It’s 2008. The U.S. Has Dragged the World into a Depression.

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April 15, 2008

SouthAmerica: Here is another article published by Fortune magazine that quotes a figure estimating at $ 65 trillion dollars the US cumulative liabilities.

Quoting from that article: "For people currently alive, we have $50 trillion to $65 trillion in unfunded liabilities," he said, referring to the cost of Social Security and Medicare benefits promised to current and future retirees"

And the $ 65 trillion dollar estimate was done before the latest estimated figures regarding the cost of the Iraq War were available (a few extra trillion dollars) plus the cost attached to drug benefits to seniors that the Bush administration added to Medicare.

Today the $ 70 trillion dollars in new liabilities that are coming due might be a conservative estimate when all the new information is considered.

Just keep in mind that these estimates are the “present value” of these liabilities.


*****


“Congrats, Sir! Now please fix the $50 trillion mess we're in.”
Here's hoping Bush shows the same backbone with the deficit as he has with foreign policy.

By Justin Fox
November 29, 2004
Fortune Magazine

(FORTUNE Magazine) – A WEEK AFTER George W. Bush won a second term, the leaders of the Concord Coalition--the deficit fighters' club founded in the dark days of 1992--gathered at the Pierre Hotel in New York City to commiserate. This was no bunch of blue-state liberal whiners. Half the people on stage at the coalition's annual awards dinner were Republicans. The guest of honor was Senator John McCain, who spent much of the fall on the road campaigning for Bush.

But the tone was somber, even apocalyptic. Few in Washington care about deficits, McCain lamented: "No one's sounding alarms. We don't want to make any tough decisions." Coalition co-founder Warren Rudman, former Republican Senator from New Hampshire, warned that this year's $422 billion deficit is but a cold snap presaging the economic ice age to come. "For people currently alive, we have $50 trillion to $65 trillion in unfunded liabilities," he said, referring to the cost of Social Security and Medicare benefits promised to current and future retirees. If we try to put off dealing with that staggering fiscal imbalance much longer, Rudman added, "we'll crash into the iceberg and see if we can float."

This is not the kind of talk you'll hear just now in the White House or on Capitol Hill. There the reigning attitude is one of high-five-manship. A President whose first election was disputed and whose foreign policy choices were fiercely criticized at home and abroad was returned to office decisively. His party increased its majorities in the House and Senate.

But for all the President's swashbuckling in matters of war, diplomacy, and electioneering, his economic policy has so far been all about postponing hard decisions. True, world events haven't made things easy. A stock market collapse, a recession, and Sept. 11 would have driven any administration, Republican or Democrat, into the red. But the tax cuts the President pushed through Congress in 2001 and 2003 certainly made the deficit bigger. Worse, he failed to veto a single spending bill during his first term. Bush has pledged to cut the deficit in half by the end of his second term, but that's about as believable as Terrell Owens swearing off end-zone dancing. The Wall Street consensus is that the budget gap will shrink only slightly over the next four years.

Then, after ex-President Bush heads home to his ranch in Texas, will come the deluge--brought on by rising life expectancies, falling birth rates, and the unbearable vastness of the baby-boom generation. The first boomers will be eligible for Social Security in 2008. The Social Security payroll tax is expected to fall short of covering the program's expenses starting in 2013.

Medicare, already a drain on the federal budget, will rapidly start increasing its claim on taxpayer dollars--thanks in part to the new drug benefit enacted last year. By 2030 each program is expected to cost taxpayers about 6% of GDP--compared with 4.2% for Social Security and 2.5% for Medicare now. After that the Social Security burden levels off, but Medicare costs just keep rising and rising.

Unless, of course, some gutsy politician does something about it. Which makes the next 18 months an interesting test. That's the time President Bush has before midterm elections steal away the attention of Congress, and, after that, his own clout withers from lame-duck disease. Will he take a stand and do something about what, by any reasonable standard, has to be considered the most important economic policy dilemma of our time? Or will he punt?

