Bjarne Jensen

Preview of the U.S.'s Future: Debt Burdened Nation?

Davewmart: While we have the mightiest military in the world today, if a regional/world war broke out, we would have to win the war with the war capacity we have on hand. Many war historians argue that we won WW2 because of our industural might and we built more tanks, bombs, and bullets than our enemies.

Unfortunately, we have neither the industrial infastructure nor critical commodities necessary to sustain a long war. We won't win WW3.

Dow Theory Sell Signal?

Has a first, more relevant, question been overlooked? And that is, did Dow Theory ever indicate a 'bullish' stance after the meltdown?

U.S. Economy Is Growing Again?

Imagine that you are a car dealer that had a lot full of cars which sat unsold for nine months. Then cash for clunkers unloaded most of your inventory and saved your company from bankruptcy. Do you really think that dealer is going to restock as many cars as he started the year with? No way! At best, dealers will order some cars to replace some of the best sellers. But I believe most dealers will refrain from restocking in any meaningful way until they see the Main Street economy improving.

After GDP, The Wake-Up Call

Everyone is anticipating inventory restocking both for the direct economic boost it will provide and the economic signal value. However, I don't see the anticipated restocking happening:

1st: and most obvious, I don't see how our economy will be helped by purchasing more goods from China. And 2nd: I question the size of the inventory restocking that will happen. Imagine that you are a car dealer that had a lot full of cars which sat unsold for nine months. Then 'cash for clunkers' unloaded much of your inventory and likely saved your company from bankruptcy. Do you really think that dealer is going to restock as many cars as he started the year with? No way! At best, dealers will order some cars to replace some of the best sellers. But I believe most dealers will refrain from restocking in any meaningful way until they see the Main Street economy improving.

OK, what about the retail Christmas shopping season: Container shipments during the Sept/Oct Christmas supply season were way down. Retailers simply are not stocking a lot of goods for this shopping season.

If we have lower Christmas sales, I am afraid we will see another, larger, round of store closing in the 1st qtr 2010.

Moody’s Expects Flat to Modestly Better Holiday Retail Season

Without structural changes, just how will the economy get better? This is not a rhetorical question, I really would like to know how Moody's thinks the economy will get better?

The Market’s Read on the Economy

Everyone is anticipating inventory restocking both for the direct economic boost it will provide and the economic signal value. However, I don't see the anticipated restocking happening:

1st: and most obvious, I don't see how our economy will be helped by purchasing more goods from China. And 2nd: I question the size of the inventory restocking that will happen. Imagine that you are a car dealer that had a lot full of cars which sat unsold for nine months. Then cash for clunkers unloaded most of your inventory and saved your company from bankruptcy. Do you really think that dealer is going to restock as many cars as he started the year with? No way! At best, dealers will order some cars to replace some of the best sellers. But I believe most dealers will refrain from restocking in any meaningful way until they see the Main Street economy improving.

OK, what about the retail Christmas shopping season: Container shipments during the Sept/Oct Christmas supply season were way down. Retailers simply are not stocking a lot of goods for this shopping season.

If we have declining Christmas sales, I am afraid we will see another, larger, round of store closing in the 1st qtr 2010.

Bill Gross' 'New Normal': Just the Same Old Normal After All

Brian, I disagree with your statement, "It is never different. The same old story is played over and over. The costumes might change, but the story's the same. " The Post War Baby Boom incrementally changed everything about the economy as it grew. Among first changes was the enormous growth of public education starting with a boom in new grade school construction, then junior high, high school and universities. Followed by a huge demand and growth in residential construction, etc.

The point being that things have been positively "different" for fifty years because of the growth in spending attributed to the post war baby boom. That growth is going to contract as they enter their senior years and spent less and use up what is left of what they managed to save.

So now that their economic influence is negative, things can't be different? I contend they have always been different and will continue to be different this time.

Deflation Expert: How the U.S. Is Repeating Japan's Mistakes

Chap08, We already have more than tens years of decline under our belt: The stock market is back up it was over ten years ago, aggregete employment is lower than it was ten years ago, wages are lower than they were ten years ago, etc.

And the worst part is that without natural resources and academic superiority we won't be leading the world forward.

The Intrinsic Value of Nothing, Part 1

Richard, Regarding your comment, "Gold as currency is a fallacy." having just read Mr. Ferfals account of surviving the Argentinian economy collapse in 200, I now understand how disastrous relying on gold as a medium of exchange in a collapse really is. See part two, www.silverbearcafe.com...

