With the US Trapped in Depression, This Really is Starting to Feel Li

[bonnie]

Don't you love the recovery we are in?

With the US Trapped in Depression, This Really is Starting to Feel Like 1932

The US workforce shrank by 652,000 in June, one of the sharpest contractions ever. The rate of hourly earnings fell 0.1pc. Wages are flirting with deflation.

Telegraph.co.UK

By Ambrose Evans-Pritchard

Published: 9:33PM BST 04 Jul 2010

"The economy is still in the gravitational pull of the Great Recession," said Robert Reich, former US labour secretary. "All the booster rockets for getting us beyond it are failing."

"Home sales are down. Retail sales are down. Factory orders in May suffered their biggest tumble since March of last year. So what are we doing about it? Less than nothing," he said.

California is tightening faster than Greece. State workers have seen a 14pc fall in earnings this year due to forced furloughs. Governor Arnold Schwarzenegger is cutting pay for 200,000 state workers to the minimum wage of $7.25 an hour to cover his $19bn (£15bn) deficit.

Can Illinois be far behind? The state has a deficit of $12bn and is $5bn in arrears to schools, nursing homes, child care centres, and prisons. "It is getting worse every single day," said state comptroller Daniel Hynes. "We are not paying bills for absolutely essential services. That is obscene."

Roughly a million Americans have dropped out of the jobs market altogether over the past two months. That is the only reason why the headline unemployment rate is not exploding to a post-war high.

Let us be honest. The US is still trapped in depression a full 18 months into zero interest rates, quantitative easing (QE), and fiscal stimulus that has pushed the budget deficit above 10pc of GDP.

The share of the US working-age population with jobs in June actually fell from 58.7pc to 58.5pc. This is the real stress indicator. The ratio was 63pc three years ago. Eight million jobs have been lost.

The average time needed to find a job has risen to a record 35.2 weeks. Nothing like this has been seen before in the post-war era. Jeff Weninger, of Harris Private Bank, said this compares with a peak of 21.2 weeks in the Volcker recession of the early 1980s.

"Legions of individuals have been left with stale skills, and little prospect of finding meaningful work, and benefits that are being exhausted. By our math the crop of people who are unemployed but not receiving a check amounts to 9.2m."

Republicans on Capitol Hill are filibustering a bill to extend the dole for up to 1.2m jobless facing an imminent cut-off. Dean Heller from Vermont called them "hobos". This really is starting to feel like 1932.

Washington's fiscal stimulus is draining away. It peaked in the first quarter, yet even then the economy eked out a growth rate of just 2.7pc. This compares with 5.1pc, 9.3pc, 8.1pc and 8.5pc in the four quarters coming off recession in the early 1980s.

The housing market is already crumbling as government props are pulled away. The expiry of homebuyers' tax credit led to a 30pc fall in the number of buyers signing contracts in May. "It is cataclysmic," said David Bloom from HSBC.

Federal tax rises are automatically baked into the pie. The Congressional Budget Office said fiscal policy will swing from

a net +2pc of GDP to -2pc by late 2011. The states and counties may have to cut as much as $180bn.

Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.

On Friday, Jacques Cailloux from RBS put out a "double-dip alert" for Europe. "The risk is rising fast. Absent an effective policy intervention to tackle the debt crisis on the periphery over coming months, the European economy will double dip in 2011," he said.

It is obvious what that policy should be for Europe, America, and Japan. If budgets are to shrink in an orderly fashion over several years – as they must, to avoid sovereign debt spirals – then central banks will have to cushion the blow keeping monetary policy ultra-loose for as long it takes.

The Fed is already eyeing the printing press again. "It's appropriate to think about what we would do under a deflationary scenario," said Dennis Lockhart for the Atlanta Fed. His colleague Kevin Warsh said the pros and cons of purchasing more bonds should be subject to "strict scrutiny", a comment I took as confirmation that the Fed Board is arguing internally about QE2.

