Our economic situation

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Reply Sat 9 May, 2009 09:44 pm
Could our econmic crisis be looked at from an overview, the big picture. When i look at our economy, i can see it in a very simple way: Work (services, products)=money=work

in very simple terms that means that somewhere along the line something is going wrong. In my opinions americans are not working as hard (Other countries do more work for less) and expecting more. Thats what causes the cylce to break and go into a downward spiral.
 
Philly CS
 
Reply Mon 11 May, 2009 09:30 am
@Yogi DMT,
Now, as you said, the model you just provided is extremely simple, simple to the point that it becomes....well, flawed.
First, you have to consider the market, supply and demand.
The housing industry is one of the reason why the economy is in this shape (at least in my knowledge, correct me if I'm wrong).
First people think that the housing industry is flourishing, thus customers are willing to pay more money to buy a house.
The industry responds to that willingness by putting a higher price tag on houses and building more of them.
Eventually, people will think that the house is not worth that much money, thus the bubble pops, and the prices of houses drops dramatically.
Of course, there are these real estate companies with lots of houses that won't sell.

Now, you can see that there is no one that is slacking off in this scenario, even if the real estate agents work even harder, the bubble is going to eventually pop, and maybe even cause the drop to be bigger.

Of course, there's the banking industry with the bad bonds, but since I have little to no knowledge in that, I won't go deep into that.
The point is, even if Americans work harder, the economy would still fall given the same scenario happened.
Of course, that's just my speculation Razz.
 
Yogi DMT
 
Reply Mon 11 May, 2009 01:44 pm
@Yogi DMT,
I hear what your saying and you may be right when you say that i oversimplified the issue to the point where it just doesn't match today's society. Those points you made are good and do contribute to our econmic failure. But i just like to look at our dilemma in a very simple way where we can easily what is breaking and then delve deeper into that subject and find what needs to be fixed specifically.
 
Philly CS
 
Reply Tue 12 May, 2009 06:12 am
@Yogi DMT,
Oh. So you want to understand the crisis and how we can solve it?
Gee, it's a complicated matter because it has various problems that built up the current situation.
If one were to solve the current crisis one would need to be able to address all of the problems at the same time.
I don't think complex problems can be fixed by simple answers, specifically this one.
I would say go start with the Wikipedia article on Global Financial Crisis of 2008-2009.
Now, I must again emphasize that an easy solution will not be easy to find, as if it is, then we wouldn't have the problem for this long.

 
Paggos
 
Reply Tue 26 May, 2009 10:01 am
@Yogi DMT,
Our problem is that we depend too much on other countries. We do work hard physical wise, but not smart wise. We say we don't want history to repeat itself, but it does anyway take this for example. We depended on Britain for many years during the development of the United states, now we depend on Japan, China, AND OTHER COUNTRIES TO HELP US IN WAR. If we establish tariffs on other nations and bring more income (and jobs) into this crashing economy, we'd be alright. Another aspect i have to stress is our current president. He states we will have change (i'm guessing it's because hes of a different race?) but doesn't do half of what he says. He should've put restrictions on the bail out money, not just handed it to those companies.
 
Sympathypains
 
Reply Tue 26 May, 2009 02:44 pm
@Yogi DMT,
It was kind of a perfect storm financially.

The housing bubble as mentioned earlier.

Fuel prices quadrupling in the course of a couple of years.

Out of control credit and credit practices.

Most of this started in the US. Other countries, are generally not so credit focused, and are better at saving their money.

Other countries usually have much higher taxes on fuel to conserve the use of it and have had this in place for decades as a buffer against such problems. This made them live closer to work, and develop more mass transit.

So Americans started charging everything, and taking out 2nd mortgages to get more stuff, while others were attending seminars on how to get rich quick buying and selling real estate.

They bought 3 gallons per mile suburban assault vehicles, drove 2 hours each way to work so they could live in the suburbs and when gas went to 5 bucks a gallon, they defaulted on their credit cards, or 2nd mortgages to pay at the pump.

The auto industry was up until this point making the big bucks selling the big cars, and they are now in the toilet for not anticipating the need for efficiency.

Fuel prices then affected everything as the US went big box stores years ago, and requires all of it's goods to be shipped thousands of miles from China, and then in trucks across the country, making goods more expensive as fuel became more expensive.

