brianoh

The U.S. Economy Is Still on Life Support

As I see it, the problems and causes are quite simple. The desire of the US Fed and Treasury to inflate assets and keep them that way. Obviously that is not wealth creation, it is asset-inflation. Quite simply, stocks rose too high up to 2000/2001 - circa 800% in circa 10 years. As they were about to come back to more normal PE ratios, Greenspan decided that would cause a recession and to prevent that he created the housing bubble. These Keynesian economists are destroying the US economy with phony assets that fuel consumption until the bubble bursts. Time for some real economists to start on the restructure of the US economy to create some real wealth. Trouble is, all of the people with power want short-term solutions, and that means bailouts and printing of money - socialization of the losses. Bernanke at long last recognizes this and now talks of preventing asset bubbles - talk is cheap and easy. He has the chance to prevent this one by allowing market forces to prevail.

Bracing for Another Round of Credit Related Woes

One major point is that the Fed Rate of 2% improves bank's profitability, or at least reduces their losses. The spread between what they pay and what they receive on mortgages is very high. This means that those with cash are paying for their losses on bad loans. As for stocks, it is a question of what are reasonable PE ratios. Based on historical rates stocks are at least 30% overpriced and the Fed and Treasury are fighting like mad to keep them there - hence the housing bubble caused by Greenspan. The whole FIAT money system is at risk as a result of printing too much money and inflating asset prices.

Are Subsistence Wages Killing the US?

The point I was making is that current legislation allows the 3rd world worker to replace the 1st world worker. These goods are then sold in the 1st world at 1st world prices. The jobs of creative people in the 1st world are being lost. Big companies are the only ones on this side to benefit. Only time will tell where this will lead, however based on current experiences it will lead to destruction of the US economy. The trade deficit, the budget deficit, the loss in value of the USD, the bursting of the housing bubble, the bursting of the dotcom bubble, REAL CPI-inflation over 10%. Don't all of these things spell out an economy that is ruined? The only thing that has kept it going is that all the bubbles have not burst. The Fed is fighting like mad to ensure that the last domino, Wall Street stays high. That itself was a bubble from 1990 to 2000 and was about to burst in 2001. Now Bernanke is holding it up in much the same way as Greenspan did in 2001. This time however there is no housing bubble to absorb the liquidity, there is only stocks. Bernanke has the misguided notion that lessons learnt from the 1930s will solve everything and flooding the economy with cheap liquidity will fix everything. The point he misses is that the way to stop the bursting of bubbles is to stop them forming. They do not do this because their Wall Street cronies would not like it (IMO). The US woke the Asian monsters and now they are about to beat the US at it's own game - consumption. US consumption is on the decline because real wages have declined for over 10 years. The housing bubble replaced those wages, and now that has withered. Companies like GM and Ford have the wrong products that consumers can no longer afford. So what we have is an economy that can no longer afford products manufactered by it's own companies and must import products to survive. Standards of living are declining and will continue to do so inversely to standards in China. To aid that process, the US govt sends out tax rebates for people to spend on cheap imports, further helping the foreign economies. Obviously the US has the wrong people in power and making decisions that shape the future of the US over the next century. Look at the start of this century as a guide.

Are Subsistence Wages Killing the US?

Some very interesting comments. What it all boils down to is a class structure designed to benefit the very wealthy and multiply their wealth. Globalization - read: cheap offshore labor, Cheap money - read: don't let the Dow fall, Fed loans on rubbish loans - read: look after your mates. Bankers running the economy with disregard of trade deficits and USD loss-of-value - read: madness. A private central bank - read: madness. Subsistence wages - read: the rich benefit. I totally disagree with the concept that it was inevitable that globalization has to force down wages and thereby productivity is replaced by service industries. It is happening because the powers-that-be let it happen to satisfy Wall Street.

Bernanke Blames Saving Glut for Housing Bubble

The US has many economic problems mainly relating to productivity and the service economy they have created at the behest of multinationals and investment banks. The current problems with the housing bubble was caused by Greenspan in order to protect an overpriced stock market in 2001. The Fed is illogical to put it mildly. Greenspan allowed the stock bubbles up to 2001 and when a correction was overdue, he prevented it and created a housing bubble. The US economy has been using asset inflation for about 15 years. It has to end eventually. Creation of liquidity to support overpriced assets is a bad strategy.