And Just When You Think It Couldn't Get Any Worse

The CPI numbers which include food/fuel were below avg in 09/10, a little higher than avg. this year.

If this is the new normal it is too strange for words.

So...anybody panicked yet? I'm seriously considering pulling every dollar out of the market until further notice. I'm really glad I didn't do it when things first got scary, but it's looking smarter every day....

It all seems a house of cards to me, our direction so wrongheaded about so many things. Hard to understand given the state of things (unemployment, for ex.), why the market is going up outside of some short term corporate profits, some at the expense of employment. We've seemingly lost the ability to grapple pragmatically with problems. Would anybody be truly surprised if something happened (or even nothing) and the market tanked next week?

When I'm acting smart, I put sell stops on everything I buy, and move them up as the market goes up. Apple just had another blowout quarter -- 20mil iPhones sold, analyst consensus of 17 or so. Just spiked 25 pts. aftermarket -- unusual in that blowout numbers by Apple is usually followed by a stock drop '..too strange for words' -- I should act on my own advice and slide my sell stop up. I find this method good for sleep quality.
 
"A smaller government may or may not be a good thing, but we've never had one, or even a sincere effort to get one, under the leadership of small government's proponents. What the political debate in the US is really about is what government will or will not do, who will pay for it, and who will benefit from it. But that is a debate that is very difficult and uncomfortable to have, so instead, we BS about "small government."

Let's look at the government's own historical data which can be found at the US Treasury and CBO websites:

From the founding of our nation, 1787-1849, federal spending averaged 1.7% of GDP. For the next 51 years, 1850-1900 (including fighting the Civil War) spending averaged only 3.1%. From 1901 till 1930 (including fighting WWI) it never reached 8%, and averaged approximately 3.2%.

At the height of the progressive movement (including FDR's New Deal) federal spending as a percentage of GDP never went above the 1934 level of 10.7%. Even after the historic 1944 (WWII) level of 43.6%, spending had fallen by 1948 to 11.6% of GDP.

In short, for the first 130 years of the U.S.'s 224 year existence, federal spending as a percentage of GDP averaged around 2.5% Prior to this, federal spending only rose above 10% GDP during the Civil War and WW I.

Between the end of the Korean War and 2007, Federal spending stayed within a narrow range of 16-23%, averaging ~19% of GDP.

Current federal spending is at ~25% of GDP. Total government spending including state, local and federal now exceeds 40% of GDP.

The CBO projects that future Federal spending will rise to nearly 40% of GDP by 2075, largely driven by Social Security and Medicare (http://www.cbo.gov/doc.cfm?index=3521&type=0)
 
"A smaller government may or may not be a good thing, but we've never had one, or even a sincere effort to get one, under the leadership of small government's proponents. What the political debate in the US is really about is what government will or will not do, who will pay for it, and who will benefit from it. But that is a debate that is very difficult and uncomfortable to have, so instead, we BS about "small government."

Let's look at the government's own historical data which can be found at the US Treasury and CBO websites:


From the founding of our nation, 1787-1849, federal spending averaged 1.7% of GDP. For the next 51 years, 1850-1900 (including fighting the Civil War) spending averaged only 3.1%. From 1901 till 1930 (including fighting WWI) it never reached 8%, and averaged approximately 3.2%.

At the height of the progressive movement (including FDR's New Deal) federal spending as a percentage of GDP never went above the 1934 level of 10.7%. Even after the historic 1944 (WWII) level of 43.6%, spending had fallen by 1948 to 11.6% of GDP.

In short, for the first 130 years of the U.S.'s 224 year existence, federal spending as a percentage of GDP averaged around 2.5% Prior to this, federal spending only rose above 10% GDP during the Civil War and WW I.

Between the end of the Korean War and 2007, Federal spending stayed within a narrow range of 16-23%, averaging ~19% of GDP.

Current federal spending is at ~25% of GDP. Total government spending including state, local and federal now exceeds 40% of GDP.

