NationStates Jolt Archive

This was a major discussion with a group of people I was around last night. I came over to there table and sat down to speak with them about it. The group mainly consisted of local business men. Was interesting to hear what they thought could happen in the US due to a real problem with value of the dollar. They were discussing what would occur if a new Great Depression descended on the land. The basic talk was of four points.

One was the possibility of massive US dollar devaluation. This in my opinion has already created an enormous problem in the US. One proposed a $25-$1 revaluation of the dollar. Basically it would make the Penney worth 25 cents of today's US currency. Not sure how exactly that would help things but he didn't elaborate into detail on that idea.

Second was the staggering debt that Americans carry. Consumer debt even in my lifetime is really out of control. When I started out people really didn't use credit cards that much. Basically it was a cash based system. I had one credit card for the longest time. Carried no balance because that is just what people did. Now everything is centered around the little pieces of plastic in our wallets. It is a very dangerous way to operate in my opinion.

Third is the staggering national debt. The cost of wars and bad policies is having an extreme negative effect on the value of the US dollar. Which then causes other problems.

Fourth and I believe this is the largest problem out there. The biggest single issue I have to agree with is the wage vs inflation problem. Americans that earn a hourly/salary wage are making less every single year. For example if one was to make $15 in 1990. Which was a living wage at the time to let's say $20 for the same job today. That would mean that that person only received a increase of $5 per hour which is a 33% increase in wages. This is a real example that they brought up. There were basically other comparisons along the same lines. Problem is that housing has doubled in most areas. In fact housing has tripled in areas like California. Basic goods such as fuel have nearly doubled. Food almost doubled since 1990. It is a trend that cannot continue without a correction.

So what has to happen to correct this? Would a economic collapse actually help in the long run?

with the euro on its way to becoming the standard global currency, I think we will be headed for serious trouble when the rest of the world switches over.

it will, in short, make the dollar all but worthless

That looks like a real possibility. However a dollar collapse will cut into the Euro like a hot knife in butter. A collapse of a major player in the world today is going to have drastic consequences for everyone else.

with the euro on its way to becoming the standard global currency, I think we will be headed for serious trouble when the rest of the world switches over.

it will, in short, make the dollar all but worthless

Currency revaluation only works in the most extreme circumstances, for example, post World War One Germany. As the Papiermark had reached the point where one US Dollar was worth billions, if not trillions, of Papiermarks, the Weimar government decided to switch over the Rentenmark.

The Rentenmark was traded in at 1x10^12 marks for one, but it was backed up by the value of land, and was thus not prone to inflation was the old Papiermark was. Of course, this revaluation of the Weimar currency was a temporary (and ultimately successful) measure to reign in the rapid inflation of the years immediately after the war.

Currency revaluation of what your friend advised should not be undertaken pre-emptively, or with such small ratios (1:25? What's he thinking?), instead the US government ought to move to encourage savings, decrease federal spending on costly entitlement programs and expensive, unnecessary foreign wars.

hope not last one had a world war after it

Currency revaluation only works in the most extreme circumstances, for example, post World War One Germany. As the Papiermark had reached the point where one US Dollar was worth billions, if not trillions, of Papiermarks, the Weimar government decided to switch over the Rentenmark.

The Rentenmark was traded in at 1x10^12 marks for one, but it was backed up by the value of land, and was thus not prone to inflation was the old Papiermark was. Of course, this revaluation of the Weimar currency was a temporary (and ultimately successful) measure to reign in the rapid inflation of the years immediately after the war.

Interesting thing you mentioned there. You said the currency was backed by land? How did that work? Was that in the same aspect as how you could turn a dollar into the mint and recieve a dollars worth of gold? During the gold-standard era of course.

hope not last one had a world war after it

Collapse leads to instability which tends to change governments. So yes a world war could result I think.

Interesting thing you mentioned there. You said the currency was backed by land? How did that work? Was that in the same aspect as how you could turn a dollar into the mint and recieve a dollars worth of gold? During the gold-standard era of course.

Somewhat similar, although at this point in time all of the German gold reserves had been totally depleted, making it impossible to back the Papiermark up with precious metals.

What I understand though, is that the Rentenmark was guaranteed by the land, it had a value because it was tied to the land. Not that it represented any specific bit of land that you could trade for, but if debts were called, the Weimar government could pay up in something real.

Somewhat similar, although at this point in time all of the German gold reserves had been totally depleted, making it impossible to back the Papiermark up with precious metals.

What I understand though, is that the Rentenmark was guaranteed by the land, it had a value because it was tied to the land. Not that it represented any specific bit of land that you could trade for, but if debts were called, the Weimar government could pay up in something real.


What do you think if the US government propped up the dollar by linking it to government land? They have a huge surplus of land and nowhere near enough gold to get us on the gold standard again.

you could bring marks to the bank and get a bucket of dirt

I guess as long as the dirt had a valuable mineral in it. Then that might be a fair trade.

Interesting thing you mentioned there. You said the currency was backed by land? How did that work? Was that in the same aspect as how you could turn a dollar into the mint and recieve a dollars worth of gold? During the gold-standard era of course.

you could bring marks to the bank and get a bucket of dirt

Collapse leads to instability which tends to change governments. So yes a world war could result I think.

what is not good

what is not good

?

?

lot only one person in my family would know what i mean so sorry for that was thinking of them
to what you said it be which is not good

lot only one person in my family would know what i mean so sorry for that was thinking of them
to what you said it be which is not good
Tosh all that, a World War would be great fun! Go out and show Jerry and Ben and Tommy what for, then be back in time for Christmas dinner.

Oh, sorry, I was thinking of a different world war there.

Tosh all that, a World War would be great fun! Go out and show Jerry and Ben and Tommy what for, then be back in time for Christmas dinner.

Oh, sorry, I was thinking of a different world war there.

they said that in both did they not

Some supsect numbers in the reasoning, for example food prices have gone up roughly 54% since 1990 (Source: US Govt CPI surveys). That is hardly 'nearly doubled'. Wages have just about matched inflation with some slight slippage in most areas except housing. However, when you look at the real details there you see people are also demanding more square footage and prime locations, which skews the numbers slightly. Costs per square foot in most areas outside of the really expensive places have not gone up much beyond the rate of inflation.

