Global Financial collapse

[Finnster]

Originally Posted by JERRY2KONE

I just read an AP story earlier this week about something like $30million that was spent in Afganistan on resources, construction, and contractor services to help the local people, that is now in the hands of the taliban. There is so much corruption and underground operations going on there that it will take decades to overcome and the USA no longer has the means or the funds to do this for other countries. We have got to stop pouring money into projects that do not directly benefit America and its citizens.

I would agree that we need to stop spending on projects that do not benefit the US people and its economy. The wars we are in I would def put into that catagory. Osama is dead, Al-queda is gone, but we are still spending $2B/week fighting goat-herders with homemade bombs and AKs with no end in sight.

I can't see how the Pentagon is not cut down. $700B/yr is an insane amt of money when we really don't have any credible enemies. Iran is weak. Russia? Don't think so. China? It would be an epic global disaster and shouldn't even be considered. We are too dependent on each other anyway, no one could win. Do we really need 11 carrier groups when at best China just got its first, and its a POS rebuilt Russian ship? How many simultaneous wars do we need to be equipped to fight at a moments notice?

Now I would not stop the research projects, and be careful about cutting any programs/bases/systems that would result in big job losses. Budgets need to come down, but immediate cuts are bad ideas. OTOH, all these overseas bases, and all this money we pour into foriegn bases and countries that could be spent at home needs to be strongly justified. Honestly I would shift quite a bit of money away to NASA budgets instead.

The thing I don't like about excess military spending is that it has little Return on Investment, and most of these things you can't use without incurring huge additional costs. However, every president that comes in has a huge temptation to use them as there is no real sacrifice asked of anyone before action starts.

EG. Cruise Missles are ~$1M+/ea. What's the ROI for that? It does nothing, earns nothing, and just sits on a ship ready to go consuming maintence costs. When its finally used (often with little public debate) it costs a whole more to the taxpayer afterward to replace it, and often rebuild the bridge we just blew up, or to payments to other parties to take our side in the action, or to the families of the people we accidently killed because we thought they were someone else. Every president since Bush I has launched hundreds of them themselves. Raytheon sold its 2000th last year, well before Libya where Obama launched over 100 the 1st day. For the quarter billion Obama has spent on cruise missiles, I can think of a lot more things around here that needs fixing and would put more people to work and not result in more wars.
Also, no one else bothers to spend any money on their military and just asks us to do all the bombing for them, (aka the Europeans.) They put their budgets towards universal HC and nice infrastructure, and we just get big Defense bills, crumbling bridges, bankrupted families from hospital bills, and the huge majority of dead and injured soldiers and bad international rep.

At least with NASA you get something cool that doesn't kill a bunch of people and make a bunch of enemies, plus you still get all the good tech and science research out of it (tho not that we should spend $700B/yr on NASA.) We now have to bum rides off Russians just to get our astronauts to the Space Station we mostly paid for, but we do most of the bombing in Libya bc our allies never bought any weapons to "protect" their oil supply in Libya. F'd up if you ask me.

[BrianG]

The only possible enemies the US has at the moment are N Korea (we all know how stable their leaders are) and any 3rd world countries who are getting their feet wet with nukes (they have something to prove). Other than those, any other "enemies" are more financial enemies (like China) than anything.

[JERRY2KONE]

This is why we are sooooo screwed. The USA has been investing heavily and donating funds to so many developing countries over the last 20 years and opening our gates for incoming products as we have been helping everyone else gain financial power that we have given many of them the upper hand. The USA has been soft, and now do you think any of them will have mercy as the USA struggles financially and is over run and outranked by these other countries. We are already begining to drown in debt to some of these other countries with higher interest rates and deeper import numbers as we try to offset what we owe in loans. We need a strong president that will slow some of this down and take a hard line on balancing trade with other countries. We need a money smart hard nosed buisness type in office who is not affraid to get his feet wet, and can stand up to both dominating parties and demand changes that will really improve America's standing. The more troubles and struggles the USA encounters the less respect and trust others with us as an allie.