IT'S NOT ALL ABOUT DUBYA, of course. Other planets must align before there's any chance of resolving the entitlements mess. One extremely large (politically speaking) Republican planet already in place is Federal Reserve chairman Alan Greenspan. Greenspan, who hardly objected to Bush's tax cuts, has been making the rounds in Washington talking up the dire importance of entitlement reform--especially Medicare reform. But the people who actually have to vote to take benefits away or raise taxes are the men and women on Capitol Hill.

Unlike Bush or Greenspan, they will be running for office again in 2006, in 2008, and beyond. And a lesson politicians have learned over the past two decades is that voters aren't impressed by those who make the tough decisions needed to close budget gaps.

"Reagan proved that deficits don't matter," Vice President Dick Cheney told Paul O'Neill, then Treasury Secretary, during President Bush's first term. At least, that's what O'Neill recalled in Ron Suskind's book The Price of Loyalty. Cheney has denied uttering those words, but as a statement of political reality they have the ring of truth. President Reagan, who unleashed the deficits of the 1980s, died this year a national hero.

Meanwhile, George H.W. Bush's decision to accept higher taxes to get the deficit under control may have cost him the 1992 election. The great Republican congressional budget zealots of the 1980s and 1990s--Rudman, Phil Gramm, Newt Gingrich, John Kasich--have been consigned to the lecture circuit. The most prominent administration deficit hawk of Bush's first term, O'Neill, lost his job in part because he was ... a deficit hawk.

The lesson any Republican officeholder seeking reelection takes from this is that only suckers care about budget deficits. (FORTUNE 500 CEOs seem to agree; see box.) And while many Democrats are now programmed to expertly lip-synch the deficit cutter's creed, most would rather give Tom DeLay a foot rub than tamper with Social Security or Medicare.

That aversion may spread as recipients of Social Security and Medicare come to constitute an ever larger share of the voting population. As years pass, it will only get harder to devise a political solution in which costs and benefits are shared among generations instead of landing almost entirely on the shoulders of those still working. A shared burden is crucial because it's workers, not retirees, who make the economy go.

HAPPILY--OR NOT, depending on your perspective--there is another force that must be reckoned with: the global currency and debt markets, which have a long history of whipping wayward nations into line by devaluing their money and jacking up their interest rates.

American policymakers can be forgiven for forgetting this inevitable source of discipline. For a decade, the market they've paid attention to has been the stock market. America's late-1990s equities boom was so massive that it dragged bonds--and the dollar--with it.

Then, when the stock bubble burst, coping with the fallout became the main task of U.S. economic policy. The last time debt markets ruled was in the 1980s and early 1990s. Back then, worries about big federal deficits, and the effect those deficits would have on interest rates and the dollar, preoccupied Washington. It may be that those days are about to return.

What economists discovered in the 1980s was that what matters isn't so much the size of the deficit--in 1983 it hit 6% of GDP, compared with this year's 3.6%--as the size of the debt. When government debt grows to more than 50% of GDP, investors get antsy and demand higher interest rates.

Right now the U.S. owes about $4.3 trillion, or 37% of GDP. It will take another six or seven years with deficits of the current size to bump us into the danger zone. But if debt markets decide to factor in that $50-trillion-plus in unfunded liabilities that Warren Rudman warned about, all bets are off.

Boston University economist Laurence Kotlikoff, the nation's foremost academic worrier about such matters, wrote in these pages last May of the nightmare that could unfold if the problem isn't addressed. Huge debts and skyrocketing interest rates would force the Fed to print more dollars, which would ignite hyperinflation, which would lead to even higher interest rates. Just like Germany in the 1920s, but with reality TV. And low-carb ice cream.

A more benign scenario is one in which America's creditors nudge Washington into action before everything goes haywire. That's what happened in the early 1990s, as the federal debt neared the 50% threshold (it peaked at 49.4% in 1993). First, Bush Sr. raised taxes, then Clinton did the same, and then Newt Gingrich and his merry band frog-marched big spenders into the reflecting pool of fiscal discipline. This time around, more Treasuries than ever are in the hands of foreigners. Japan has long been the biggest buyer of the things; China is now a strong No. 2....