The CBO projects that future Federal spending will rise to nearly 40% of GDP by 2075, largely driven by Social Security and Medicare (http://www.cbo.gov/doc.cfm?index=3521&type=0)

You clearly don't read beyond what you emphasize. Here, let me see if I can help:

A smaller government may or may not be a good thing, but we've never had one, or even a sincere effort to get one, under the leadership of small government's proponents.

I could have added contemporary small government proponents, but I'm pretty sure everyone knows what I meant.

Tim
 
The Government controls everything - they tell us where to live by building roads to nowhere and infrastructure in the swamps, and then expect the private sector to build homes at the end of those roads and where they have already built infrastructure. Education is compulsory and the Govt tells you which school your kids can go to and what subjects they have to learn. Medicare is compulsory and the Govt takes money out of your paycheck every month to pay for it. Retirement planning is compulsory with the Govt taking 20% of your paycheck every month to pay for it.

They impose curbs on how many credit cards each person can have, and the amount of credit that the banks can give. Damn! They even limit the amount of profit that the banks can make. Just recently, they hurt the growth of property prices by imposing increasing the minimum downpayment before I managed to take advantage of the housing bubble and selling one of my condos at a huge profit. :p

Hi Gary,

I didn't realize that Singapore's government is THAT controlled. Many decades ago we would joke about being jailed in Singapore for chewing bubble gum. While that is a fact, I am surprised by the level of control still prevalent inside the government specially in one of your examples that govt even controls the profit levels of banks.
 
Tim,

I was just trying to frame the issue in a longer historical context...

That the Republicans have been unable to restrain the growth of government led to their losses in 2006 and 2008. I suspect similar (deserved) retribution if they fail again.
 
Hi Gary,

I didn't realize that Singapore's government is THAT controlled. Many decades ago we would joke about being jailed in Singapore for chewing bubble gum. While that is a fact, I am surprised by the level of control still prevalent inside the government specially in one of your examples that govt even controls the profit levels of banks.

Haha!! You could also get arrested if you go to a public toilet and don't flush! Not that the people of Singapore complain very much of the control - unprecedented growth, low crime, etc. etc. But you really can't do anything "interesting" or "creative". The last interesting thing I did, the Singapore government opened a competitor just down the street from me.
 
Tim,

I was just trying to frame the issue in a longer historical context...

That the Republicans have been unable to restrain the growth of government led to their losses in 2006 and 2008. I suspect similar (deserved) retribution if they fail again.

OK, but if you think the Republicans lost the White House because they were unable to restrain the growth of government, I'm afraid I can't put much faith in your framing, or short-term memory, of history. In any case, I think the folks who run this place probably don't want us to get too deep into politics, and the line between politics and economics is, evidently too fine. Probably best to let this one go.

Tim
 
I agree Tim.

The whole thread is off topic but has devolved into interesting discussion. Let's try to keep it right there

It's interesting enough, Steve, but running awful close to the edge. I just don't want to be part of taking it over on this forum. It's not the place for it.

Tim
 
Hi

The largest problem with this housing situation is that the price fall is simply logical. I do not have the numbers handy but there was a clear disconnect between people earnings and the valuation of their houses. Their was nothing to explain the sudden rise in housing price other than pure speculation. What we are seeing is economics pure and simple... The speculative bubble burst and we are left with physical remnants with valuation close to their true worth.. and actually I think we will see price go even lower as their is a glut of houses on the Market and that is not about to stop with the number of foreclosures showing no sign of abatement.
What we are forced to consider in the USA and elsewhere is an economy based more on desirable outputs and less on financial creations and/or speculation. This require strong steering aka stronger government interference and control. I tend to think that government control should be dynamic. It can not simply stay at a given level regardless of circumstances. We may howl all we want but the government stimulus package thwarted the fall into the abyss, that the 2008 crisis could have been and there are other numerous example of government actions that have been beneficial to economies (we could also point to those who have been deleterious too) ... I liken it to driving a car under cruise control.. Speed may remain the same but the level of fuel delivered to the engine vary with road conditions in other to maintain its speed the car eases or increases the engine revolutions but for the car occupant the speed remain the same... Only the government can do that. THe cliche of watching the watchers comes to mind and for democracy to work people must remain vigilant and keep the politicians, thus the government honest and inline with their (ever changing) desires.
Which comes back to the point that the size of the government has to move with the times ... We are not living simple, frontier-man and cow-boys times anymore ... While we may find the cow-boy ethos romantic, I am not sure we want to consider returning to the savage, quasi lawlesness that life in those times really were.
 