There is more danger of the EU suffering a meltdown due to high unemployment and social upheaval than there is a US based Great Depression coming back. *Both* would be bad things for all, because of how interconnected economies are today.

Most thinking people have priced a recession in by the end of this year.

Meh, it's not really the government debt. True the long term obligations are frightening for that, but the government can reduce benefits, they are not cast in stone.

The real problem, is as you say, personal debt. That coupled with an enormous trade deficit, and rampant speculation in residential property which has caused huge misallocations of financial resources and human capital.

There's also a bond bubble and education bubble.

All in all there is a credit crunch coming. So yes, a depression is possible. Also, I think it is inevitable that the US's position in the world is going to be severely diminished.

I suppose I should be buying puts then.

they said that in both did they not

To my understanding, people weren't exactly keen on the second world war, so I think it was limited to the first.

Some supsect numbers in the reasoning, for example food prices have gone up roughly 54% since 1990 (Source: US Govt CPI surveys). That is hardly 'nearly doubled'. Wages have just about matched inflation with some slight slippage in most areas except housing. However, when you look at the real details there you see people are also demanding more square footage and prime locations, which skews the numbers slightly. Costs per square foot in most areas outside of the really expensive places have not gone up much beyond the rate of inflation.

There is more danger of the EU suffering a meltdown due to high unemployment and social upheaval than there is a US based Great Depression coming back. *Both* would be bad things for all, because of how interconnected economies are today.

Ah, but the CPI is bollicks though innit? Hedonics, rent price equivalence shit like that. Wages haven't kept up with inflation. That's why the savings rate went negative last year.

To my understanding, people weren't exactly keen on the second world war, so I think it was limited to the first.

no they did say they back in time for Christmas when they did operation market garden

Some supsect numbers in the reasoning, for example food prices have gone up roughly 54% since 1990 (Source: US Govt CPI surveys). That is hardly 'nearly doubled'. Wages have just about matched inflation with some slight slippage in most areas except housing. However, when you look at the real details there you see people are also demanding more square footage and prime locations, which skews the numbers slightly. Costs per square foot in most areas outside of the really expensive places have not gone up much beyond the rate of inflation.

There is more danger of the EU suffering a meltdown due to high unemployment and social upheaval than there is a US based Great Depression coming back. *Both* would be bad things for all, because of how interconnected economies are today.

Wages have not matched inflation for some time. Here is one example of real dollar wage increases.

http://www.leftbusinessobserver.com/Stats_earns.html

If calculate housing and energy into the Consumer price index your real inflation is off the charts. For example I own rental properties. One that I bought in 1994 for 60,000 3 bd, 1 bath, 1500 sq ft. (hardly a mansion) and now it is worth over 200k. That in itself is over 300% increase. You can't take housing out of the equation when figuring in real inflation because housing is such a big component of peoples monthly outlay. Fuel which includes oil, gas and natural gas are not taken into consideration. I don't need to tell you how much that has increased since 1990. Energy is the second largest household expense once you take into account gasonline. So the two largest pieces of the houshold budget pie are not incuded in most of the inflation reporting.

no they did say they back in time for Christmas when they did operation market garden

Pfft, paratroopers. They're always just a bit too fast for their own good :rolleyes:

[/tryingnottosoundstupid]

no they did say they back in time for Christmas when they did operation market garden
For some reason, most wars are entered under the assumption that they will be over by Christmas. I suppose that world leaders all expect Santa Claus to arrive and bring a nice, fat peace settlement in his sack.

Pfft, paratroopers. They're always just a bit too fast for their own good :rolleyes:

[/tryingnottosoundstupid]

came to think of it they said that in the korean war too

Fourth and I believe this is the largest problem out there. The biggest single issue I have to agree with is the wage vs inflation problem. Americans that earn a hourly/salary wage are making less every single year. For example if one was to make $15 in 1990. Which was a living wage at the time to let's say $20 for the same job today. That would mean that that person only received a increase of $5 per hour which is a 33% increase in wages. This is a real example that they brought up. There were basically other comparisons along the same lines. Problem is that housing has doubled in most areas. In fact housing has tripled in areas like California. Basic goods such as fuel have nearly doubled. Food almost doubled since 1990. It is a trend that cannot continue without a correction.

So what has to happen to correct this? Would a economic collapse actually help in the long run?

so people are earning less and paying more? or, at least, the poor are earning less. the rich are, of course, earning vast sums.

thankfully since labour took power in the UK this trend has stopped - the wage gap is still rising, but only because the rich are getting richer, not because the poor are getting poorer (in real terms)

i'm not sure what the concequence will be of this. its of little surprise that consumer debt is so high though, if this is the case. not to mention the increasing pervasiveness of consumerism. i do feel it can't continue, but i doubt a crash is on its way... i feel somehow the market will evolve and adjust as is its way. i just can't say how.

taking a longer term perspective, our current levels of growth in most western countries have long been unsustainable in enviro-economic terms. from operating outside our PPC during the 'boom & bust' years of the 1980s to expecting an economy to grow at a rate that rapidly depleats natural resources... its all unsustainable, and something will have to change. life as we know it cannot go on.

i just can't say how. (if i could, i'd be the next Bill Gates ;))


i recommend reading a book called Hard Work by Polly Toynbee - its about that issue of yours i quoted, in the UK, but i believe it should still be relavent to the US :)

I wouldn't say America is going to have trouble with a class divide anytime soon once we reach 1912 levels maybe but before that you will just suffer from ill workers until some companies take action and help the workers themselves

Course I’m going to stop because we all know how Arthur Birling predicted the 20th century would be an age of peace (yes I paid attention in school)

There is more danger of the EU suffering a meltdown due to high unemployment and social upheaval

bwah?!