You can read the entire article at:

http://money.cnn.com/magazines/fortune/fortune_archive/2004/11/29/8192763/index.htm

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May 19, 2008

SouthAmerica: Someone just sent me a copy of the latest article by Kevin Phillips that was published on the Washington Post yesterday.

Here is further reading on the subject.

In August of 2004 I posted the following in the PBS message board.

After the Empire By Emmanuel Todd - A must read for all Americans
http://discussions.pbs.org/viewtopic.pbs?t=7000&highlight=emmanuel+todd


August 6, 2004

Today, I do understand why Saudi Arabia suddenly became a bad guy after all these years of doing business with the United States. I just finish reading “After the Empire - The Breakdown of the American Order” by Emmanuel Todd. This book was a best seller in Europe last year, but was published here in the US only at the end of February of 2004.

This book gives an extraordinary explanation to what is happening around the world today. The book also mentioned what is happening in the Middle East and in Saudi Arabia. This book is a must read for anyone who really wants to understand what is going on between the United States and the rest of the world.

You might ask me what is so special about this author when compared with all the other similar books that are available on this subject?

Emmanuel Todd has a special credential that nobody else has; in 1976 he wrote a book predicting and explaining in detail the coming collapse of the Soviet Empire. He was away ahead of his time, and he was the first person to spot the coming problems.

Once again, he does a superb job on his new book when he explain in detail all the interactions today between the countries around the world with the US, and the causes for the coming collapse of the American economic system.

Here is another interview with Emmanuel Todd.
http://www.elitetrader.com/vb/showthread.php?s=&postid=786149&highlight=Emmanuel#post786149


We Reached a Critical Point for the United States Economy.
http://www.elitetrader.com/vb/showt...erpage=6&highlight=emmanuel todd&pagenumber=3


*****


The Old Titans All Collapsed. Is the U.S. Next?
By Kevin Phillips
Sunday, May 18, 2008; Page B03
The Washington Post

Back in August, during the panic over mortgages, Alan Greenspan offered reassurance to an anxious public. The current turmoil, the former Federal Reserve Board chairman said, strongly resembled brief financial scares such as the Russian debt crisis of 1998 or the U.S. stock market crash of 1987. Not to worry.

But in the background, one could hear the groans and feel the tremors as larger political and economic tectonic plates collided. Nine months later, Greenspan's soothing analogies no longer wash. The U.S. economy faces unprecedented debt levels, soaring commodity prices and sliding home prices, to say nothing of a weak dollar. Despite the recent stabilization of the economy, some economists fear that the world will soon face the greatest financial crisis since the 1930s.

That analogy is hardly a perfect fit; there's almost no chance of another sequence like the Great Depression, where the stock market dove 80 percent, joblessness reached 25 percent, and the Great Plains became a dustbowl that forced hundreds of thousands of "Okies" to flee to California. But Americans should worry that the current unrest betokens the sort of global upheaval that upended previous leading world economic powers, most notably Britain.

More than 80 percent of Americans now say that we are on the wrong track, but many if not most still believe that the history of other nations is irrelevant -- that the United States is unique, chosen by God. So did all the previous world economic powers: Rome, Spain, the Netherlands (in the maritime glory days of the 17th century, when New York was New Amsterdam) and 19th-century Britain. Their early strength was also their later weakness, not unlike the United States since the 1980s.

There is a considerable literature on these earlier illusions and declines. Reading it, one can argue that imperial Spain, maritime Holland and industrial Britain shared a half-dozen vulnerabilities as they peaked and declined: a sense of things no longer being on the right track, intolerant or missionary religion, military or imperial overreach, economic polarization, the rise of finance (displacing industry) and excessive debt. So too for today's United States.

Before we amplify the contemporary U.S. parallels, the skeptic can point out how doomsayers in each nation, while eventually correct, were also premature. In Britain, for example, doubters fretted about becoming another Holland as early as the 1860s, and apprehension surged again in the 1890s, based on the industrial muscle of such rivals as Germany and the United States. By the 1940s, those predictions had come true, but in practical terms, the critics of the 1860s and 1890s were too early.

