Posted on 04/27/2002 4:32:00 AM PDT by JohnHuang2
Edited on 05/26/2004 5:05:59 PM PDT by Jim Robinson. [history]
April 27, 2002 -- Hey, hey, America, we're booming. The United States' gross domestic product grew at an astounding 5.8 percent rate in the first quarter, casting off all fears of a long recession. Continues.
Hate to sound like a broken record, but I can't say it strongly enough: The 'Pinhead' "experts" were wrong, yet again.
(Excerpt) Read more at nypost.com ...
"YOU'RE STARVING THE CHEEEEELDRUN!"
This is bad bad news for the Dems. I bet Daschle is quoting Ted on the movie Airplane..."What a pisser!". heh heh.. Thanks for the post!
"Don't piss on my back and tell me it's raining."
That reminds me of a campaign slogan Reagan used to use back when he was running against Carter..
"A recession is when your neighbor loses his job.
A depression is when you lose yours.
And a recovery is when Jimmy Carter loses his." heh heh
This particular number is part phoney (just not reality that will be adjusted down when the revised numbers come it); part massage (by adjusting the 4th Q of last year down they shoved actual last year Q4 production into Q1); part inventory adjustment (production for inventory not sold is not positive unless people are buying which they are not); part attributable to the lower priced housing market in January and February that tanked in March and continues down in April.
The real numbers have a different picture. Housing sales are now way down across the board (there are still pockets of activity like California but they are counter to the national trend). The dollar is down sharply--if the Fed does not reverse it, we will have inflation. The only support the Fed can provide is short term interest rates which must rise--if they raise short rates, that will increase the cost of borrowed capital and limit the expansion. Inflation is in fact a threat as is monetary instability--that is why gold is going up (to 22 month highs at the moment).
There are pockets of good news--to the extent we have a domestic energy industry, it is active in Oklahoma and Tulsa unemployment is 4.2%. On the other hand, Seattle and the Pacific Northwest will be liquidated--unemployment is close to 8%; government chased Boeing out of town; government environmental policy experts have put the fishing and logging industries out of business; and high tech is on the ropes--maybe Seattle will become a retirement communty.
In between the trend is down--unemployment is up; business profits are down and the stock market is headed for the largest down tick in history.
It is possible although we will never know, that a radical change in tax policy in 2001 could have reversed the cycle. The Bush tax cut was too small; most of the actual dollar reduction was too far out; marginal rates remain too high; taxes generally are way too high at every level.
At this point in the cycle, in order to justify doing a deal, the entrepreneur most overcome the view that doing a new deal in a down cycle is much more difficult as well as the problem that government will take too large a portion of any real income generated.
Government and the establishment media are engaged in a promotional campaign to make you believe things are gettting better--they aren't and the fraud will become apparent shortly. The real direction is the stock market and it is headed down.
Unemployment always lags behind in recoveries. As far as the stock market, it is affected by psychology now more than ever because of the sheer number of people investing. The Enron and Arthur Anderson debacles have caused a serious drag, not to mention the Middle East and War on Terror Campaign. That said where do investors put their money....the US stock market. There is tremendous money on the sidelines and it will be invested at some point. There will not be a record breaking market crash unless a nuke goes off in one of our cities.
Agree that the tax cut should have been larger but there is only so much Bush could get, and I think he did a great job.
They all do.
There is absolutely nothing in the constitution which gives our government control over monitary policy other than to coin money. Period. All else is contrary to a constitutional republic. Fact is that the people decide in spite of the government how to spend their money. So until these policy wonks can read minds, they will always be wrong about the economy.
Agree that the tax cut should have been larger but there is only so much Bush could get, and I think he did a great job. "
True that the turn in unemployment numbers lags. But there is no sign of a turn anywhere I am aware of--employment numbers are continuing to get worse. And they will get far far worse than they are now. Maybe drafting a bunch of potential employees and sending them off to fight a foreign war will reduce the labor base enough so that those who are left will have jobs but that is not an economic solution and I oppose doing it on other grounds.
Further, the employment issue is not the "working labor" issue that has historically been relevent. In our current economy, it is the income level of those who remain working for taxable compensation where the amount of taxable compensation has dropped precipitously--tax revenue numbers are a tip off to the magnitude of the broader problem.
Whether "psychology" is the descriptive word is an issue. Investment expectations drive the market and whatever the correct lable for the package of expectations about the economic consequences of investment, the fact is that people are taking money out of the market because those expectations are negative.
Using the word "psychology" implies that if we can make people feel better, things will be better. Problem is that the way we need to make them feel better is about the prospect that they will get something to put in their pocket that will benefit them and at this point, the reason investors are taking large amounts of money out of the stock market is because they know they will not receive any benefit from leaving it in. Further, there is a growing recognition that this is just a giant promotion.
Arthur Anderson and Enron are not debacles, they are not unusual, and they are small change in terms of the overall magnitude of the investment economy. Arthur's conduct is no different than any of the other accounting firms and Ken Lay is different from other contemporary managers only in that the error in Lay's business plan resulted in much earlier pain.