Wages have not matched inflation for some time. Here is one example of real dollar wage increases.

http://www.leftbusinessobserver.com/Stats_earns.html

If calculate housing and energy into the Consumer price index your real inflation is off the charts. For example I own rental properties. One that I bought in 1994 for 60,000 3 bd, 1 bath, 1500 sq ft. (hardly a mansion) and now it is worth over 200k. That in itself is over 300% increase. You can't take housing out of the equation when figuring in real inflation because housing is such a big component of peoples monthly outlay. Fuel which includes oil, gas and natural gas are not taken into consideration. I don't need to tell you how much that has increased since 1990. Energy is the second largest household expense once you take into account gasonline. So the two largest pieces of the houshold budget pie are not incuded in most of the inflation reporting.No kidding. My girlfriend and I live in south Florida. We're both professionals and make what would be considered, in most places, a solid middle class income--between 70 and 80K a year. But we can't even sniff a house, and that's with the market currently flat and teetering on falling. We're maybe--and I emphasize the maybe here--in the 1BR condo market. We certainly can't buy anything approaching the size of the apartment we're renting right now.

So what do those people making 7 to 8 bucks an hour do? They work 2 or 3 jobs, live 5 to a house, or they leave. And south Florida's economy has been built on the housing boom for the last few years. When that crashes, which is going to happen any time now, the local economy is fucked. On the plus side, since my g/f and I have steady jobs, we might be able to pick up someone else's misfortune.

I really think you need to read up on economics a bit – I would love to suggest some good books to you, but I am too tired to think of any. Perhaps you will be lucky enough for an actual economist to come expand on what I have to say.

This was a major discussion with a group of people I was around last night. I came over to there table and sat down to speak with them about it. The group mainly consisted of local business men. Was interesting to hear what they thought could happen in the US due to a real problem with value of the dollar. They were discussing what would occur if a new Great Depression descended on the land. The basic talk was of four points.

I have no idea where these ‘local businessmen’ came from, but they display an ignorance of economics which simply highlights that just because someone might be a ‘businessman’, it doesn’t mean he knows anything about the economy.

One was the possibility of massive US dollar devaluation. This in my opinion has already created an enormous problem in the US. One proposed a $25-$1 revaluation of the dollar. Basically it would make the Penney worth 25 cents of today's US currency. Not sure how exactly that would help things but he didn't elaborate into detail on that idea.

The US is overvalued, but not by much. It really depends on foreign markets and how willing they are to continue to prop-up the dollar. It also depends on what basket of currencies you are comparing it to, as different exchange rates will tell you different things. The dollar is actually a little weaker than it should be compared to the Pound and the Euro, mostly because the continued policy of many Asian countries to keep the dollar high compared to their domestic currency. The biggest threat to the value of the dollar would be if these countries, which have been buying up dollars, suddenly decide to drop them back on the market en mass. This is unlikely as it would cripple their economies.

The comparative value of the dollar really only has a substantial impact in the very short-term. Any drop in the value of the dollar would make imports more expensive (and thus drive inflation) but it would also push a surge in exports (the US is still the largest exporter in the world). The economies of the world will adjust to suit the new values without much problem aside from a little short-term uncertainty and a slowdown in consumer spending (which would actually be a good thing).

I have no idea what is up with the suggestion of revaluing the dollar to 25 times its current value. This is a fairly nonsensical suggestion and casts serious doubts on the level of expertise these ‘local businessmen’ have when discussing the economy. Trust me, the local hotdog vendor is not an expert on international trade.

Second was the staggering debt that Americans carry. Consumer debt even in my lifetime is really out of control. When I started out people really didn't use credit cards that much. Basically it was a cash based system. I had one credit card for the longest time. Carried no balance because that is just what people did. Now everything is centered around the little pieces of plastic in our wallets. It is a very dangerous way to operate in my opinion.

Credit is a very good thing. It allows people to even out their consumption between times of high income and low. Credit allows people to structure their finances to better adjust their consumption, make investments they wouldn’t otherwise make, and improve their lives by borrowing against future earnings. This does not become a problem unless you borrow more than you are ever going to be able to pay – if you use a rational discount rate, credit is a very good thing. If you gamble every penny you will ever make on buying lottery tickets, then that is just foolish, but I happen to think most people are smarter than that.

Credit is one of the largest driving forces in an economy. It vastly increases the money supply and drives economic growth. In most countries a negative savings rate could be disastrous, but given the global liquidity glut and the US still having a serious current accounts deficit, there is little cause for concern for the economy.

Third is the staggering national debt. The cost of wars and bad policies is having an extreme negative effect on the value of the US dollar. Which then causes other problems.

Not really. High national debt has a small impact, but once again, is nothing worth panicking over. Spending while interest rates are low is a very smart thing to do – the benefits of spending that money now while it is cheap to borrow generally outweigh the costs. The discount rate (how much you prefer immediate consumption as opposed to differed consumption) is above current interest rates, and thus spending money now is preferable to saving that money and spending a tiny bit more in the future.

Actually, this is the economic environment where a government should be going into debt – it should be spending money making investments in the future as the expected return on just about anything will be higher than the extremely low cost of borrowing. Unfortunately I do not believe it is being spent on anything with a reasonable rate of return, but that is a subjective value when considering military actions or ideologically driven expenditures.

In my personal estimation, the economic growth triggered by the huge expenditures in defense spending will net a return on investment much lower than many other alternative projects. Once again, that is a subjective evaluation incorporating my personal beliefs and political positions. Of course, so is everybody else’s.

Government expenditure is a problem, not because of the current debt, but because of the impending rise in liabilities. Future taxation will have to rise substantially unless there is serious Social Security and Medicare reform. Taxation is already above optimal levels for economic growth, so raising them will seriously stunt the growth of the economy… but that is a topic for another thread.

Fourth and I believe this is the largest problem out there. The biggest single issue I have to agree with is the wage vs inflation problem. Americans that earn a hourly/salary wage are making less every single year. For example if one was to make $15 in 1990. Which was a living wage at the time to let's say $20 for the same job today. That would mean that that person only received a increase of $5 per hour which is a 33% increase in wages. This is a real example that they brought up. There were basically other comparisons along the same lines. Problem is that housing has doubled in most areas. In fact housing has tripled in areas like California. Basic goods such as fuel have nearly doubled. Food almost doubled since 1990. It is a trend that cannot continue without a correction.

This is where you risk wandering into seriously dangerous territory.
You do not, under any circumstances, for any reason, in any way, mess with pricing and wages unless you have a very solid grasp of advanced economics and finance.
I will point out that nearly every member of the legislature has a tenuous grasp of economic theory at best. You do not want them to try to tinker with price controls or wages for any reason whatsoever.