Premature fears have also dogged the United States. The decades after the 1968 election were marked by waves of a new national apprehension: that U.S. post-World War II global hegemony was in danger. The first, in 1968-72, involved a toxic mix of global trade and currency crises and the breakdown of the U.S. foreign policy consensus over Southeast Asia. Books emerged with titles such as "Retreat From Empire?" and "The End of the American Era."

More national malaise followed Watergate and the fall of Saigon. Stage three came in the late 1980s, when a resurgent Japan seemed to be challenging U.S. preeminence in manufacturing and possibly even finance. In 1991, Democratic presidential aspirant Paul Tsongas observed that "the Cold War is over. . . . Germany and Japan won." Well, not quite.

In 2008, we can mark another perilous decade: the tech mania of 1997-2000, morphing into a bubble and market crash; the Sept. 11, 2001, terrorist attacks; imperial hubris and the Bush administration's bungled 2003 invasion of Iraq. These were followed by OPEC's abandoning its $22-$28 price range for oil, with the cost per barrel rising over five years to more than $100; the collapse of global respect for the United States over the Iraq war; the imploding U.S. housing market and debt bubble; and the almost 50 percent decline of the U.S. dollar against the euro since 2002. Small wonder a global financial crisis is in the air.

Here, then, is the unnerving possibility: that another, imminent global crisis could make the half-century between the 1970s and the 2020s the equivalent for the United States of what the half-century before 1950 was for Britain. This may well be the Big One: the multi-decade endgame of U.S. ascendancy. The chronology makes historical sense -- four decades of premature jitters segueing into unhappy reality.

The most chilling parallel with the failures of the old powers is the United States' unhealthy reliance on the financial sector as the engine of its growth. In the 18th century, the Dutch thought they could replace their declining industry and physical commerce with grand money-lending schemes to foreign nations and princes.

But a series of crashes and bankruptcies in the 1760s and 1770s crippled Holland's economy. In the early 1900s, one apprehensive minister argued that Britain could not thrive as a "hoarder of invested securities" because "banking is not the creator of our prosperity but the creation of it." By the late 1940s, the debt loads of two world wars proved the point, and British global economic leadership became history.

In the United States, the financial services sector passed manufacturing as a component of the GDP in the mid-1990s. But market enthusiasm seems to have blocked any debate over this worrying change: In the 1970s, manufacturing occupied 25 percent of GDP and financial services just 12 percent, but by 2003-06, finance enjoyed 20-21 percent, and manufacturing had shriveled to 12 percent.

The downside is that the final four or five percentage points of financial-sector GDP expansion in the 1990s and 2000s involved mischief and self-dealing: the exotic mortgage boom, the reckless bundling of loans into securities and other innovations better left to casinos. Run-amok credit was the lubricant. Between 1987 and 2007, total debt in the United States jumped from $11 trillion to $48 trillion, and private financial-sector debt led the great binge.

Washington looked kindly on the financial sector throughout the 1980s and 1990s, providing it with endless liquidity flows and bailouts.

Inexcusably, movers and shakers such as Greenspan, former treasury secretary Robert Rubin and the current secretary, Henry Paulson, refused to regulate the industry. All seemed to welcome asset bubbles; they may have figured the finance industry to be the new dominant sector of economic evolution, much as industry had replaced agriculture in the late 19th century. But who seriously expects the next great economic power -- China, India, Brazil -- to have a GDP dominated by finance?

With the help of the overgrown U.S. financial sector, the United States of 2008 is the world's leading debtor, has by far the largest current-account deficit and is the leading importer, at great expense, of both manufactured goods and oil. The potential damage if the world soon undergoes the greatest financial crisis since the 1930s is incalculable. The loss of global economic leadership that overtook Britain and Holland seems to be looming on our own horizon.

Kevin Phillips is the author, most recently, of "Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism."