Hi

The largest problem with this housing situation is that the price fall is simply logical. I do not have the numbers handy but there was a clear disconnect between people earnings and the valuation of their houses. Their was nothing to explain the sudden rise in housing price other than pure speculation. What we are seeing is economics pure and simple... The speculative bubble burst and we are left with physical remnants with valuation close to their true worth.. and actually I think we will see price go even lower as their is a glut of houses on the Market and that is not about to stop with the number of foreclosures showing no sign of abatement.


Frantz, that is absolutely correct. Housing markets are governed by the simple 'supply and demand' equation. The last few years showed that the supply grew and the demand fell. In areas like Nevada, the supply quickly overran the demand, resulting in a glut of property that is today very hard to move.
Until the "affordability index" drastically improves, which seems like it will be awhile due to the current economy, then IMO the housing markets will continue to be in the doldrums.......However, the old saying 'what goes up must come down' and in housing---vice versa, is also true.:D
 
Hi

The largest problem with this housing situation is that the price fall is simply logical. I do not have the numbers handy but there was a clear disconnect between people earnings and the valuation of their houses. Their was nothing to explain the sudden rise in housing price other than pure speculation. What we are seeing is economics pure and simple... The speculative bubble burst and we are left with physical remnants with valuation close to their true worth.. and actually I think we will see price go even lower as their is a glut of houses on the Market and that is not about to stop with the number of foreclosures showing no sign of abatement.
What we are forced to consider in the USA and elsewhere is an economy based more on desirable outputs and less on financial creations and/or speculation. This require strong steering aka stronger government interference and control. I tend to think that government control should be dynamic. It can not simply stay at a given level regardless of circumstances. We may howl all we want but the government stimulus package thwarted the fall into the abyss, that the 2008 crisis could have been and there are other numerous example of government actions that have been beneficial to economies (we could also point to those who have been deleterious too) ... I liken it to driving a car under cruise control.. Speed may remain the same but the level of fuel delivered to the engine vary with road conditions in other to maintain its speed the car eases or increases the engine revolutions but for the car occupant the speed remain the same... Only the government can do that. THe cliche of watching the watchers comes to mind and for democracy to work people must remain vigilant and keep the politicians, thus the government honest and inline with their (ever changing) desires.
Which comes back to the point that the size of the government has to move with the times ... We are not living simple, frontier-man and cow-boys times anymore ... While we may find the cow-boy ethos romantic, I am not sure we want to consider returning to the savage, quasi lawlesness that life in those times really were.

Frantz, I really like the driver analogy. But what if the driver is incompetent, drunk, or simply disobeys the rules of the road because they feel above the law? There were over 100 government regulators whose only task was to regulate Fannie and Freddie. I presume that they were all well-intentioned, well-meaning and hard working, and yet, somehow both failed and will ultimately cost the tax payers hundreds of billions of dollars. In no small measure, the failure of the GSE's is the failure of government to keep up with the rapid changes in the markets.

