are now mostly income or growth/ income or balanced mutual funds. I am hoping the dividends thrown off by the income portion of the funds ease the possible long wait until real robust growth returns.

The last period of stagflation seemed to last a long time and took a vigorus new Fed chairman and Preident (Regan) to shake of the malaise and stagflation.

 

[ProfHaroldHill]

Worst probable case: Republicans lose white house. Tax increases follow, entitlements come due, government prints money to pay it, benefits are trimmed, earnings fall, market moves sideways for a long time, unemployment worstens, productivity keeps pace or improves to mitigate recession ...

Wow -- I can't imagine what the best case might be. Must be that Republicans keep control, and the following continues: massive deficits and federal debt, war every two years, torturing of prisoners, corruption in House and Senate leadership, spiraling medical costs, rampant croneyism that destroys whatever competence remains in federal agencies and the Supreme Court, more mercury and CO in the environment, more tax exemptions for 6000 pound vehicles, and all of the other good stuff . . ..

 

[brewer12345]

OlRancher, I most definately do not share your view of the worst case. However, I do think stagflation is a definite possibility. The Fed appears to be starting to struggle to contain inflation and higher energy prices without a doubt will retard economic growth, ceteris paribus. The real squeeze would be put on if housing collapses and/or if long term interest rates finally spike. I suspect that the gummint's free-spending ways are putting us at a very real risk of a currency-led interest rate spike.

 

[REWahoo]

Wow -- I can't imagine what the best case might be. Must be that Republicans keep control, and the following continues: massive deficits and federal debt, war every two years, torturing of prisoners, corruption in House and Senate leadership, spiraling medical costs, rampant croneyism that destroys whatever competence remains in federal agencies and the Supreme Court, more mercury and CO in the environment, more tax exemptions for 6000 pound vehicles, and all of the other good stuff . . ..

And you think all this will stop when the "other guys" get control?

 

[ProfHaroldHill]

And you think all this will stop when the "other guys" get control?   

Dunno if the other guys will in fact get control (I doubt it, actually), and dunno if the good stuff I mentioned will stop if they do. On the other hand -- didn't seem to be so much of a problem just a few years ago. You may remember, for example, the budget surplus, the strong stock market, and the attempt to at least look into health care cost containment . . . As I recall, if those trends had continued, the treasury would have been able to stop borrowing at some point not too far into the future, rather than drive us into national bankruptcy.

 

[Cut-Throat]

Worst probable case: Republicans lose white house. Tax increases follow, entitlements come due, government prints money to pay it, benefits are trimmed, earnings fall, market moves sideways for a long time, unemployment worstens, productivity keeps pace or improves to mitigate recession ...

The last period of stagflation seemed to last a long time and took a vigorus new Fed chairman and Preident (Regan) to shake of the malaise and stagflation.

What is really ignorant about your post, is you seem to ignore the fact that Bush Jr. and Reagan both ran up historic debt! - Yet, you don't even mention the fact of the booming economy and balanced budgets of the Clinton era!

Do you actually believe this 'Rush Limbaugh Crap'?  - What subject did you teach in school? - It couldn't be math, as it doesn't add up!

 

[MasterBlaster]

The issue is more complicated than your simple minded approach.

The complicity of the Reagan era democratic congress to running up the national debt, or that the Clinton era boom had the benefit of a fiscally conservative Republican congress cannot be ignored.

Ol_Rancher points out the danger and the possibility here of an Argentina (eg: Peron) style economic disaster based on extreame government spending, very high taxes and crushing debt.

Are you saying that "if only we'd elect Ted Kennedy  then prosperity would be right around the corner" ?

 

[brewer12345]

The issue is more complicated than your simple minded approach.

The complicity of the Reagan era democratic congress to running up the national debt, or that the Clinton era boom had the benefit of a fiscally conservative Republican congress cannot be ignored.

Ol_Rancher points out the danger and the possibility here of an Argentina (eg: Peron) style economic disaster based on extreame government spending, very high taxes and crushing debt.

Are you saying that "if only we'd elect Ted Kenedy  then prosperity would be right around the corner" ?

I think I'd just say that it is hard to believe that things would have been worse if we had different parties in control of the executive and legislative branches.

 

[ProfHaroldHill]

The issue is more complicated than your simple minded approach.

The complicity of the Reagan era democratic congress to running up the national debt, or that the Clinton era boom had the benefit of a fiscally conservative Republican congress cannot be ignored.

Ol_Rancher points out the possibility of an Argentina (eg: Peron) style economic disaster based on high taxes and crushing debt.

Are you saying that "if only we'd elect Ted Kenedy  then prosperity would be right around the corner" ?

Re congress:  RR and GWB both had/have the veto.  Bush has never used it.  Moreover, I don't see anybody in this thread saying that "prosperity is just around the corner" under any conditions.  What does poor Ted Kennedy have to do with the failures of George W. Bush?  IMHO, Kennedy is just a convenient button to push when the Bush base gets restless.  Have you not received the fund-raising letters that trot Kennedy out (you're supposed to shudder, I guess)?  What I do see is an administration that is a complete failure and completely incompetent, not to mention immoral-to-the-core (see the theory of just war).  Recent past administrations have not done so well, either, in some areas.  Overall, however, I believe that any objective observer would conclude, perhaps reluctantly, that the country functioned significantly better during the Clinton era.  I know for sure that my life was better, in a material sense.  Because of the trends put into play by the neo-cons, (e.g., looking into the ugly face of stagflation and national bankruptcy) I am very reluctant to RE myself.  Bushie, you're doing a great job.

 

[MasterBlaster]

well don't expect an argument from me supporting GW.

I agree that he's not up to the job.

In my opinion our political class (both dems and republicans) have failed miserably. Especially in the planning and preparedness for the retirement of the boomers.

 

[ProfHaroldHill]

In my opinion our political class (both dems and republicans) have failed miserably. Especially in the planning and preparedness for the retirement of the boomers.

I agree completely. Not a pretty picture . . .

HH