Rapid appreciation in prices has occurred in very narrow segments – the actual cost of living has not changed nearly as dramatically as you think. People have changed their expectations and raised their standards, which does cost more.

Basic foodstuffs have held steady in price, and actually gone down in many cases. One of the reasons why people perceive food prices to have changed so much is due to an increase in quality of the product they are buying and changes in buying habits – alter your basket, alter your price.

Fuel is double what it was a decade ago, but it is not as important to the economy as it once was (price increases in fuel are not actually that significant to the economy, comparatively speaking). Gasoline is still cheap in the US – the perception that we are spending so much more is largely due to the ever falling fuel economy as people made a dash for SUVs, puickups, large vans, etc. The 90s also saw the lowest prices for crude oil ever. Comparing the cost of a product to its all-time low is building in a bit of bias to the comparison.

Housing in high demand areas has seen a rapid appreciation in price (as you would expect) which has largely been driven by combinations of speculation and extremely low interest rates. Low interest greatly inflate the list price for a property. When interest rates fell, it allowed people to pay more upfront with a lower cost in financing, but the total amount paid of list price plus financing was comparable.

While it looks really impressive to compare list prices, it is a little deceptive. Now I am not saying it was not a massive increase (it was) but just take it with a grain of salt.

The other big push on housing prices (in certain markets – much of the country did not experience such a boom) came from speculation. People expected prices to increase, and thus were willing to put in far more than the house was worth based on the idea that they could then sell at a substantial profit. Pricing on expectations of appreciation, rather than on the actual value, is a bubble. Those markets which experienced a bubble are now suffering a glut of housing. Houses are sitting on the market for an extremely long time because so many people simply cannot afford to sell at a substantial loss. They gambled on continuing runaway price inflation and lost. Prices have been slowly softening, but will probably fall quite a bit soon (or at least stay soft for a considerable period until inflation brings prices back towards a real value).

Another quick way to spot a bubble – purchase prices shot up drastically while rental prices were comparatively stagnant.

When you remove housing, you see the cost of living has actually fallen in real terms for most parts of the country. Goods are far cheaper, most food is cheaper (just because you now have higher expectations of quality and a different, more expensive, basket of goods does not mean prices have shot up), and living standards have survived remarkably well for having gone through what could have been a painful transition post tech-bubble.

Wages and the cost of living tend to rise and fall together. If people need a certain level of income to survive in an area, employers will have to pay a wage which meets that need or they will have trouble finding workers. Likewise, wage increases would push up prices as people are willing to pay more for the same resources. There will be temporary periods where one will be a little out of balance with the other, but in the long run there is a kind of equilibrium.

Try to interfere in this and I will guarantee that you will only make matters much worse. Let the markets sort it out! Don’t screw up the economy because you are a little impatient and want politicians to ‘do something’ just for the sake of doing something.

So what has to happen to correct this? Would a economic collapse actually help in the long run?

Are you insane? Economic collapses are never a good thing! Never!

The dollar will not loose much value, and what it does loose will not have that much of an impact (except for those of us who like to travel overseas). Imports will be a little more expensive, but exports will be cheaper for foreigners – the trade deficit will be reduced (not that it matters – trade deficits are completely irrelevant), industries will shift in demand a bit, despite a short-term loss on currently held assets it becomes more attractive to invest in the US (as those investments are now cheaper), and the economy adjusts back on a more efficient track of growth.

At this point I marvel that I am still conscious, so I must go to bed.
I do hope this helps clear things up just a little for you.

Bottom line – while there will be a little readjustment, no worries.

No kidding. My girlfriend and I live in south Florida. We're both professionals and make what would be considered, in most places, a solid middle class income--between 70 and 80K a year. But we can't even sniff a house, and that's with the market currently flat and teetering on falling. We're maybe--and I emphasize the maybe here--in the 1BR condo market. We certainly can't buy anything approaching the size of the apartment we're renting right now.

So what do those people making 7 to 8 bucks an hour do? They work 2 or 3 jobs, live 5 to a house, or they leave. And south Florida's economy has been built on the housing boom for the last few years. When that crashes, which is going to happen any time now, the local economy is fucked. On the plus side, since my g/f and I have steady jobs, we might be able to pick up someone else's misfortune.

Yah. I sympathize with this. Median housing should be around 3x median income for any given area. (Or 100x rent in UBAR popular places).

It's a fundamental thing. All's I can tell you is that housing prices are going to fall much more than you think. Esp. in south florida.

The downside is that there is going to be huge unemployment in the real bubble areas.

hope not last one had a world war after it

pff its bound to happen again.

For example if one was to make $15 in 1990. Which was a living wage at the time to let's say $20 for the same job today. That would mean that that person only received a increase of $5 per hour which is a 33% increase in wages. This is a real example that they brought up. There were basically other comparisons along the same lines. Problem is that housing has doubled in most areas. In fact housing has tripled in areas like California.
Being a pedant, I feel an overpowering urge to correct you with your figures there:
$15 in 1990 is worth $23.52 today, according to the US inflation calculator:
http://www.westegg.com/inflation/

However if you look at other historical dates, this ain't particularly bad.
eg.
What cost $15 in 1980 would cost $31.38 in 1996.
What cost $15 in 1970 would cost $44.11 in 1986.
What cost $15 in 1960 would cost $27.69 in 1976.
What cost $15 in 1950 would cost $19.85 in 1966.
What cost $15 in 1940 would cost $28.94 in 1956.
and so on.

Which means that overall inflation has been pretty good the last decade and a half, when compared to other eras.

However, housing is a major issue. It's gone up ridiculously the last 10 years - and not just in the US. Pretty much everywhere throughout the Western World.

Being a pedant, I feel an overpowering urge to correct you with your figures there:
$15 in 1990 is worth $23.52 today, according to the US inflation calculator:
http://www.westegg.com/inflation/

However if you look at other historical dates, this ain't particularly bad.
eg.
What cost $15 in 1980 would cost $31.38 in 1996.
What cost $15 in 1970 would cost $44.11 in 1986.
What cost $15 in 1960 would cost $27.69 in 1976.
What cost $15 in 1950 would cost $19.85 in 1966.
What cost $15 in 1940 would cost $28.94 in 1956.
and so on.