[2genewb]

government lacks proper internal investigations with real repercussions. therefore the "haves" will screw the "have nots" for personal gain to their own demise attempting to squeeze out that last penny. it's historically cyclical and the inevitable end to every great power of it's time. unfortunately "global" is the sign of the times, so the whole world is sinking as the same ship.

here, in the U.S., i believe it's avoidable (if we stick to the premise our government is founded on). for the people, by the people... but the people have to stand up and force the hand that's refusing to feed them. unfortunately complaisance has become the norm until it's too late... then the riots begin.

reminds me of a certain movie... fight club. when the going gets tough, the alter-egos come out to play and hitting rock bottom is the only way to build up to something sustainable.

[Finnster]

A policy-induced slowdown.

There are three main reasons for our downgrade. First, the recent incoming data, especially in the US and the euro area, have been disappointing, suggesting less momentum into 2H11 and pushing down full-year 2011 estimates. Second, recent policy errors – especially Europe’s slow and insufficient response to the sovereign crisis and the drama around lifting the US debt ceiling – have weighed down on financial markets and eroded business and consumer confidence. A negative feedback loop between weak growth and soggy asset markets now appears to be in the making in Europe and the US. This should be aggravated by the prospect of fiscal tightening in the US and Europe.

http://ftalphaville.ft.com/blog/2011...-bbb-recovery/

Nov 2010 was supposed to be about "Jobs Jobs Jobs," but all DC has been talking about is "cut cut cut." Nothing has been done while the eco has been slowing all year and all the data has just gotten worse and worse. Markets are looking for some leadership and the Pres and Congress are out on vacation. Must be nice...

Originally Posted by JERRY2KONE

...We need a money smart hard nosed buisness type in office who is not affraid to get his feet wet, and can stand up to both dominating parties and demand changes that will really improve America's standing. The more troubles and struggles the USA encounters the less respect and trust others with us as an allie.

You won't find one in the current crop imo. Its President Gutless vs the Cult of the Brainless.

I'd wish Bloomberg would make a run as an Ind. Solid record in business and as NYC mayor. Plus no party allegiance to pull punches on Congress and no religious nuttery. Unfort too sensible to ever run for Pres. :(

[Finnster]

Strong close in the market today, +322 on speculation and random day of optimism.

I've actually been buying back in a bit of Fri and Mon. Still thinking we're at a short term bottom here and we will see a rise as we close on the end 3Q in Sept and leadership in DC returns and starts responding to the crisis.

I think a lot of the volitility is due to eveyone out on recess/vacations and there doesn't seem to be anyone at the helm, so any bit fo news pushed the herd strongly one way or another. Not saying sunny days are here again, but I'm treating this as a buying opportunity going into Q4 and will reassess opportunities going forward.

How long can treasuries stay at this absurdly low level? Not sure I'd want to be long on them (or gold) up at these levels. Who knows tho. Crazy days for sure.

[JERRY2KONE]

Really??? You see a resolution to all of these financial problems?? Please do tell. The Gov is inept at coming up with anything that is actually going to relieve us from this madness. All I have seen and heard so far is raise taxes, lower benefits, limit social security, reduce spending, which all will create even more stress on teh people who are already feeling pretty dammed unappreciated. All of the solutions that Congress has thrown into the mix so far will put a ton of people out of work into an already drowning unemployment market. So what is it that you are seeing that is going to make this situation better? I believe from anylising the entire situation that things are about to get a lot worse. Optomisum is great when there is actually hope. I saw one example of improvements last week and that was to start the budget cuts by lowering the pay and re-evaluating the benefits of our Congressmen and Senatitors. That should be looked at before they start yanking pay from our military personel who are already struggling with the miniscule pay and poor living circumstances placed on them by our Gov.

[sikeston34m]

I get the impression that many times in the past, the Government's answer to financial problems was just print more money!

What are the over all effects of this?

This appears to give the Government the ability to "bail itself out".

But.........at who's expense? What does this do long term?

[JERRY2KONE]

Originally Posted by sikeston34m

I get the impression that many times in the past, the Government's answer to financial problems was just print more money!

What are the over all effects of this?

This appears to give the Government the ability to "bail itself out".

But.........at who's expense? What does this do long term?

Exactly, and it has to stop at some point, but we are the ones who are going to pay the penalty with lost jobs, higer taxes, rediculous cost of living increases, lower income rates, reduced social services, and a weak dollar.