Walter Russell Mead (a self-described liberal) recently wrote on his blog http://blogs.the-american-interest.com/wrm/2011/06/07/fanniegate-gamechanger-for-the-gop/ "Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. By Gretchen Morgenson, one of America’s best business journalists who is currently at The New York Times, and noted financial analyst Joshua Rosner, Reckless Endangerment gives the best available account of how the growing chaos in the mortgage and personal finance markets and the rampant bundling of dubious loans into exotically toxic securities plunged the world, and millions of American families, into the gravest financial crisis since World War Two. It is gripping reading as well, and its explanations are clear enough that readers without any background in finance will have no trouble following the plot. The villains? An unholy alliance between Wall Street, the Democratic establishment, community organizing groups like ACORN and La Raza, and politicians like Barney Frank, Nancy Pelosi and Henry Cisneros. (Frank got a cushy job for a lover, Pelosi got a job and layoff protection for a son, Cisneros apparently got a license to mint money bilking Mexican-Americans of their life savings in cheesy housing developments.)"

While Mead is chiefly concerned that this could become an effective narrative against the Democratic party during the next election, IMO, both parties share significant (but not all) blame for the housing debacle.

However Mead continues, "The story also undercuts what little is left of the credibility and the moral authority of the American establishment. What is especially shocking in this story is that the higher up and more powerful people are usually the most venal and corrupt. Low level researchers and bureaucrats are constantly raising questions and preparing devastating reports that expose the flawed premises behind Fannie Mae’s policies. They are being constantly slapped down by the well connected and the well paid. The American establishment does not have the necessary moral strength and intellectual acuity to run the affairs of this country..."

I'm currently reading Reckless Endangerment and it should come with a health warning because it will make you angry. (On the bright side, I am now fairly certain I don't have an aneurysm :eek:)
 
I think there are two supply and demand curves at work here. The less obvious one being the supply and demand for financing. This of course leads to credit enhancements, guarantees, a tax structure that promotes buying another house you don't need and finally the securitization mechanisms.
 
What we are seeing is economics pure and simple...

Economics indeed, Frantz, but hardly simple. The biggest single cause was 1999's Gramm-Leach Act, written by a Republican congress and signed by a Democratic president, that gutted the regulation of the US financial markets, erasing the lines between Banks, S&Ls, brokerage houses, etc. That was just mildly dangerous. What ended up being disastrous was that it erased the lines between their investment vehicles as well, allowing mortgages, good and bad, to be bundled into mortgage-backed securities traded like mutual funds, but with no real connection (and no transparency) between the market value of the securities and the real value of the properties contained in them. ie: The "toxic securities" referred to in the Mead quote above were a direct result of this deregulation.

The biggest systemic cause was the manipulation of the economic cycle by the Federal Reserve under Allan Greenspan -- the consistent forcing down of interest rates to mitigate economic downturns or extend growth cycles, resulting in very cheap mortgage money. The last element was really just the logical result of the first two, whether you are anti-government and only noticing the mortgage companies associated with the Federal government -- Fannie and Freddie -- or you are realistic and recognizing that, fueled by almost free financing at one end and a huge, untried, unregulated, unrealistic commodities market based on domestic real estate at the other, the demand for housing went through the roof. There was money to be made; lots of it. The government, the banks, and the Wall Street brokers were all telling us, through their words and actions, that there was no end to it. And they (banks, mortgage companies, brokers, etc.) were aggressively offering home ownership to the working poor and luxury to the barely middle class.

It was intoxicating, and government played no small part in it. But it was certainly not government regulation and oversight that contributed their part. In fact, one could easily argue that it was the lack of regulation and oversight, and the lack of enforcement of the regulations that were left after the Gramm-Leach gutting, that it was the abdication of their responsibility that carried the US government's share of weight in this debacle. Reckless Endangerment makes that point, though in a pretty one-sided way. But it is a radical view in times that call for nothing more loudly than reason and moderation. There is better reading on the subject out there in my view.

Tim
 
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Longer reply will come later :)..