Which means that overall inflation has been pretty good the last decade and a half, when compared to other eras.

However, housing is a major issue. It's gone up ridiculously the last 10 years - and not just in the US. Pretty much everywhere throughout the Western World.

I know people here on NS love to correct. However if you use a inflation calculator that also includes housing and energy then your figures would be much higher then what you showed me using the CPI figures as a basis. Which housing energy is the largest costs to the majority of families.

Currency revaluation of what your friend advised should not be undertaken pre-emptively, or with such small ratios (1:25? What's he thinking?), instead the US government ought to move to encourage savings, decrease federal spending on costly entitlement programs and expensive, unnecessary foreign wars.

There is only one problem with your theory: the fact is that the entire US economy is on life support because of massive government subsidies to private enterprise, particularly defense spending. Trust me, those billions of dollars per year will be missed.

Massive spending cuts like that will end up causing the total collapse of what is left of the US manufacturing sector, resulting in the loss of upwards of several hundred thousand jobs in the manufacturing sector. Mining, raw material, and transportation industries would have to make drastic cuts as well, with corresponding cuts rippling throughout the entire US economy. With that large of an increase in unemployment, social welfare services, which are already weak already, would be very quickly overwhelmed.

Naturally, with that many people unemployed, consumption will decrease, and the vicious cycle will continue.

So, in trying to avert a depression, this scenario inadvertently caused one.

I know people here on NS love to correct. However if you use a inflation calculator that also includes housing and energy then your figures would be much higher then what you showed me using the CPI figures as a basis. Which housing energy is the largest costs to the majority of families.

But regular CPI does include energy and some housing costs; most inflation calculators don't use the core figures since those are used more to monitor whether inflation is spreading to other sectors rather than as indicators of inflation in and of themselves.

By and large, it's a good estimate of overall inflation in the economy.

But regular CPI does include energy and some housing costs; most inflation calculators don't use the core figures since those are used more to monitor whether inflation is spreading to other sectors rather than as indicators of inflation in and of themselves.

By and large, it's a good estimate of overall inflation in the economy.

Well the housing aspect of the CPI is just rent or supposed equivalent. It has always cost more to buy a home and pay a mortgage then to rent a apartment. With that also utilities cost more for a home. So that is where it doesn't factor that the majority of Americans own there homes. Also my own observations is that wages and salaries for non-governmental employees does not rise at the same rate as CPI. Most people do not get a cost of living adjustment every year. My overall point is that the CPI does not accurately reflect what is going on. Also you have to take into consideration wages are not rising with the CPI. With both of those factors there is a larger difference then what the CPI is showing. Also it is in the governments interest not to panic the public. Those figures are not accurate because some key components are left out on purpose. Housing being the largest one.

But regular CPI does include energy and some housing costs; most inflation calculators don't use the core figures since those are used more to monitor whether inflation is spreading to other sectors rather than as indicators of inflation in and of themselves.

By and large, it's a good estimate of overall inflation in the economy.

Also pulled this stat from the BLS. This shows at the bottom what people are making in 1982 dollars. If you notice that real income actually has not gone up. While I can say for certain real cost of housing and other goods has skyrocketed if taken as a combined sum.

http://www.bls.gov/cps/cpswktabs.htm

Check table 1, then check men 25 and older in 1982 dollars.

Well the housing aspect of the CPI is just rent or supposed equivalent. It has always cost more to buy a home and pay a mortgage then to rent a apartment. With that also utilities cost more for a home. So that is where it doesn't factor that the majority of Americans own there homes.

Yeah, the housing component of the CPI is pretty screwed up. Of course, the problem is that high housing prices can simultaneously benefit and harm people in terms of income.

For example, some people benefit because those higher prices mean more equity to borrow against, which means they gain a boost in purchasing power; other people, like new buyers, are shut out of the market or have high mortgages, which means that they have their purchasing power decrease.

Also my own observations is that wages and salaries for non-governmental employees does not rise at the same rate as CPI. Most people do not get a cost of living adjustment every year. My overall point is that the CPI does not accurately reflect what is going on. Also you have to take into consideration wages are not rising with the CPI. With both of those factors there is a larger difference then what the CPI is showing. Also it is in the governments interest not to panic the public. Those figures are not accurate because some key components are left out on purpose. Housing being the largest one.

Real income has generally risen over the past couple decades; with a few exceptions (2004-2005 come to mind), most years have seen steady gains in real income. So, most people do receive a COLA or more each year although certain years with elevated inflation have produced less or no gain, especially in 2000-2005 where rising energy prices ate away at real income.

Of course, people on average are consuming more than they were in the past, so real gains in income are being outstripped by spending, which produces the current low savings rate. Consumers are taking on more debt than they were in the past to finance nonessential purchases (and that's really where most of that debt is going).

So, the thing is that even though real wages are rising, they're not keeping up with consumer demand which is producing more and more debt. People are less willing to save than they were in the past.

Before I respond to your post, I also want to mention that today is the 7th anniversary of the peak of the dot-com bubble in 2000. The NASDAQ closed up 1.76 points to 5048.62, its all time closing high.

Yeah, the housing component of the CPI is pretty screwed up. Of course, the problem is that high housing prices can simultaneously benefit and harm people in terms of income.

For example, some people benefit because those higher prices mean more equity to borrow against, which means they gain a boost in purchasing power; other people, like new buyers, are shut out of the market or have high mortgages, which means that they have their purchasing power decrease.

This in my opinion is what may be a breaker for the generation coming into the home market now. It may take a little while but this will restrict spending in ways that we havent seen in a long time. Our economy is built on consumer spending. When a couple has to spend to much on the housing aspect that stops them from buying that new plasma tv, the new car, going out to eat etc. This will slowly build up until it starts to damage the economy. This is what I consider the danger zone.


Real income has generally risen over the past couple decades; with a few exceptions (2004-2005 come to mind), most years have seen steady gains in real income. So, most people do receive a COLA or more each year although certain years with elevated inflation have produced less or no gain, especially in 2000-2005 where rising energy prices ate away at real income.