[Finnster]

Hi Jerry,

So what I am looking at is the underlying macroecon, as well as perceptions that are driving the market right now, as well as historical seasonal market trends. Its also important to keep in mind that it usually pays to be contrarian in your investment strategy.

I think the market (at least the areas I'm looking at) are heavily discounted from general anxiety as well as risk of recession. I think the former (as alluded to previously) is an overreaction to the S&P downgrade, the stupid debt ceiling fight, continued weakness in job numbers, as well as a general lack of response from DC as everyone is out on vacation in Aug. Fear of the 2008 collapse is also fresh in everyone's mind, as well a general misunderstanding of economic fundamentals, especially coming from conservative circles imo.

So basically the econ is very weak, everyone knows that, but I don't think we are anywhere near 2008. GDP of 4Q08 fell 10%. We are still growing, albiet at a snails pace. Also, companies are much stronger than they were pre-crisis, and everyone has been deleverging their debt for 3 yrs. There still is a massive amount of private and public debt, but balance sheets are stronger. Basically many companies are lean, mean and sitting on hoards of cash.

As far as the public debt goes, its ugly, BUT...

The actual yearly cost of the debt is quite low in terms of GDP. This is due to the safety and strength of US treasuries and the tremendous appetite for debt by risk-adverse investors more than willing to buy debt. The prescriptions of "the gov't debt crowding out the private sector" made by some politicians are nonsense and not backed by facts (like historical low rates.) S&Ps downgrade was scoffed at. So while the numbers are staggering, its main effect will be the fear it induces rather than actual yearly cost to the economy (at least in the short/medium term.) What worries me more is the fear-induced paralysis on the policy front to address the fundamental employment and household debt problem.

The dollar may be dropping, but on a macro level that may not be a bad thing. What it means is that our exports become more attractive and competitive and should spur manufacturing growth here as well as slow down imports and improve the trade balance. This is why the Japanese, Swiss, Chinese and even Germans are upset, and are taking measures to fight the rise in their currencies. It also means the real value of our debts also go down, which can be helpful when the big problem with the econ is driven by all the household debt.

This is the major point that is missed/dismissed by the gold std/tight money folks. The major complaints versus the weaker dollar is the negative effect it will have on purchasing power of internationally traded goods, like oil. We are trying to get over an overconsumption binge, so orienting national monetary policy to accomodate that seems like a bad decision IMO. There will be higher energy costs as a result as one effect, but this is system is fairly adaptable (ie purchasing smaller cars) as well as other behavioral adaptations. I think this will be more than made up for by increased exports, and the jobs that come with it, that it shouldn't be the cause for serious alarm that some may suggest.

Also, one would think there is a serious inflation problem right now if one listened to certain news outlets. There has a been a segment of doom and gloomers that have been predicting "hyper-inflation" anyday now. They've been saying this since 2008, and they've been wrong all this time for very predictible and textbook reasons. The core inflation rate is still at near historical lows, the rises in oil and food (non-core) are very much being effected by supply and demand functions, and more so we cannot have large inflation cycle without rising wages. Wages are flat (and fell slightly in June) and home values are flat or falling. Basically you have to have the money in hand to be able to buy the goods at the inflated rate for prices to rise. The consumer is strapped and not spending, and producers/retailers are having to sell at reduced prices to be able to attract scare consumer dollars. This is a recipe for deflation rather than inflation (and is closer to the observed facts in 2009-2011.)
Also, currency values are relative, so to pull away from the $ requires you to move money somewhere else. What is this currency that will rise? The Euro? Hah! bigger mess. Renminbi? China fights to control its undervalue. That leaves what? The Yen and Franc? Rising, but hardly able to replace $ as global currency (esp as Japan is in the same situation we are in re: high debt, bad demographix and slow gdp growth.)

Comparisons of the US economy to Zimbabwe or the Weimar Republic are just off base to their fundamentals, and are more contructions of political hyperbole than accurate comparisons. Same goes for the Greece comparison as well.