Source: http://www.washingtonpost.com/wp-dyn/content/article/2008/05/16/AR2008051603461.html

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southamerica! Just like all successful traders you need to learn how to step back from what you are looking at, so you can see the all picture .So look at this.

http://video.google.com/videoplay?d...q=nwo+economy&ei=6yEySKaRIKX2rAK0nsiACg&hl=en

 

SouthAmerica is only about whining, not solutions

 

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TraderZones: SouthAmerica is only about whining, not solutions


*******


May 19, 2008

SouthAmerica: Reply to Trader Zones

Only for narrow-minded people like you arrive to that kind of conclusion.

You want solutions then read this thread.

Al Gore - Democratic Party candidate in 2008.
http://www.elitetrader.com/vb/showthread.php?s=&threadid=74835

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Hey Einstein,

Guess who has been propping up the world?

Take away Yank consumption, there is no China miracle.

You just do not get it.

 

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June 2, 2008

SouthAmerica: In my opinion the US economy is in much worse shape than most people realizes.

The US government fudges their statistics as much as they can and the foundations of many people’s economic and financial models are built on top of this quicksand.

The idea that the US Federal Reserve being an independent institution is just a Fairy Tale – and today Ben Bernanke is just a marionette and when Wall Street manipulates his strings Ben Bernanke does his little dance.

If today we had an independent Federal Reserve in the US then the Fed Funds rate it would be at least 5 percent or maybe even higher.


*****


“Think the Economy Is Bad? Wait Till the States Cut Back”
By LOUIS UCHITELLE
The New York Times
Published: June 1, 2008

Struggling as we are with the housing bust, the credit crunch, shrinking consumption, rising unemployment and faltering business investment, we can be forgiven for thinking that all the big shoes have dropped. There is another one up there, however, and it is about to come down.

State and city governments have yet to shrink the economy; indeed, they have even managed to prop it up. They have quietly maintained their spending at pre-crisis levels even as they warn of numerous cutbacks forced on them by declining tax revenues. The cutbacks, however, are written into budgets for a fiscal year that begins on July 1, a month away. In the meantime the states and cities, often drawing on rainy-day savings, have carried their share of the load for the national economy.

That share is gigantic. At $1.8 trillion annually in a $14 trillion economy, the states and municipalities spend almost twice as much as the federal government, including the cost of the Iraq war. When librarians, lifeguards, teachers, transit workers, road repair crews and health care workers disappear, or airport and school construction is halted, the economy trembles. None of that, or very little, has happened so far, not even in California, despite a significant decline in tax revenue.

“We are looking at a $4 billion cut to public schools and deep cuts that will result in thousands of Californians losing their health care,” said Jean Ross, executive director of the California Budget Project, offering a preview of coming hardships. “But the reality is we have not pulled money off the streets yet.”

Quite the opposite, the states and municipalities have increased their spending in recent quarters, bolstering the nation’s meager economic growth.

Over the past year, they have added $40 billion to their outlays, even allowing for scattered spending freezes and a few cutbacks in advance of July 1. Total employment has also risen. But when the current fiscal year ends in 30 days (or in the fall for many municipalities), state and city spending will fall, along with employment — slowly at first and then quite noticeably after the next president takes office.

Sometime next year, the decline will reach an annual rate of $50 billion, Goldman Sachs estimates. “It is a big reason to expect a weak economy in 2009,” said Jan Hatzius, chief domestic economist at the firm.

The $90 billion swing — from more spending to less — could be enough to push down a weak economy to zero growth or less, because state and city spending has accounted for as much as half of total economic growth since last fall. (A robust economy has a growth rate of 3 percent to 4 percent, compared with the 0.9 percent or less of the last two quarters.) The $90 billion would certainly offset most of the $107 billion stimulus package now going out from the federal government to millions of Americans in the form of tax rebate checks. The hope is they will spend this windfall on consumption and in doing so sustain the economy. That might happen — for a while. But with the cutbacks in state and city outlays canceling out the consumption, the next president, struggling to revive a weak economy, will almost certainly have to consider a second stimulus package.