Democracy implies not only the ability but requires the demos (The People) to watch, hold accountable and if needed to sanction those to which they delegate their powers to. The delegation may not be conscious but it is always implicit. In a democracy a government which doesn't serve its People is (should be pushed) pushed aside. Democracy implies participation, letting a minority decide of where you want to go is not democracy. Reminds me of some fringe movements in the USA which have recently acquired quite a bit of power because of their ability to be much more vocal and no doubt helped by very large corporations and news conglomerate who find a way to have their interest represented somehow bythis noisy groups. These are perversions of democracy... I call it the "Decibel and Soundbites Politics .. but I digress. So yes a government can go bad or while being of good faith still do a bad job. it is however the duty of its constituents to correct tis and all good democratic systems have such mechanisms although none of them as instataneous as people would have liked, this initself another protection mechanisms.
More than before technology has a role to play in taming the increasing complexity , hence size of a modern democratic society.
On Freddie and Fannie, I find myself venturing on subjects that are out my areas of expertise :). Yet I think it is simplistic and wrong to attribute the failure of these organizations to the size of government . It was clear that there was from the top an effort to push away any oversight or regulatory tendencies that would meddle in the then, juicy flow of revenues and profits the Housing Market was creating.. The lack of regulation was evident. The lack of coordination between the branches that should oversee and supervise was tolerated because it coincided with the interests of those profiting from the bubble. Not that they necessarily created it but this was too good a gift for the anti-regulatory forces of the past decade not to take.

P.S.

I had not read Tim last post. Written yesterday night but posted today .. We are in agreement Tim.
 
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Agreed with the above. Head- scratching at least to hear greater calls for deregulation after the whole subprime meltdown. The game was that a pile of sh-t smells less than the individual pieces, and even the rating agencies were involved. Add to that a system where the mortgage issuer generally doesn't hold the mortgage and ...

Democracy implies participation, letting a minority decide of where you want to go is not democracy.

To this point, the Senate became a body where you have to win 60-40, and gives equal power to all states regardless of population -- it is anything but representational
 
Agreed with the above. Head- scratching at least to hear greater calls for deregulation after the whole subprime meltdown. The game was that a pile of sh-t smells less than the individual pieces, and even the rating agencies were involved. Add to that a system where the mortgage issuer generally doesn't hold the mortgage and ...

To this point, the Senate became a body where you have to win 60-40, and gives equal power to all states regardless of population -- it is anything but representational

Representitive democracy is thoroughly hijacked on all fronts. The Senate may actually be the most reasonable and productive body of the American politic. But American representative democracy no longer represents the electorate, it represents the special interest groups and individuals who pay for our privately-funded elections. And you can throw a lot of sacred cows from both sides of the aisle under that umbrella of democracy-destroying influence: Corporations, unions, advocacy organizations, thinktanks and, of course the lobbying organizations that represent all of the above. The worst part is that is almost irreparable. Fixing it will probably require amending the constitution, that will require a deafening public outcry, and that, evidently, will require a crisis worse than we have yet faced.

We are cursed with interesting times.

Tim
 
The senate from 08-10 abused the filibuster and was a perversion of the intent of that body. Wish I could muster much disagreement with the rest of your post. Hilacked is the word that's crossed my mind many times over the years

Optimism on these issues has never been a strong point of mine, thank God for music.
 
The senate from 08-10 abused the filibuster and was a perversion of the intent of that body. Wish I could muster much disagreement with the rest of your post. Hilacked is the word that's crossed my mind many times over the years

Optimism on these issues has never been a strong point of mine, thank God for music.

Oh, I'm not saying the Senate is universally wise, or even innocent. But this week is a good example: The gang of six, a bipartisan Senatorial committee, emerged from negotiations with a compromise that would trim 4 trillion of debt, with no one's sacred cows left untouched, while the House sat in its sandbox screaming "NO!"

And don't start me talkin' about the six-decade/bi-partisan obscene expansion of executive power. Hope you still have your eye on this ball, Steve. I'm trying to be good. :)

Tim
 

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