Perhaps naively, I still think central banks have the tools to head off disaster. The question is whether they will do so fast enough, or even whether they wish to resist the chorus of 1930s liquidation taking charge of the debate. Last week the Bank for International Settlements called for combined fiscal and monetary tightening, lending its great authority to the forces of debt-deflation and mass unemployment. If even the BIS has lost the plot, God help us.

[Bravus]

Kinda glad I live in the socialist paradise that is Australia. Our economy is motoring along.

[Guest]

Enjoy it while you can. Because it sure ain't permanent. When it all comes crashing down, the whole world will be effected.

[fccool]

Doubt it...

The producer countries will get over it and keep producing. The real need in this world is for products, not paper. People who live by the paper, will die by the paper.

There are two things that I characterize US businesses by:

1) Predominantly service oriented.

2) Have insane amounts of overhead costs

The next 5 years will probably be the toughest years in US since 80s depression. I don't think we are quite there yet as in 1932. But, as credit will contract, so will American jobs with it.

Banks give and banks take away. This is the motto of US prosperity. "In banks we trust" should be on that dollar bill :)

[bonnie]

Quote:

Banks give and banks take away. This is the motto of US prosperity. "In banks we trust" should be on that dollar bill

Are you saying if the banks loan you money,hold the mortgage on your home or on your car and you don't pay,they should not foreclose?

As long as I don't owe the bank any money,they don't have a mortgage on my home,and have sufficient funds in my checking account,I have no problem with my bank.

[karl]

Kinda glad I live in the socialist paradise that is Australia. Our economy is motoring along.

David Uren, Economics correspondent From: The Australian February 04, 2009 12:00AM

PESSIMISTIC consumers and business are expected to keep the economy in the doldrums well into 2010, despite the massive stimulus coming from both the Government and the Reserve Bank.

Treasury has drastically downgraded its forecasts for the economy, which it expects will grow by a bare 0.75 per cent in 2009-10, only a third of the growth it tipped last November.

"The effect of the global recession on Australian economic growth is pervasive, with almost all sectors of the economy facing significant weakness over the forecast horizon," Wayne Swan said in his statement introducing yesterday's stimulus package.

[fccool]

Quote:

Banks give and banks take away. This is the motto of US prosperity. "In banks we trust" should be on that dollar bill

Are you saying if the banks loan you money,hold the mortgage on your home or on your car and you don't pay,they should not foreclose?

As long as I don't owe the bank any money,they don't have a mortgage on my home,and have sufficient funds in my checking account,I have no problem with my bank.

Bonnie,

Here lies the misconception of where banks get the money to loan you for that mortgage, car, or home.

If merely 50% of the bank's customers would go and demand their deposits back (I'm not talking about CDs) the bank would not do it. They would close their doors and seek government bail out and protection by means of tax dollars that you pay.

On the other hand, when the customers fail to do the same, the banks confiscate the property that was signed as a collateral. But that's not the worst aspect of the system

Banks are given power to literally create money when you borrow. When you sign the loan, the bank credits the amount in your account, and then adds another entry on it's balance sheets to counter-balance that entry. The bank creates commercial paper based on your promise to pay, which is secured by the physical property you are about to buy. In essence that would be fraudulent in any reasonable financial world.

You can't create a valuable paper that is secured by things that will be purchased by that paper. But that's what in fact the banks do today because they in essence indirectly write the financial guidelines.

Banks make money through manipulation of currency. If you used one credit card to pay on debt of the other, and that could go on for a while... you could get away with being rich and doing nothing but spreading the debt.

Banks have it even better. Your deposit in the bank is their debt to you. They shuffle that debt around, by locking it up in long term loans and mortgages... but at the same time they assure you that the money is there for you when you need it. HOW CAN THAT BE?

The modern banks have about 90% of their customer's money in some sort of financial transactions, while they shuffle the rest around to fulfill the short-term obligations. The reason that they can do it, is because The Fed comes as a lender of last resort and loans them the money at the Fed Interest rate, which now is practically 0. The Fed just makes that money. It's backed by absolutely nothing.

It may seem that we all benefit from such order of things, BUT THINK ABOUT IT!