Lastly, the end of quarter and end of year tends to result in a rally. Summer seasons are traditionally slow/weak for investors. Map the market this year to 2010 and its deja-vu all over again. Strong Jan-April, correction to over-confidence in May to a slow summer with talks of Euro debt crisis and double-dip, then market running on a 8mos bull run Sept 1 once everyone realized we're not all gonna die. Not saying it's fated, but I think there is a strong case the pessimism is overplayed.

The pols will be coming back to DC next week. Along with them will come job plans and the looming debt deal for Nov. Some of the talk is stupid to be sure, (as you've noted) but the effect will be to give the market news and direction to respond to. I have a small amt of optimism that Obama may be starting to pull his head out of his ass and start focusing on domestic econ issues and the neccesity of a real jobs plan. Up till now his strategy has been to fertilize the "green shoots" with loads of bullshit and little else, and just delegate the rest of the work to Biden and congressional leaders. Also, tea party popularity took a considerable hit with the self-destructive crusade to default in the fight over the debt ceiling. Their influence may be waning a bit, and their contractionary fiscal policies should get more push back. The political realm will be the most volitle for sure, and needs to be watched carefully by investors. One point of note is that the GOP did appoint tax hardliners to the SuperCommittee, but not tea party heros like Sen. Demint. The Dems nominated fairly centrist members and proven deal makers. Given this August, I see some daylight for something somewhat sensible actually getting done, if no more than to save their own asses.

So.... what does this all mean? The rules of my 401k require that I hold all funds for at least 30 days. Given all the above, am I willing to bet that they will have greater value in the short term? I think that it is a pretty strong possibility.
I'm a fairly active trader and sold almost everything in July (following the end 2Q rally from June) and before the debt fight finished. I had done a similar thing in April when things looked over-optimistic and peaky after the 8mos run, and bought back in in late May/early June when doom clouded the skies again. (Plus made sure got out in time this year, got caught holding the bag when the BP oil rig blew up last April and ended up getting stuck in things longer than I wanted.)

Basically I think it pays to listen to and read economists who know what they are talking about and have a solid track record, have some faith in govt leaders that they may actually have an idea to what they are doing, pay attention to market trends and emerging data, and be open minded to explainations and possiblities of the current situation. Turning off ideologes and propagandists, like much of Fox news or any Murdoch-run news also helps. ;) A lot of the criticism I hear is based on ideology, conspiracy theory, political opportunism, wishful thinking and mistake-proven econ theory. What I hear little off is criticism based on solid econ theories that result in reliable predictions, as well as a general lack of critical evidence and facts that weave into theories and diagnoses. Should be a flag for anyone paying attention. I certainly don't want to bet my money on the advice and opinion of perennial losers.

Here is some centrist food for thought:

-http://www.frumforum.com/time-to-dow...ditorial-colum
-http://www.frumforum.com/if-the-cons...ut-the-economy
http://www.frumforum.com/were-our-enemies-right
-How liberal Keynesian economists predicted the stimulus was too weak and ill-constructed to do the job. Jan 8, 2009
-Timid Obama aiming too low, Mar 8, 2009

As long as this post is, its just a brief overview. People can argue the politics of it all they want, but I'm not willing to risk my money on it.

[JERRY2KONE]

You missed one very big thing in your sumation. The US Gov is the biggest employer in the USA, plus they hold contracts with some of the largets private companies across the nation. With the projected budget cuts we are about to see one of the biggest layoffs in our history to reach the balanced budget that Obama wants to see before he leaves office. When these cuts go into effect there will be another 1 million people dumped into the unemployment ranks, along with another 1million people laid off by Gov contractors. With all of these layoffs the US Gov will also lose revenue and have to raise taxes on those who are left still working. These budget cuts are going to hit so deeply that things can only get worse than they already are. Meaning a plunge in the overall value of the US $. Now I am not some economic genious or stock market whore, but this all looks bad to me for our country, and I really do not see any way to avoid it either. Raising the countries debt ceiling year after year has got to stop. Our Gov is writing check that we no longer have the assets to back them up. The next step will be selling off huge amounts of our country to foeign countries.

[Finnster]

Dow up +143 pts today. Treasuries fell and gold got pounded, losing nearly $100/oz.

IE, risk aversion is loosening, and money is moving out of safety and back into equities.

Let's not call it a trend yet tho.

