To me, our traditional labor market, at least in the developed countries is falling apart before our eyes. Corporations would rather use extra money to upgrade tech and cut fat, and American labor is pretty fat. This most likely means that the Developed World Economies are likely to putter along, if not far worse if fear starts snowballing again. Do you believe there is a problem and how would you fix it? I believe the solution actually lies in bringing more countries into the consumer age and thereby creating a much larger base to build our houses of cards. If it wasn't for the prospect of the BRIC countries bringing more demand to the world in the next five years, the stock market would be bouncing along its lows and we would be staring at another depression, imo. So, logically, the way to give hope to the markets and eventually wealth to more people is to increase the number of developing countries that Wall St. gets hope from. Any takers?
Capitalism is not yet doomed because there's a good possibility that there will be regime change in November. Democrats are running as far away from Obama as possible. Republicans may take over Congress if they win significantly in the upcoming elections. Gridlock is good for the stock market and for capitalism. What we need to take out is the liberal media who got this inexperienced, tax & spend, Marxist regime elected.
Developed world economies advance by trading with each other, because they can actually make good use of the more advanced stuff they make. Think Blackberries. Priceless for the developed economies of the world - which includes the Chinese coastal cities, at this point, by the way - useless in the Chinese countryside or in most of India outside the software centers. Developed to developing world trade is based on either commodities or products the developed world slowly stops producing because the margins on them get thinner - i.e., they're becoming commoditized. Developed economies continue to produce these things as well, but their importance relative to the rest of the economy declines greatly. Agriculture would be the prime example here. The US produces massive amounts of food, but its importance in the delta of our GDP is pretty low compared to, say, Cummins engines or Boeing jets. India, OTOH, still has a GDP whose performance depends partly on the monsoon.
I'm no big fan of Keynesian spending, but I can try to be objective about it. If there is gridlock in Congress and we don't deficit spend, there will be widespread unemployment, debt deflation, bankruptcies and foreclosures at record amounts and wiped out 401Ks. Deficit spending reflated or maintained, or at worst, slowed down the negative effects I just mentioned. Think of a balance sheet. On one side you have the private sector, on the other, the public sector. If the private sector is deleveraging, in order to just maintain the status quo, you deficit spend. The private sector shrinks, the public sector expands - net change minimal. But to stop deficit spending while there is ongoing high unemployment, invites immediate depression. Where do you think the private sector gets a good chunk of it's income when it's shrinking? It's government. A well paid government employee is your customer somehwere along the way. I'm not saying deficit spending is the solution. I'm just saying there is no short term painless solution. Don't think for a minute that if we immediately balance the budget we'll have a booming economy. It doesn't work that way, unfortunately. And this depression has been simmering for a long time now. Why do you think the party of small government, under Bush II, doubled the deficit while engaging in two wars? Imagine what the economy would have looked like if they never spent like drunken sailors, as McCain called it. I am not criticizing either party. The fact of the matter is, no one is pro small government, despite what they say in speeches. They know the ugly reality we face.
To counter, Fed govt spending was ~1.9T when Clinton left office and the economy was in great shape. Now, Fed gov't spending is ~3.8T and the economy is in shambles. Federal gov't spending has doubled in less than 10 years without a positive impact on the economy. That's because the gov't spending resulted in relative inflation and bubble creation. The price of gold was ~270an oz when Clinton left. Now it is approaching 1300/oz. The law of diminishing returns applies to Fed gov't spending as well as everything else. In this case, relative inflation and the bursting of bubbles diminishes the return on increased gov't spending.
I doubt capitalism and our economic structure can be saved. America has already gone too far down the Socialist path. Obama's policies are hastening our demise... a Conservative congress and administration could at least slow the decline.
But the economy was not in great shape when Clinton left - or at least, the cracks were just beginning to show and widen. On March 6, 2000, the Nasdaq breached 5000, by the time Clinton left office in January 2001 - the Nasdaq was over 50% lower - around 2,400, and around 2,700 on his last day. Yes, Clinton and the Republican Congress restrained spending in the 1990s - but the private sector was growing very fast due to the emergence of the tech industry - which in my view was historic - to a degree. But even that industry got out of hand with speculation. How many dotcoms went bust? Could Cisco grow at a large rate forever? The government spending just after Clinton, under Bush, was used to reflate the economy. Bush not only increased spending, but cut taxes as well. What did we get? A Housing bubble and Bull Market to 14K that has since collapsed.
I thought this might maybe finally be an actual economics discussion? Instead it's yet another in the endless, vomitacious series of deficit/Obama bad/US doomed threads. Y'all never do get tired of listening to yourselves whine, do you?
Yeah, I know I'm guilty in going over board with the "we need to cut spending now or it is doomsday" posts. However, we need to recognize the root causes of a situation before settling on a solution that will last. The problem is that so few people will recognize or acknowledge the root causes. In terms of economic discussion, my theory for years has been: as long as the fed gov't keeps running up deficits, keep buying gold.
Misthos is right about this, first of all. From the POV of abstract economics, you need the Feds to run a deficit when times are as bad as they are now. Secondly, a political reality: Clinton having handed Bush a surplus and having watched it get pissed away for quite literally nothing, no Dem is ever going to do that again. It will take an epic crisis to get the Federal budget back into surplus again, as a result, since the Dems aren't ever going to allow themselves to get burned again, and we already know what the Reps will do. So, regardless of whether the economics calls for it, there will be deficits, for as far as the eye can see.