Banks expand the credit by giving the loans, and we have economic boom. It sends FALSE MESSAGES to the producers to produce more goods and hire more people, and take on more overhead... because people have more money and thus more demand for their products.

BUT THAT MONEY EXISTS TO BE PAID OFF AND EXTINGUISHED FROM BANK'S LEDGER

So, when the money is paid off and no new loans are being made, the money supply contracts, the people don't buy new products and factories shut down with people being laid off.

The banks are responsible for the economic booms/depression cycles. They make billions by creating those, and ordinary people suffer economic instability and pay the price.

If people fail to pay... banks foreclose and confiscate the property (all of the property, even if you've paid off 75% of it on top of the monstrous amount of interest that doubles the amount you pay for that property). So, the banks end up owning that property, and then GOVERNMENT BAILS THEM OUT by giving them the money that you failed to give through YOUR TAXES.

And you won't learn about this view of financial system unless you take 504 economics and management courses. And then it's presented to us as a way to "prosperity". The educated end up robbing uneducated.

[Guest]

Doubt it...

The producer countries will get over it and keep producing. The real need in this world is for products, not paper. People who live by the paper, will die by the paper.

There are two things that I characterize US businesses by:

1) Predominantly service oriented.

2) Have insane amounts of overhead costs

The next 5 years will probably be the toughest years in US since 80s depression. I don't think we are quite there yet as in 1932. But, as credit will contract, so will American jobs with it.

Banks give and banks take away. This is the motto of US prosperity. "In banks we trust" should be on that dollar bill

Perhaps the reason your view neglects taking Bible prophecy into account, is because you don't believe in it. Or maybe you just don't understand it.

That is the position most of the world is in, which is why they will be caught totally off guard by what is coming. Unless the Lord holds back the winds of strife, and gives us a little more time, the prophet says it will come upon the world as an overwhelming surprise.

[bonnie]

Here lies the misconception of where banks get the money to loan you for that mortgage, car, or home.

[bonnie]

Perhaps the reason your view neglects taking Bible prophecy into account, is because you don't believe in it. Or maybe you just don't understand it.

That is the position most of the world is in, which is why they will be caught totally off guard by what is coming. Unless the Lord holds back the winds of strife, and gives us a little more time, the prophet says it will come upon the world as an overwhelming surprise.

[Bravus]

18 month old news, karl.

[fccool]

Bonnie,

Sorry, can't argue with "Poppyckock" rebuttals .

[bonnie]

Bonnie,

Sorry, can't argue with "Poppyckock" rebuttals .

Poppycok rebuttals are called for when poppycock statements are made

[Guest]

I have a tendency to believe those that are far more educated than fccool in economic matters. They have been sounding the alarm since Obama took office.Layman,not closely affiliated with any denomination,certainly not ours,show a great concern for where we are headed.

The disagreement comes from many SDA's. It usually is "no,it is not yet" "Things will get better" "the sky is no falling"

"you are drinking the kool aid again" etc

As for me,I think I will stick with the knowledge daddy instilled in us.Nothing much has changed since then

Amen to all of the above.

[fccool]

Quote:

So, when the money is paid off and no new loans are being made, the money supply contracts, the people don't buy new products and factories shut down with people being laid off.

The banks are responsible for the economic booms/depression cycles. They make billions by creating those, and ordinary people suffer economic instability and pay the price.

Poppyckock

Quote:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.

Henry Ford

Quote:

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Thomas Jefferson

Quote:

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country; corporations have been enthroned, an era of corruption in High Places will follow, and the Money Power of the Country will endeavor to prolong its reign by working upon the prejudices of the People, until the wealth is aggregated in a few hands, and the Republic is destroyed. I feel at this moment more anxiety for the safety of my country than ever before, even in the midst of war"

Lincoln

POPPYCKOCKS!!!!

[phkrause]

fccool you have it right on. I talk to a guy today about redoing my mortgage and he told me the exact same thing you just mentioned about the banks.

[bonnie]

So, when the money is paid off and no new loans are being made, the money supply contracts, the people don't buy new products and factories shut down with people being laid off.