But what should it be? Should it be a reprise of the checks, relying again on private-sector spending for rejuvenation? Or should Washington channel extra federal money to city and state governments so they can sustain their outlays for the numerous programs that otherwise would be shrunk? The answer, even on Wall Street, is often: subsidize the states and cities.

“If you want to make sure that federal money gets spent, and jobs are created, you give it to them,” said Nigel Gault, chief domestic economist at Global Insight, a forecasting firm.

Like many others, Mr. Gault contends that more than 50 percent of the $107 billion in stimulus checks now going to households is likely to produce no stimulus at all. Instead, it will be used to pay down debt or buy imported goods and services. Imports bolster production in other countries; not in the United States.

Still, rebate checks have been a standard tool for years in efforts to revive the American economy. So have tax cuts and — the most popular tool of all — the Federal Reserve’s lowering of interest rates. Each tool assumes that people will respond to the incentive with more spending and investment, and markets will then work their magic.

Not since the 1970s, when politicians still paid attention to the teachings of John Maynard Keynes, has public spending — government spending — surfaced in mainstream political debate as a potentially effective means of counteracting a downturn.

Government has to step in, Keynesians argue, when private spending is not enough to lift the economy, despite the nudge from tax cuts or lower interest rates or rebate checks. This downturn might be one of those moments, involving as it does the bursting of a huge housing bubble. That has precipitated sharp declines in various tax revenues on which the states and cities depend, forcing them into extraordinary spending cuts — not yet, of course, but after July 1.

The issue barely dents the presidential election campaign. The Republicans in particular are less than enthusiastic about Keynesian economics, with its use of government to rescue markets.

They, and many mainstream economists, for that matter, argue that government is inefficient, bureaucratic, wasteful and unable to spend fast enough to counteract a downturn. The two Democratic candidates, in contrast, argue that a second stimulus package, if one is needed, should include federal subsidies to the states and municipalities, not to start new projects but to prevent cutbacks in existing ones.

No state seems more vulnerable than Florida, with its plunging home prices and slashed property-tax assessments, not yet on the books but soon to be. In anticipation, the legislature in May approved a $66.5 billion budget for the coming fiscal year, down from $72 billion in the current one.

Schools are a target, said Michael Sittig, executive director of the Florida League of Cities, “but none has been hurt yet. Nevertheless, everyone is scared.

Everyone is in the mode of trying to figure out how to get through next year” — starting 30 days from now.

Source: http://www.nytimes.com/2008/06/01/w...scp=2&sq="Louis+Uchitelle"&st=nyt&oref=slogin

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We will have to wait for at least 4 years of an Obama administration with both houses Democrat controlled to know for sure whether we can recover from the disastrous past 8 years. But one thing is certain, Obama's intellect dwarfs that of G.W. Bush. We can expect a deep recession, but at the same time much greater fiscal responsibility on the part on the Democrats. The segment of the economy to be hurt the worst will be the Military-Industrial Complex, and that is not all bad by any means. Infrastructure, and education should improve under the Democrats. The economy should show signs of recovery during Obama's first four years. The dollar will strengthen some, and energy costs will stabilize. Interest rates will rise. US per capita energy consumption will decline. The US will extricate itself from costly entanglements in the Mideast. The US will improve trade relations with Mexico, Central and South America, and trade with Cuba will begin. The US will continue to dominate in the area of technological advances because of its great private universities -- a nearly unique feature of the higher education landscape in the US compared with practically all other great nations where higher education is heavily socialized.

South America, The picture for the US economy is not as bleak as you paint. I takes many years of bad management to bring down an economy of the depth and size of the US economy. Though recent Republican administrations have seriously damaged the economy through adoption of popular, yet false, economic theories, by excessive spending on wasting assets, by neglecting investment in infrastructure and education, and by adopting radical ideologies, do not count the US out yet. The US economy will remain resilient and largely recover in the next 10 years, but it will never again dominate the world's economy. The US will however continue to remain a major economic force for many more decades.

 

Big deal. So does my Husky's.

Our country's problems have never really been about our leaders' intellect.. but more rather their self-interests, greed, larceny and dishonesty.