Of course, people on average are consuming more than they were in the past, so real gains in income are being outstripped by spending, which produces the current low savings rate. Consumers are taking on more debt than they were in the past to finance nonessential purchases (and that's really where most of that debt is going).

So, the thing is that even though real wages are rising, they're not keeping up with consumer demand which is producing more and more debt. People are less willing to save than they were in the past.

I actually agree with your view on the consumer spending. However if you check that graph that I linked to you will see how real income has not risen since 1982. However I could be reading that wrong but I believe that is what it says. The second aspect however is there is more women in the workforce. That will help in the families overall income. So that may offset some of it. But I bet if you look at it there is more then enough costs to offset any gains from two incomes. I'm not trying to be a pessimist about this whole thing but it doesn't look good in my eyes.

This in my opinion is what may be a breaker for the generation coming into the home market now. It may take a little while but this will restrict spending in ways that we havent seen in a long time. Our economy is built on consumer spending. When a couple has to spend to much on the housing aspect that stops them from buying that new plasma tv, the new car, going out to eat etc. This will slowly build up until it starts to damage the economy. This is what I consider the danger zone.

Personally, what I feel will happen is prices will fall; demand for housing's going to fall because a pretty significant number of people can't afford it in in-demand regions, and that will cause prices to fall, causing the supply of cheap home-equity to dry up even more than it has and restrict consumer spending.

Of course, the result of that would be drops in employment in residential construction and related fields, with a knock-on effect on manufacturing and real estate. From there, it would reverberate out and cause a major economic slowdown. At present, we still have the liquidity weapon at our disposal in the form of monetary policy, and if we take steps to reign in the budget we will have that to use as well in the event of a recession. However, if the economic slowdown can't be reversed through monetary policy, it will be quite harsh if not necessarily prolonged.


I actually agree with your view on the consumer spending. However if you check that graph that I linked to you will see how real income has not risen since 1982. However I could be reading that wrong but I believe that is what it says. The second aspect however is there is more women in the workforce. That will help in the families overall income. So that may offset some of it. But I bet if you look at it there is more then enough costs to offset any gains from two incomes. I'm not trying to be a pessimist about this whole thing but it doesn't look good in my eyes.

True. Of course, income for people in the upper 50% overall have risen a little, the upper 25% a significant amount, and the upper 10% a huge amount. The higher the income bracket, the greater the gains. Of course, the problem is, that other 50% has seen its real incomes decline in every single recession and economic expansion during that period.

So, half of the country has lost ground and the other half has gained...with the result being that the overall average hasn't gained appreciably since then.

The question is whether or not the wealthy can keep the economy going, and if income inequality will lead to further economic problems down the road. That remains to be seen.

Well lets look at the cause of the coming depression instead of mere conversion rates. The curse of Free Trade. Free Trade began with Britian around WW1 and lead to Britians inability to wage the World Wars on its own industrially because their factories had been outsourcing and closing for cheaper markets, the Great Depression begins and nations raise their tariffs by far too much to attempt to revive their economies and the Depression gets worse. World War 2 ends the great depression. America the great industrial nation wins that war by keeping britian afloat and then entering the war. America begins lowering tariffs and even removing them to help rebuild allied nations industry so that these nations will not fall to communism, since then we've been following the credo of free trade. Beginning with Bush sr. both parties began pushing for a free trade north american continent, NAFTA is passed under Clinton (bi-partisan effort) and since then we've seen an even faster exodus of jobs to Mexico as well as Canada, a plan was recently turned down that would force all military equipment to have at least 65% of parts built in America congress turns it down because it is impossible by several generals accounts. The left tries to blame GW for the outsourcing of jobs but really its both parties fault. We need tariffs a nations economy is based on its producing power not necesarily the value of its currency. If America's economy collapses (and as it is going it will because of rising trade deficiets and declining manufacturing jobs) the rest of the worlds economy will collapse beginning with China.

The question is whether or not the wealthy can keep the economy going, and if income inequality will lead to further economic problems down the road. That remains to be seen.

It may not lead to economic problems, but we are already seeing some political problems based on income inequality.

Well lets look at the cause of the coming depression instead of mere conversion rates. The curse of Free Trade.

Huh? It was protectionism during the 1920's in the US that were the single biggest cause of the Depression. Those tariffs destroyed the export markets for the US as well as Europe, causing a massive contraction in industry and destroying a huge chunk of world trade.

If anything, globalization and free trade have been the strongest forces preventing a repeat of the Great Depression; it enables us to coordinate economic policy on a far larger scale than we could in the past. Now, banks in Europe, the US, Asia and Africa can work together to regulate financial policy in their regions with a larger effect on the rest of the world.

I actually agree with your view on the consumer spending. However if you check that graph that I linked to you will see how real income has not risen since 1982. However I could be reading that wrong but I believe that is what it says. The second aspect however is there is more women in the workforce. That will help in the families overall income. So that may offset some of it. But I bet if you look at it there is more then enough costs to offset any gains from two incomes. I'm not trying to be a pessimist about this whole thing but it doesn't look good in my eyes.
What I can work out from that site, it says the average wage for men, aged 25 and older:
in 2000: $693 /week
in 2006: $797 /week

Which doesn't sound too bad.
However, in 1982 dollar terms:
in 2000: $388 /week
in 2006: $381 /week

Slightly better for women:
in 2000: $516
in 2006: $627

In 1982 dollar terms:
in 2000: $289 /week
in 2006: $300 /week

So, in the last 7 years, real income for men has dropped 1.8%, and risen for women 3.8%.

As well, look at the Dow. For all this blather about record highs, the true fact is that the Dow in the last 6 years (from Jan 1, 2001 to March 1, 2007) has risen only 12.7% - just 2% year-on-year average. Meanwhile money left in the bank at just 4% interest would have returned 26.5% growth.
To put in perspective - inflation during that time (2001 - 2006) was 17.7% compounded (http://inflationdata.com/inflation/inflation_rate/CurrentInflation.asp).
Thus, if you had invested in the Dow in 2001, your money in real terms would be worth 5% less today than it was in 6 years ago.