What money has been paid off? The countless homes in foreclosure certainly have not paid the money off. Nor are the banks getting rich on the foreclosure.Each one can go a year without payments.Many of them do not keep up the property.Homeowners don't pay for the insurance or the taxes. Then they have to try to sell the homes,many times for less than was loaned on the home.

If we would have had to take out a mortgage on our home the bank would be 53,000.00 in the red as that is the amount value has dropped, plus missed payments and interest.

Local banks and mortgage companies did not want to loan on many of these properties. If they turned down unworthy buyers they were taken to the woodshed by the federal government.

Non qualifying loans were used for a reason,the buyer did not qualify for the loan.

[bonnie]

fccool you have it right on. I talk to a guy today about redoing my mortgage and he told me the exact same thing you just mentioned about the banks.

Must be different where you are. With a job and a good credit history loans are available as are refinancing

[fccool]

Quote:

What money has been paid off? The countless homes in foreclosure certainly have not paid the money off. Nor are the banks getting rich on the foreclosure.Each one can go a year without payments.Many of them do not keep up the property.Homeowners don't pay for the insurance or the taxes. Then they have to try to sell the homes,many times for less than was loaned on the home.

That's why you fundamentally misunderstand mortgage-based derivatives

As soon as you sign that paper... your promise to pay is re-packaged as a derivatives based on the loan and sold to the highest bidder. The bank then is no longer responsible for the loan. This happens with majority of the mortgage-based securities. If you fail to pay off the mortgage, some obscure pension fund may loose some cash... your bank most likely won't. It merely serves as a middle man.

There's so much gambling going on as to whether people will pay or won't pay these mortgages back... it's amazing. There's something that is called the "failure insurance" that banks make their customers pay for many loans. If people don't pay, then banks get re-reimbursed by the insurance agencies that likewise gamble one these.

Quote:

If we would have had to take out a mortgage on our home the bank would be 53,000.00 in the red as that is the amount value has dropped, plus missed payments and interest.

Local banks and mortgage companies did not want to loan on many of these properties. If they turned down unworthy buyers they were taken to the woodshed by the federal government.

Non qualifying loans were used for a reason,the buyer did not qualify for the loan.

You of course mentioning the Community Reinvestment Act 1977

Well, I think you might be surprised to hear that:

1) Most sub-prime loans were made by banks and firms that were not subject to CRA.

2) The reason most banks were lending like no tomorrow is because of the instruments called financial mortage-based derivatives.

The banks were allowed to sell the mortgage promises to pay, and re-package these as commercial paper... like bonds or stocks.

It was then divided into trunches (or risk groups), and sold with highest dividends paid for the highest risk paper and etc.

It was a gamble based on greed. It had nothing to do with government "forcing" banks to lend. The banks will of course be pointing fingers in other direction, and avoid responsibility.

[karl]

18 month old news, karl.

I will agree that Australia is benefited by not having completely irresponsible people at the helm. Still, Australia's debt is $10,300 per capita - about one third of the US - and climbing steadily. You can watch the debt clock here:

http://www.debtclock.com.au/

Australian household debt relative to the size of the economy is among the highest in the world thanks mainly to a decade of rising property prices. This would not matter too much, given the low level of government debt, if Australians owed the money to one another, as is the case with Japan. But on a per capita basis Australia has quietly become the most heavily indebted major country in the developed world. Net foreign debt in 2008 amounted to $650 billion Australian dollars.

http://www.nytimes.com/2008/12/15/opinion/15iht-edbowring.1.18691037.html

[bonnie]

That's why you fundamentally misunderstand mortgage-based derivatives

As soon as you sign that paper... your promise to pay is re-packaged as a derivatives based on the loan and sold to the highest bidder. The bank then is no longer responsible for the loan. This happens with majority of the mortgage-based securities. If you fail to pay off the mortgage, some obscure pension fund may loose some cash... your bank most likely won't. It merely serves as a middle man.

[fccool]

Quote:

No,I don't. My son was a mortgage broker for almost 20 years,the husband of a good friend of mine was in the business for over 30 years.