Lay was an arrogant prick (lots of those around); and the media has managed to convince the mindless public that there is something unusual about destroying excess audit documents. To be fair, maybe one or two of the individual decision makers in fact decided they could save their careers with a little conduct that may have been illegal; maybe not.
The so called Enron-Arthur issue is not itself a particular problem--people have lost money in bad investments and will lose a lot more in the fairly near term. Problem of Enron-Arthur is that it is a symptom. Conduct of the auditors in permiting public companies to report earnings far in excess of actual; conduct of the so called financial analysists in telling the investing public how great it was when it wasn't; conduct of the press in focusing on a few examples and sweeping the rest under the rug; conduct of the Fed in seeking to support stock values by buying futures contracts; all tend to obscure the operative fact which is that the stock market became a giant Ponzi scheme for which the day of reckoning is at hand.
You are simply dead wrong--investors are taking their money out of the stock market as fast as they can prudently do so. I do foresee the possibility of one more giant effort by the Fed to avoid a stock market collapse.
If the Fed waits much longer, it won't happen because the Fed's problems are increasing. The dollar is dropping, in part due to the fact that foreign investors are also leaving the US stock market. Real estate financing has created a giant asset value bubble and because of economic contraction and loss of earning power, individual debtors are reaching the limit of their paying power, the ultimate consequence of which will be that the real estate market will disappear next.
In due course, and maybe in the next few weeks, you will get to see the error of your "no stock market crash" forecast.
You cannot exclude the possibility of a "nuke"; the Bush Administration and Mr. Ashcroft have done a far better job than they are likely to ever get credit for in preventing another attack. But when they miss one, all their effective efforts will be forgotten.
You also cannot exclude the possibility of other adverse non-economic events we won't address here.
None of this is Bush's fault. He has done a reasonably good to great job of addressing a bunch of problems Clinton handed him on the way out the door. Many of what I view as deficiencies in Administration policy are the result of obstruction by the Liberals in the Senate. However Bush has failed to use his position to respond effectively. Given the extreme Liberal bias of the media, you need to communicate like Ronald Reagan in order to get a reasonable chance to implement your policies.
As things now stand, we face an immindent disaster for which Conservatives and Bush are likely to get the blame.
What in your assessment is the catalyst to the current downfall, why will it continue down much further, what will turn it around? (none of us have a crystal ball, but a variety of opinions helps)."
I think economic activity moves in cycles--some large; some smaller. But the cycles are not a proposition of predictable periodicity. The way Konderiteff is taught, you look for duration--that is not the way cycles have worked in the real world.
To get a giant move like the one coming down the track here, a number of things need to coincide on the time line. Bad monetary policy is usually the most significant factor--and results in misallocation of limited capital resources.
Bad fiscal policy is also at work--high taxes are a disincentive to doing risk capital deals. They are also a disincentive to saving--and thus we have no domestic savings and no domestic capital formation.
When aftertax rates of return diminish, foreign fund transfers stop and your currency depreciates, serving to depress the credit markets.
All these things and a few others have the economic cycle in a significant downtrend and it is difficult to see what will reverse it. Historically, when this kind of liquidation gets started, it runs for a long time--from 1929 to 1949 in our last experience.
"Catalyst"? There wasn't a single factor (or at least one is not seen yet). I suspect that later date research will demonstrate that the expansion came to an end in early 2000. In my own view, coordinated fiscal and monetary policy in 2001 might have reduced the amplitude of the down cycle but it did not. Bush Administration officials underestimated the severity of the downturn. The Fed has not acted to stem the excess private money creation resulting from derivatives.
In a short analysis, the largest field in GDP% is tech. A $2000 computer today is worth about $100 in 3 years. Hardly inflationary. Car manufact. is huge% also. In 1998-2000 we had Gm, honda, toyota, mitsu, nissan all redesign their top selling models and release them at LOWER prices than the previous year. Inflationary Alan, hello! Right there is about 30-40% of our economy in huge deflationary cycle.
Alan screamed bubble, and then would raise rates. Since tech companies had no debt and tons of cash, people dumped dow stocks and bought tech, since they were now a better investment. Everytime he raised rates because of his own bubble, he created a bigger bubble.
At the same time, Clinton gave us the largest tax increase in history: during the 90's people had a negative savings rate for first time. The catalyst for the crash was attempted gov. takeover of technology. They sued the 3 largest, CSCO, MSFT, and INTC. The day MSFT lost the trial started the crash.
All of this could have been avoided if Alan did nothing and , well, forget Clinton.
In my opinion, we have roughly $1/2-1 trillion dollars in unrealized gains in the market, shorted against the box, or whatever. To solve the upcoming situation would be simple. In fact, we could pay off a bulk of the national debt...how, a 30 day capital gains tax holiday. It would free up so much new investment capital overnight the effects would be staggering.
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