Not what anyone could call outstanding economic success or growth.
(unless you're a neo-con of course)

You might be interested in this publication by the US census:
http://www.census.gov/prod/2006pubs/p60-231.pdf
"Income, Poverty and Health coverage in the US: 2005"
a few points I found scanning through it quickly:
"The real median income of households in the United States rose by 1.1 percent between 2004 and 2005, from $45,817 to $46,326. The last time median income of households experienced an annual increase was 1999."
However:
"The real median earnings of both men and women who worked fulltime,
year-round declined between 2004 and 2005. The median earnings of men declined 1.8 percent to $41,386. The median earnings of women declined 1.3 percent to $31,858."

"After 4 years of consecutive increases, the poverty rate stabilized at 12.6 percent in 2005 — higher than the most recent low of 11.3 percent in 2000"

"The poverty rate in 2005 for children under 18 (17.6 percent) remained higher than that of 18-to-64-year-olds (11.1 percent) and that of people 65 and older (10.1 percent)"

Then compare that to this recent report:
Billionaire club membership jumps

Rival billionaires are fast catching up on Microsoft's Bill Gates
Membership of the world's billionaire club has swelled to almost 1,000, while members' net worth has risen by 35% on last year, according to Forbes.

Forbes put the increase in wealth down to surging commodity prices, real estate and strong equity markets.

"In the last five years... despite all the turmoil in the world, all the conflict in the world, the global economy in real terms expanded over 25%," said Steve Forbes, the magazine's editor-in-chief.
...
"This growth in the billionaires list is a mere reflection of a dynamic global economy. More people are better off on this Earth than ever before," Mr Forbes said.
http://news.bbc.co.uk/2/hi/business/6432941.stm
So some good news at least - the rich people are becoming obscenely wealthy.

As well, look at the Dow. For all this blather about record highs, the true fact is that the Dow in the last 6 years (from Jan 1, 2001 to March 1, 2007) has risen only 12.7% - just 2% year-on-year average. Meanwhile money left in the bank at just 4% interest would have returned 26.5% growth.

Not what anyone could call outstanding economic success or growth.
(unless you're a neo-con of course).

It's important to note, though, that this performance is excellent when put in perspective. The 2000-2002 saw the bursting of the largest speculative bubble in human history; something like $14 trillion in stock wealth was destroyed during that period, and only in the past year has that valuation been recovered. We also had a terror attack that severely damaged the airline and tourism industries, the collapse of two major corporations, a 600% rise in oil prices and major natural disasters but survived all of them with no slowdown following the 2001 recession, which was the mildest on record.

Is it "good" in the sense that people have seen their incomes rise significantly? Not so much, but it is excellent in the sense that we successfully averted the severe economic problems that would have likely been a prolonged aftereffect in prior recessions.

Huh? It was protectionism during the 1920's in the US that were the single biggest cause of the Depression. Those tariffs destroyed the export markets for the US as well as Europe, causing a massive contraction in industry and destroying a huge chunk of world trade.

If anything, globalization and free trade have been the strongest forces preventing a repeat of the Great Depression; it enables us to coordinate economic policy on a far larger scale than we could in the past. Now, banks in Europe, the US, Asia and Africa can work together to regulate financial policy in their regions with a larger effect on the rest of the world.


No it was reactive protectionism that worsened the 1920's (This is the reason why a second great depression didn't happen after WW2 instead of ramping up tariffs right after the war the US, the only real industrial power at the time, lessened tariffs to help rebuild the war economy by outsourcing manufacturing jobs) that was an unfortunate timing and misguided attempt to rebuild the economy while at the same time breaking Germany's back (as well as britian and frances back by America) which caused the Great Depression. Now is the time for tariffs we would see a minor recession like that in the early 1800's with the embargo acts of Prez Jefferson but the economy in the long run would be better off for it.

. Now is the time for tariffs we would see a minor recession like that in the early 1800's with the embargo acts of Prez Jefferson but the economy in the long run would be better off for it.

Well, those kinds of tariffs are different; they were revenue tariffs rather than protective ones so their effects were completely different.

First, they weren't high enough to really block foreign products. Foreign goods were still competitive and similar tariffs in other countries had a similar effect on US exports; this was compensated for by the fact that there wasn't an income or sales tax, which meant the overall tax burden was far less than what foreign as well as domestic corporations pay today.

Secondly, there were no quotas. Quotas have been such a complete and utter disaster that they're pretty much single-handedly responsible for the dismantling and decline of the US automotive industry in the 1970's through the present.

So, those tariffs might be a decent idea if they were combined with cuts in taxes and agreed-upon tariffs in other nations.

Well, those kinds of tariffs are different; they were revenue tariffs rather than protective ones so their effects were completely different.

Jefferson's Embargo Acts (http://en.wikipedia.org/wiki/Embargo_Act) were not "revenue tariffs."

Edit: And you have your history wrong more generally, too. Tariffs in the nineteenth century were regularly, implicitly and explicitly, intended to foster US industry by protecting it from foreign competition. That is why some Southern states complained so adamantly.

.

Jefferson's Embargo Acts (http://en.wikipedia.org/wiki/Embargo_Act) were not "revenue tariffs."


The Embargo Acts were the US response to UK aggression on the high seas, as an attempt to punish the UK for what was, essentially, piracy.

His revenue tariffs predated the Embargo Acts, and were widely viewed as the only Constitutional means for the federal government to raise money, outside of the use of Bonds.

The Embargo Acts were the US response to UK aggression on the high seas, as an attempt to punish the UK for what was, essentially, piracy.

I know. However, they were, as a side-effect, a stimulus to the development of industry in New England.

His revenue tariffs predated the Embargo Acts, and were widely viewed as the only Constitutional means for the federal government to raise money, outside of the use of Bonds.

Droskianishk, however, referred explicitly to the Embargo Acts.

Droskianishk, however, referred explicitly to the Embargo Acts.

Which were such a complete and utter economic disaster that the northern manufacturing states and New England nearly seceded from the Union because of the economic damage they caused....

How on Earth could you want that? Unless you want an economy as vibrant as North Korea's, that is.

I think there will be another Great Depression, for the four reasons and also another; insolvent social programs. It'll be rough, but hopefully it will be strong enough to wipe out democracy before the Western governments wipe out their liberal aspects.

We need to bring back the gold standard.

I love you.

We need to bring back the gold standard.

Which were such a complete and utter economic disaster that the northern manufacturing states and New England nearly seceded from the Union because of the economic damage they caused....