To add the cherry on top, the economy is based largely on faith in the economy, since there is a stock market on it backside, that is more akin to a huge casino, where people even make money betting that firms will fail.

So as all these things went haywire, speculators pushed it over the cliff, by the self fulfilling prophesy of it all failing.

When that happens, employers lay off workers in speculation that people won't have enough money to buy stuff, which gives less money to people to buy stuff. This is especially common for things that people don't really need, like a new car and such.

I wouldn't be too hard on Obama. A lot of money was doled out by Bush before he left.

Emergency Economic Stabilization Act of 2008 - Wikipedia, the free encyclopedia

The big problem is the republicans that would vote down everything that didn't grease the palms of their corporate buddies. With Spector and Franken now giving the Dems a filibuster proof majority, this may be less of a problem in the future. It is still a democracy though and reps will still make decisions on what will get them re-elected, so it's no where near perfect, including the fact that the dems are not that much better, eventhough imho they are still somewhat better.

The things that ussually get us out things like this are either world wars, or when those with money start buying up the cheap bargains, and making profit off of them and start employing again.

I just hope some strict laws get put into place to keep thsi from happening again, but in time people forget why they are important. There were many protective laws that were put in place in the last depression that were voted out by the republicans who thought they could make (steal) more money without them.

If this doesn't cause a huge world wide crisis, I'll bet that it will make some changes for the better in the next 50 years, until people forget and get greedy again.
 
Krumple
 
Reply Tue 26 May, 2009 05:15 pm
@Sympathypains,
I'll try to make this as simple as possible. My take on it all.

It has absolutely nothing to do with republicans or democrats, in my opinion they are both the same thing.

First off I want to mention GDP for those who don't know what it is. GDP is a nations gross domestic product, which means how many goods and services the nation produces with in year. What does that mean? It means how many companies produce goods and sell them or services.

Well currently the US has a negative GDP, despite what you might hear on the news, it's negative. What does that mean? It means we produce less than we consume. But how can that be?

The US imports more goods than it sells. We buy everything from other countries and don't produce anything locally. So all our money goes to other countries. But why?

Companies in the US find it harder and harder to make money because they are forced by the government to hold high standards. They are forced to pay high taxes, they are forced to purchase licenses or insurances to operate. They are forced to provide benefit packages to their employees. When it's all said and done, companies in the US can't afford to spend any on research and development because they are so strained financially. On top of this companies that sell stock options to off set all this high overhead MUST turn higher profits to sell more stock. When these companies fail to turn profits, their stock holders abandon purchasing more stock thus straining the company for future development.

I can use General Motors as an example. GM produces cars yet they don't sell very many because the quality of the cars they produce are lower than their foreign counter parts. People gravitate towards quality and GM can't afford to produce a quality product because they are so forced by government regulations to give high incentives to it's employees and all the safety regulations it must obey.

Foreign car manufactures are not forced to pay their employees high benefits nor are they required to have licenses or insurance to operate. They can therefore pool more money into their research and development and spend more on quality construction and still be able to sell the cars for low price and make a profit.

So for the same money you could by a GM car or a Honda or Toyota and and which car do people mostly buy? The higher of the quality and I bet you can figure out just from the above paragraphs which one that is.

This leads me to the second part of the US economic problem.

The housing bubble was caused by the FED which set interest rates on borrowing too low. I'll try to explain.

People blame other people for being greedy and borrowing too much money. But in reality it's not the peoples fault, it is government.

If interest rates are set low, you don't make any money off secure investments. What does that mean? If the bank only gives you 1% interest on your cash in the bank that isn't very much after you compensate for inflation rates.

However; since interest rates are so low, instead of saving money you are encouraged to borrow instead. So people take out loan after loan and buy crap they really don't need. But their behavior is set by the FED. If the fed and increased interest rates to like say 10 or 20% then people would more likely put money into their bank accounts. People won't borrow as much money either if interest rates are high.

So since the FED set interest rates SO low it sparked peoples behavior to borrow money and buy houses. Since so many people were buying and buying and buying it pushed housing prices up and up and up. This was the cause for the housing bubble.

A bubble can't expand for ever, at some point it must burst and that's what we experienced. But the government is blaming people for the problem when it was the FED all along that caused it.