Large Caps Could Lead the Market Much Higher

Do I recall correctly that increases/decreases in the stock market is a component of GDP? Does the market run up explain positive GDP? Does anyone know the answer?

The Great Shift: China Rising, U.S. Falling

I agree with you: When this economic storm has passed, we will no longer hold the economic high ground in the world. Without the high ground, we will quickly become a third world country without the resources to save ourselves.

Can’t happen here? Consider that the economic high ground has changed three times in the last 750 years. The Dutch lost the economic high ground to Spain 500 years ago. History remembers it as the Tulip Bubble. Spain lost it to England 250 years after that and England lost it to us 250 years ago. We are in the process of losing the economic high ground to China.

Each of those economic transitions was caused by the same two conditions: The losing country had accumulated more debt than their economy could support and the losing country had such incredible hubris they were unable to see it.

S&P 500's PE Ratio of 139 Isn't Sustainable

I don't understand how Shillers modified ratio "p/e10." formula is better. It understates values when economies are growing and overstates values when economies are contracting. Can anyone tell me how that is a superior evaluation tool?

The Great Unwind

A good article generates great comments. I agree with maddog, the evitable is that when this economic storm has passed, the western world will no longer hold the economic high ground. Without the high ground, we will quickly become a third world country without the resources to save ourselves.

Can’t happen here? As mad dog pointed out the British, the Spanish and Portuguese empires collapsed. And each of those economic transitions were caused by the same two conditions: The losing country had accumulated more debt than their economy could support and the losing country had such incredible hubris they were unable to see it. Our fate is sealed because even if we saw the light and "changed our ways" (1) we no longer have sufficient resources, physical, financial and manufacturing infrastructure left to "solve' the problem, (2) more than half of our population is an economic drain and (3) the emerging world doesn't like us so they are not going to help us recover.

Economics and Its Discontents

Early in the ‘great depression’ the theory of Business Cycles was discredited by the economic suffering imposed on everyone. Our government was slow to “help” its citizens and the Business Cycle Theory took the hit. I think that is unfortunate because the Business Cycle theory goes a long way to explain the grave economic situation we find ourselves in today.

During the last 25 years the Federal Reserve has administered economic adrenalin three times in order to avoid economic discomfort from a normal business down cycles: They reduced the Fed Funds Rate and flooded the market with cheap money, i.e. a bailout. With each successive bailout the Fed has had to administer ever lower interest rates and provide ever larger sums of borrowed money to achieve the same effect.

The Business Cycle theory contends that business down cycles are essential to a healthy economy; that down cycles should be accepted for their healing properties rather than avoided for their economic pain.

The Business Cycle theory holds that the benefit of down cycles is they force excess debt to be paid down, and unprofitable risky business models to be modified or abandoned. Avoiding down cycles causes borrowers to become addicted to cheap credit and dependent upon excessively leveraged business models. Borrowers, at every level, come to regard debt as wealth, a classic and tragic error of culture and an unsustainable economic model. Without down cycles, debt accumulates and unprofitable excessively risky business models prevail.

When overleveraged banks are bailed out sound banks are punished for their prudence. With each bailout, the failed models, i.e. “bad’ banks gain greater share over prudent profitable banks. After 25 years of handicapping sound financial institutions, essentially every large financial institution in the western world operates on a business model based on extreme leverage of financially engineered products with no “real value”. The world is now burdened with $55-100 trillion of worthless or seriously impaired debt on the balance sheets of virtually every western government, business and citizen. While the value of the assets are impaired the debt remains. And our job situation is structurally weaker from outsourcing, which renders us less capable of servicing that debt. We are over indebted and no longer have the economic means to financially redeem ourselves.

Those 25 years of Fiscal and Monetary Policy have rendered any options left effectively moot: We no longer have sufficient financial, commodity or productive resources of our own to restore prosperity and the cost is greater than the rest of the world is willing to lend us. The Federal Reserve has already begun filling the void by buying Treasuries directly; otherwise known as “printing money”. Printing money has always led to hyperinflation!

Hyperinflation and high unemployment is a tragic combination. An inescapable economic tsunami is on the horizon. The truly unfortunate aspect of the coming tsunami is the magnitude of human suffering that will be left in its wake. I expect that very large portions of the American population will be left homeless, helpless and hungry.

If we continue trying to prop up failed institutions with more borrowed and printed money we will use up the few precious resources we have and go deeper in debt without fixing the problem. By doing more of the same, we risk a depression that we may never recover from. If we have the moral and political courage to accept the economic healing process we will still have a recession but hopefully emerge stronger, growing and vibrant.