Yeah, they were.

But that doesn't change the fact that industrial development in the United States was repeatedly (though not consistently) protected by tariff barriers. As has been the case in most of the other cases I can think of, too, with the exception of England, which had little competition at the time anyway.

Of course, your larger point is still accurate - protectionism at this point is idiotic, and almost self-evidently immoral.

I think there will be another Great Depression, for the four reasons and also another; insolvent social programs. It'll be rough, but hopefully it will be strong enough to wipe out democracy before the Western governments wipe out their liberal aspects.

In the last Great Depression governments became less liberal economically and nondemocratic nations were the most enthusiastic in reducing economic liberalism and civil rights. I see no reason to believe that if there was a Great Depression in the future why economic liberalism will emerge resurgent. In fact, I see the opposite would likely be the case.

In the last Great Depression governments became less liberal economically and nondemocratic nations were the most enthusiastic in reducing economic liberalism and civil rights. I see no reason to believe that if there was a Great Depression in the future why economic liberalism will emerge resurgent. In fact, I see the opposite would likely be the case.

Hence the second part, "before the Western governments wipe out their liberal aspects." Basically, I'm hoping the depression will be such that it completely disables the government so that they can't go and start messing stuff up. (And there have been very select few non-democratic western nations since World War I. In fact, by the time World War I rolled around practically every European country had virtual or universal male suffrage. They may not have been liberal, a la Franco or Hitler, but they were democracies still. The end result is that liberalism is toned down and demagogical democratism is toned up.)

We need to bring back the gold standard.

At this point I think it would be impossible to bring the Gold Standard back into being. The reason is there is to much Cash out there. The currency would have to be devalued. Also I don't think there is enough Gold out there to cover the potential cash. A massive buying spree by the US government would shove Gold prices through the roof.

Personally after thinking about it I like the idea of tying the nations money to the land as they did in Germany. The US has plenty of land and I think this could work in helping stop the slide of the dollar.

Hence the second part, "before the Western governments wipe out their liberal aspects." Basically, I'm hoping the depression will be such that it completely disables the government so that they can't go and start messing stuff up. (And there have been very select few non-democratic western nations since World War I. In fact, by the time World War I rolled around practically every European country had virtual or universal male suffrage. They may not have been liberal, a la Franco or Hitler, but they were democracies still. The end result is that liberalism is toned down and demagogical democratism is toned up.)

Liberalism is much more fragile than "democracy" so broadly interpretted. I'm afraid that if a Great Depression happens you will extremely disapointed.

Liberalism is much more fragile than "democracy" so broadly interpretted. I'm afraid that if a Great Depression happens you will extremely disapointed.

Pretty much the only thing that kept the US from becoming a full-bore socialist nation during the Great Depression was the onset of WWII. I'm sure that some of our more ridiculous posters will claim that the US is a socialist nation and that FDR was a socialist president, but that's where we were headed if not for the war.

Liberalism is much more fragile than "democracy" so broadly interpretted. I'm afraid that if a Great Depression happens you will extremely disapointed.

It might take a little work to stop democracy, properly defined, from completing its eradication of liberalism. Hopefully what will happen is the government will impose a wide variety of price controls and foster grey and black markets, thus encouraging people to ignore statutory law and weaken the power of the state. Living standards start to go up, but it being under the table the government gets no part of it and continues to collapse.

This was a major discussion with a group of people I was around last night. I came over to there table and sat down to speak with them about it. The group mainly consisted of local business men. Was interesting to hear what they thought could happen in the US due to a real problem with value of the dollar. They were discussing what would occur if a new Great Depression descended on the land. The basic talk was of four points.

One was the possibility of massive US dollar devaluation. This in my opinion has already created an enormous problem in the US. One proposed a $25-$1 revaluation of the dollar. Basically it would make the Penney worth 25 cents of today's US currency. Not sure how exactly that would help things but he didn't elaborate into detail on that idea.

Second was the staggering debt that Americans carry. Consumer debt even in my lifetime is really out of control. When I started out people really didn't use credit cards that much. Basically it was a cash based system. I had one credit card for the longest time. Carried no balance because that is just what people did. Now everything is centered around the little pieces of plastic in our wallets. It is a very dangerous way to operate in my opinion.

Third is the staggering national debt. The cost of wars and bad policies is having an extreme negative effect on the value of the US dollar. Which then causes other problems.

Fourth and I believe this is the largest problem out there. The biggest single issue I have to agree with is the wage vs inflation problem. Americans that earn a hourly/salary wage are making less every single year. For example if one was to make $15 in 1990. Which was a living wage at the time to let's say $20 for the same job today. That would mean that that person only received a increase of $5 per hour which is a 33% increase in wages. This is a real example that they brought up. There were basically other comparisons along the same lines. Problem is that housing has doubled in most areas. In fact housing has tripled in areas like California. Basic goods such as fuel have nearly doubled. Food almost doubled since 1990. It is a trend that cannot continue without a correction.

So what has to happen to correct this? Would a economic collapse actually help in the long run?

We would follow the collapse by a World War. The only thing really preventing a World War at this point is the threat of worldwide economic collapse. Once it actually happens, that prevention is gone.

I love you.

Awww! :p




Nice to find someone who agrees, though. :)

I think there will be another Great Depression, for the four reasons and also another; insolvent social programs. It'll be rough, but hopefully it will be strong enough to wipe out democracy before the Western governments wipe out their liberal aspects.

Well, if you get your wish, then I guess I'll see you in the Gulag/Concentration camp. You forget that without political democracy, and the continued existence of A) the military elite B) the economic elite and C) inequality means that you can kiss your precious freedom goodbye.

Well, if you get your wish, then I guess I'll see you in the Gulag/Concentration camp. You forget that without political democracy, and the continued existence of A) the military elite B) the economic elite and C) inequality means that you can kiss your precious freedom goodbye.

Oh, no, not ANOTHER conflation of freedom with democracy. Democracy is all about nationalism, forced homogeneity and myopic politicians seeking to grab as much as possible before their term expires. It has absolutely nothing to do with any real freedom. I'd be rather cozy in a monarchy or an aristocracy, as opposed to a government based on the stupidity of the masses.