But what are we doing to fix the problem? The SAME thing we did to get us into this mess in the first place. The FED is trying to keep interest rates low, people are not saving money, instead they are wanting to borrow and spend. This is going to artificially inflate prices and cause another bubble.
What needs to be done is saving and investing. But for that to happen the FED MUST set interest rates higher, so people have the incentive to invest.

The problem with the banks was not due to the housing bubble but instead due to the banks lending practices. Since the FED had set interest rates so low, lots and lots of people were borrowing but the banks didn't actually have the money to back these loans. I'll try to explain.

Banks are only required to back 10% of loans. What does that mean? Well if you open a bank account and put in $100 the bank can turn around and loan out $90 of your $100 in your account. So let's say someone shows up at the bank and borrows the $90. Well in reality if you went to the bank to withdraw your $100 then the bank needs come up with $90 to give you but it can't because it just loaned it out to someone else.

This is called being insolvent. The way the government tried to fix this problem was by just printing the money and giving it to the banks. Although if they actually told people that is what they were doing everyone would have got mad. So instead they came up with a fancy terminology called "injecting liquidity" into the market. This was an attempt to make the banks solvent but it causes massive inflation to do this. The solution was not to allow banks to lend out more money then they have or allow interest rates to freely rise and fall without the government (FED) setting the rates.

So where does this lead us? Well to our new debt of course.

The US has a national debt. It must pay the interest on the debt but since the US doesn't have a positive GDP it does not make enough money to pay it's debt. So the US has been borrowing more money from foreign countries like China to pay it's interest on debt.

Well this is starting to fail. The Chinese are starting to not show up to purchase US bonds but the US still needs to pay the interest on the debt. If no one purchases the bonds the US is forced to print money to pay it's debt.

So the US has been printing money to pay for it's debt. Obama has stepped this up and they have decided to monetize the debt. What this means is by printing large sums of money you can effectively pay off your debt by devaluing the dollar. I'll try to explain.

If you borrow $100 from a friend and you want to pay him back, you need to aquire the $100 from doing either work (produce and sell) or by borrowing another $100 from someone else. Since the US doesn't produce much anymore it can't work for the cash so it needs to borrow from someone else. But there is no one else to borrow from so it decides to print the money. So the FED prints $1000 which allows it to pay back the friend easily and not only that but it now has a surplus of $900.

That might sound all great and problem solved but the part that hurts is the printed money in the economy causes the value of the dollar to drop. What does that mean? It effectively causes you to have to have more money to purchase the same amount of goods or services. So this causes prices to rise but it's not because there is a shortage of products but instead it's the value of the dollar lowering.

This is called monitizing the debt. You basically cause the value of the dollar to fall so far that the amount you owe is basically nothing.

EVERY COUNTY that has montized their debts have all collapsed their currencty. What does that mean? It means the value of their bills goes to zero. You can't buy anything, no one can work because you can't get paid. You can't do anything because there is no money to do anything with.

If you think I am paranoid, do a google search for zimbabwe. Everything they did, the US is doing. Our fate will become their fate if we do not stop the FED from printing money or injecting liquidity into the market.

If you have any questions or want further explanation on any of this I have mentioned above, feel free to ask. If you want to debate the issue, that's fine with me too.
 
Sympathypains
 
Reply Wed 27 May, 2009 06:51 am
@Yogi DMT,
one missing point, imho, if CEO salaries were only a couple million a year, they might better compete, as well as state health care, which adds to a lot of the compensation to autoworkers.

It's hard to be competitive when the CEO gets a quarter billion a year.

You can't say "we can't compete with foreign firms" when your CEOs make 10s-100s times more than the foreign firm's CEOs. If you can't see through this flimsy logic, just go to the richest neighborhood you can find and open your checkbook and write a check for 90% of what you make and give it to the first millionaire you find.

Regarding politics, i think this would have only been a recessive without the: Gramm-Leach-Bliley Act - Wikipedia, the free encyclopedia

My belief is that repubs, and libertarians, are the big pushers for deregulation, not the dems. Dems are no angels, but definitely not the same. I view them more like the chess team, and the repubs like the football team. The dems might be a bit nerdy and cowardly, but it is rare to see them pushing legislation that makes things better for the big guy and worse for the little guy.
 
 

 
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