Then why is it so hard for you to believe that credit expansion and contraction is responsible for economic booms and busts?

The issue during the great depression was exactly that. The banks soaked the money, while the new loans dried up. The monetary supply shrank and thus there was not enough money in the economy to cover the economic needs. Many people resorted to barter instead. It's a well-known history that central banks were in part responsible for great depression.

[bonnie]

Quote:

It was a gamble based on greed. It had nothing to do with government "forcing" banks to lend. The banks will of course be pointing fingers in other direction, and avoid responsibility.

You and I have a different understanding of the word "greed"

Those wanting a hand out are greedy,those wanting a home they know they can't afford are greedy,those sitting on their duff while they collect 2 years and maybe more on ummemployment.

Those willing to take a gamble,those working have "right" to make as much as they can honestly.

The neighbor of my BIL bragging on his 30,000.00 last year without working is greedy.My BIL working long hard hours because he wanted more for his family is not greedy to me.That is his RIGHT,it is not the "right" of a neighbor to take money from people like that and do nothing.

My son has tried in vain to hire 10 employee's.Guess what?The response is "get back to me when my unemployment runs out"

That is greed and worse to me

[fccool]

Bonnie,

Classifying collectors of the welfare and unemployment as "greedy"... would be a stretch . Are beggars motivated by greed? You could perhaps say sloth or laziness, but I doubt that the greed has a large part to play in that.

Greed is defined as an excessive desire to possess wealth or goods.

No excessive possession of goods will ever come up from unemployment or welfare system. I would argue that it's built to suppress greed that our capitalism system revolves around, and thus encourage stagnation.

Greed runs the wall-street, and investment industry. That's why collecting interest was not enough. The interest had to be compounded, and then sold as derivatives to a financial casino that only rich are permitted to gamble at.

Think about what you are saying here. You are basically saying that the people who charge excessive interest, and who basically feed off the money creation schemes somehow deserve all of that because they are off their butts doing something?

Usury is condemned by most religions of the world. Compound interest would be classified as usury.

Just to demonstrate the magic:

150k at 5% for 30 years with no compounding: 375,000

150k at 5% for 30 years with compounding: 648,291.36

Now, obviously the above does not include any amortization, but for the sake of demonstration... the 5% per year for use of commodity that CONSTITUTIONALLY belongs to us and for OUR BENEFIT is being used AGAINST US and FOR BENEFIT OF THE FEW.

Give money creation power back to government, where it constitutionally belong. Repeal 1913 act. It's an atrocity against American people. Money is not a private commodity that should be only created by the few and then lend at interest.

Think about the long term results:

If almost all money in the system is in fact created out of debt... then these have to be paid back with the interest. For this system to work these two things have to happen:

1) The interest has to be continually created through borrowing

2) Or the interest has to be recycled into the system in form of loans or salaries.

Either was, there has to be continuous flow of loans to sustain the system.

In healthy economy, the amount of money spent has to match the amount of products sold. If there are too much money and not enough products, then demand for money goes down, and for products goes up.

Likewise, if there's too much products and not enough money, then demand for money goes up and for products goes down.

It's simple economics. The government was put in charge to protect the balance, and thus economic stability. Instead, it was tricked to delegate its Constitutional money-creation powers to banks, officials of which are not elected by us and for us. Why do you think Hank Paulson handed out the insane amount as bail outs? HE WAS THE MANAGING PARTNER IN GOLDMAN SACHS. Do you think this guy would have interest of banks, or American people?

We turn over the financial operations of this nation to the few who gamble it away on top, and receive millions in bonuses yearly for doing so. They don't care if people suffer.

That's greed... not some guy who is fed up with bending over backwards, and then still being robbed in the end of the day by the above-described people.

[bonnie]

Classifying collectors of the welfare and unemployment as "greedy"... would be a stretch . Are beggars motivated by greed? You could perhaps say sloth or laziness, but I doubt that the greed has a large part to play in that.

Greed is defined as an excessive desire to possess wealth or goods.