[Finnster]

Originally Posted by JERRY2KONE

You missed one very big thing in your sumation. The US Gov is the biggest employer in the USA, plus they hold contracts with some of the largets private companies across the nation. With the projected budget cuts we are about to see one of the biggest layoffs in our history to reach the balanced budget that Obama wants to see before he leaves office. When these cuts go into effect there will be another 1 million people dumped into the unemployment ranks, along with another 1million people laid off by Gov contractors. With all of these layoffs the US Gov will also lose revenue and have to raise taxes on those who are left still working. These budget cuts are going to hit so deeply that things can only get worse than they already are. Meaning a plunge in the overall value of the US $. Now I am not some economic genious or stock market whore, but this all looks bad to me for our country, and I really do not see any way to avoid it either. Raising the countries debt ceiling year after year has got to stop. Our Gov is writing check that we no longer have the assets to back them up. The next step will be selling off huge amounts of our country to foeign countries.

I do agree that gov't cutting jobs has had a real effect. The July jobs # (+18,000 net) showed much better #'s for private sector, but huge job cuts in the public sector dragged the #'s down for the low net #. I agree with you a lost job is a lost job. I don't think its wise policy either that so many of these job losses come from police, fire and teachers.

I would say tho, this is being driven much more by the right than the left. It was the Tea Party's balanced budget amendment that was a big player in the debt fight. Obama has been actually pretty right leaning when its come to govt jobs (despite whats said on the campaign trail.) He's frozen fed salaries for the next few years. He's directed strong agency budget cuts for next year. There is no doubt this will have an impact on families employed by the govt. Some of my family have jobs in the Fed, and being told not to expect raises for years can have a very profound impact.

There is no way in hell the budget is going to be balanced by 2016. Obama also says a lot of lofty shit that never comes true. Gitmo is still open, and we're still in Afghan and Iraq last time I checked. ;)
There may be ways to do it, but its politically and economicly suicidal. No reason to do it either. Debt needs to be put under control, but no reason it needs to be balanced now.

The budget deals that have been struck on the Fed level have tended to be geared toward the future rather than today however from what I've seen. Just gotta get the econ going before tomorrow ends up turning into today....

[Finnster]

Originally Posted by sikeston34m

I get the impression that many times in the past, the Government's answer to financial problems was just print more money!

What are the over all effects of this?

This appears to give the Government the ability to "bail itself out".

But.........at who's expense? What does this do long term?

Somebody needs to forward this to the European Central Bank (ECB), as their inaction is threatening to destroy the Euro and send the region (if not world) into a depression. Hey, but they are fighting the spectre of inflation .

I don't know how many have continued to follow this, but it has all been quite facinating (altho scary and sad.)


The inherent weakness of the structure of the Euro is about to come apart. Greece almost totally F'd things up the other week, and managed to have their govt collapse over their bailout deal, and in the end were lucky to get back to where they started with the bailout terms (albiet with a new PM.)

However, they managed to freak the market out by clarifying European ineptitude, Italy's bond rates have been skyrocketing, and now their govt collapsed. Even with a new PM and austerty package, bond markets were not calmed, and now France's bond rates are moving up.

Basically no one is big enough to bail out Italy, but the ECB has to come in and be lender of last resort to ITL to stop the panic and contagion. They have to do Quantitaive Easing drive down rates for Italy by buying their bonds and guaranteeing lowered rates. Italy can afford their debt if it remains at reasonable rates. Fear of European inaction has pushed them up to a level that will create a self-fullling crisis.

The Germans are opposed in intervening as they are the main creditor nation and fear inflation, yet if they don't, German, French, US and many other banks and debt holders will suffer massive writedowns and potential insolvency if Italy defaults. Then the cards will just fall one by one until the whole Eurozone collapses and we see a depression. Its amazing to watch. Germany may do itself in because of far more trivial worries.

No one is safe anywhere. Oz, USA, Asia...

When politicians start talking about "end the Fed" and gold standard and not printing money, this is what it looks like in the present economic situation. Bad idea.

[Finnster]

Some fun reading on Italian default scenarios:

http://www.nakedcapitalism.com/2011/...scenarios.html

Or CNN by conservative David Frum:

http://www.cnn.com/2011/11/14/opinio...html?hpt=op_t1