1929 clearly showed us that our government can not stand by and do nothing when its citizens are hungry and homeless. However we are at the point in our economic evolution where more bailouts can’t improve our economy; they will only increase the magnitude of economic pain when the adrenalin wears off. Instead of rewarding the culprits, Congress should allow the economic healing process to occur and instead spend the bailout money to lessen the economic burden to its citizens as they suffer through a difficult and painful economic adjustment. Congress can help people weather the recession by providing economic and cultural assistance such as unlimited unemployment insurance, free retraining programs, universal health care, free public transportation, food banks, etc. Consider this, the 3 trillion spent or earmarked to bail out culpable banks is equal to $10,000 for every single person in America. That could go a long way toward getting the economy going again!

'Bad Money' by Kevin Phillips: A Terrific Primer on Today's Issues

Ignor Bad Money at the peril of not understanding, ie stay stupid if you want. Also, I believe it is time to seriously relook at Business Cycle theory. Early in the ‘great depression’ the theory of Business Cycles was discredited by the economic suffering imposed on everyone. Our government was slow to “help” its citizens and the Business Cycle Theory took the hit. I think that is unfortunate because the Business Cycle theory goes a long way to explain the grave economic situation we find ourselves in today.

During the last 25 years the Federal Reserve has administered economic adrenalin three times in order to avoid economic discomfort from a normal business down cycles: They reduced the Fed Funds Rate and flooded the market with cheap money, i.e. a bailout. With each successive bailout the Fed has had to administer ever lower interest rates and provide ever larger sums of borrowed money to achieve the same effect.

The Business Cycle theory contends that business down cycles are essential to a healthy economy; that down cycles should be accepted for their healing properties rather than avoided for their economic pain.

The Business Cycle theory holds that the benefit of down cycles is they force excess debt to be paid down, and unprofitable risky business models to be modified or abandoned. Avoiding down cycles causes borrowers to become addicted to cheap credit and dependent upon excessively leveraged business models. Borrowers, at every level, come to regard debt as wealth, a classic and tragic error of culture and an unsustainable economic model. Without down cycles, debt accumulates and unprofitable and excessively risky business models prevail.

When overleveraged banks are bailed out sound banks are punished for their prudence. With each bailout, the failed models, i.e. “bad’ banks gain greater share over prudent profitable banks. After 25 years of handicapping sound financial institutions, essentially every large financial institution in the western world operates on a business model based on extreme leverage of financially engineered products with no “real value”. The world is now burdened with $55-100 trillion of worthless or seriously impaired debt on the balance sheets of virtually every western government, business and citizen. While the value of the assets are impaired the debt remains. Our job situation is structurally weaker from outsourcing, which renders us less capable of even servicing that debt. We are over indebted and no longer have the economic means to financially redeem ourselves.

Those 25 years of Fiscal and Monetary Policy have rendered any options left effectively moot: We no longer have sufficient financial, commodity or productive resources of our own to restore prosperity and the cost is greater than the rest of the world is willing to lend us. The Federal Reserve has already begun filling the void by buying Treasuries directly; otherwise known as “printing money”. Printing money has always led to hyperinflation!

Hyperinflation and high unemployment is a tragic combination. An inescapable economic tsunami is on the horizon. The truly unfortunate aspect of the coming tsunami is the magnitude of human suffering that will be left in its wake. I expect that very large portions of the American population will be left homeless, helpless and hungry.

If we continue trying to prop up failed institutions with more borrowed and printed money we will use up the few precious resources we have and go deeper in debt without fixing the problem. By doing more of the same, we risk a depression that we may never recover from. If we have the moral and political courage to accept the economic healing process we will still have a recession but hopefully emerge stronger, growing and vibrant.

1929 clearly showed us that our government can not stand by and do nothing when its citizens are hungry and homeless. However we are at the point in our economic evolution where more bailouts won’t improve our economy; they will only increase the magnitude of economic pain when the adrenalin wears off. Instead of rewarding the culprits, Congress should allow the economic healing process to occur and instead spend the bailout money to lessen the economic burden to its citizens as they suffer through a difficult and painful economic adjustment. Congress can help people weather the recession by providing assistance such as unlimited unemployment insurance, free retraining programs, universal health care, free public transportation, food banks, etc. Consider this, the 3 trillion spent or earmarked to bail out culpable banks is equal to $10,000 for every single person in America. That could go a long way toward getting the economy going again!