US economy chugging along fine?

[shalab]

Despite all the noise, it seems the economy is doing fine. Since banks have started expanding their loan book, dont see another meltdown. Would like to know the bear argument why US economy will collapse.

[ERICOPOLY]

It's doing fine as long as $1 trillion is borrowed and spent every year.

 

But that seems not likely to change for a while yet.

 

Other theories:

 

1)  People say that when Europe collapses it will hurt our exports and people will get fired

2)  The guy from the ECRI is one of the few who is always right (until he isn't  :D)

 

[Guest misterstockwell]

Two biggies:

 

1) Housing prices still falling, foreclosures still huge

 

2) No jobs--you need upwards of 200K jobs created each month to even start beating down the unemployment rate, and you need that level of job creation for something like 5 years to get unemployment down to the ~5% level. Not going to happen.

 

A large part of any GDP "growth" you see now is from the payroll tax holiday(ending) and the capex depreciation rule holiday(ending). People are now saving less, spending more(sound familiar?).  Our 4% savings rate compares to 8-10% historically.

 

I'll take the opposite side of your view and ask why do you think the economy is doing fine???

[ERICOPOLY]

There was probably a point during the D-Day invasion where the battle was viewed to be "going well".

 

Somebody perhaps then said "you think all these dead bodies piled up is good?".

 

[Myth465]

There was probably a point during the D-Day invasion where the battle was viewed to be "going well".

 

Somebody perhaps then said "you think all these dead bodies piled up is good?".

 

Interesting way of looking at things.

[bmichaud]

Courtesy of Moore's favorite economic blogger....

 

http://pragcap.com/80k-news-jobs-in-october

[eclecticvalue]

The govt needs to start expanding its spending again. Unfortunately if they start taxing more they are taking money away from the economy and it won't flow back in until govt spends it.

[ERICOPOLY]

The govt needs to start expanding its spending again. Unfortunately if they start taxing more they are taking money away from the economy and it won't flow back in until govt spends it.

 

They could temporarily eliminate/reduce pre-tax 401k and IRA contributions.  People can still save on an after-tax basis.  Perhaps allow an after-tax 401k or IRA contribution instead.

 

Generally speaking those contributions reduce government revenues.  By definition that money wasn't going to be spent anyhow, so a tax on it would not take money away from private sector spending.

 

That money was also not being used to pay down debts, thus taxing it doesn't slow down private sector deleveraging.

 

The govt wants more private sector spending yet it is subsidizing savings via this program.  Genius isn't it?  And largely it's the higher income people who contribute to these plans, so at a time when we can't figure out how to fund retirement for the lower income, we respond by increasing retirements for the relatively rich by way of a tax subsidy.

 

In order to afford this tax subsidy we borrow money and thus add to the deficit.  Right, and nobody wants to cut this one eh?

[Parsad]

Eric is right, the recession left a lot of bodies. The economy is doing fine relative to where it was in summer. The railroad traffic looks strong and expect November to be good.

 

I think the U.S(and Canada - these two are strongly intertwined) will do fine - in raw resources - fresh water, arable land and human potential, don't see any other country coming close to matching the U.S heft in the near term.

 

The economies in North America are relatively good considering the trauma they've been through in the last three years.  As I've stated for the last few months, North America is not going to see a double-dip...we are in recovery, albeit a modest one.  The only risk is stupidity from Europe.  If they do anything where they plunge into a severe recession, or worse depression, then that will drag everyone down a degree or more.  But otherwise, as Buffett stated..."The natural juices of capitalism will do their magic!"  Cheers!

[onyx1]

Here is an interesting comparison of this recession compared to many previous through the lens of employment.  I don't think we will see any downturn this severe again in our lifetime.

 

http://1.bp.blogspot.com/-ODF7ytyDJtw/TrPczt2cTcI/AAAAAAAALNk/n--ZKQ7TGAM/s1600/EmployREcalignOct2011.jpg

[Guest misterstockwell]

Here is an interesting comparison of this recession compared to many previous through the lens of employment.  I don't think we will see any downturn this severe again in our lifetime.

 

http://1.bp.blogspot.com/-ODF7ytyDJtw/TrPczt2cTcI/AAAAAAAALNk/n--ZKQ7TGAM/s1600/EmployREcalignOct2011.jpg

 

Only if we have another real estate boom/bust. Look at the labels on that graph. It is percent job losses relative to peak employment month. Construction/home building related jobs were huge;I have read that half of the 9% unemployment rate comes from construction and related. Those aren't coming back anytime soon. Housing employed  a ton of people. Peak to trough would be a big number, and you can see it on the graph.

[Guest misterstockwell]

The govt needs to start expanding its spending again. Unfortunately if they start taxing more they are taking money away from the economy and it won't flow back in until govt spends it.

 

They could temporarily eliminate/reduce pre-tax 401k and IRA contributions.  People can still save on an after-tax basis.  Perhaps allow an after-tax 401k or IRA contribution instead.

 

Generally speaking those contributions reduce government revenues.  By definition that money wasn't going to be spent anyhow, so a tax on it would not take money away from private sector spending.

 

That money was also not being used to pay down debts, thus taxing it doesn't slow down private sector deleveraging.

 

The govt wants more private sector spending yet it is subsidizing savings via this program.  Genius isn't it?  And largely it's the higher income people who contribute to these plans, so at a time when we can't figure out how to fund retirement for the lower income, we respond by increasing retirements for the relatively rich by way of a tax subsidy.

 

In order to afford this tax subsidy we borrow money and thus add to the deficit.  Right, and nobody wants to cut this one eh?

 

That's two horrible ideas in one quote!

 

Expand spending? WHAT? With what? We don't need any more debt in this country. We can't pay what we have.

 

, As for retirement plans, the only money we will have in our later years will be from our own savings. Social Security sure as hell won't be paying. The government, dumb as they are, do realize that the more people they get off the dole in their later years, the less they will be in the hole for SS. Surprisingly, the can-kicking dolts aren't kicking this can, and for that, we thank them.

[ERICOPOLY]

We don't need any more debt in this country. We can't pay what we have.

 

The savings subsidy increases the debt.

 

So point taken.

 

The 401k/IRA plans are not a replacement for Social Security -- you can see this in the participation rates.  The savings subsidy is a zero-interest non-recourse loan to the relatively high income people.  The cost of the subsidy is born by the tax payer.

 

You can't expect me to believe that the wealthy need a subsidy in order to save?  Some people may need one, but look my wife and I were making pre-tax contributions of about $60k per year when we were working.  That's an aweful lot.  It effectively meant that the government each year was giving us a new $15k interest free loan to be repaid when we draw down the account.

 

Could we still afford to save even without the $15k interest-free loan?  Of course we could, don't be stupid. 

 

It's just a free handout.

 

 

 

 

 

[alwaysinvert]

Eric is right, the recession left a lot of bodies. The economy is doing fine relative to where it was in summer. The railroad traffic looks strong and expect November to be good.

 

I think the U.S(and Canada - these two are strongly intertwined) will do fine - in raw resources - fresh water, arable land and human potential, don't see any other country coming close to matching the U.S heft in the near term.

 

The economies in North America are relatively good considering the trauma they've been through in the last three years.  As I've stated for the last few months, North America is not going to see a double-dip...we are in recovery, albeit a modest one.  The only risk is stupidity from Europe.  If they do anything where they plunge into a severe recession, or worse depression, then that will drag everyone down a degree or more.  But otherwise, as Buffett stated..."The natural juices of capitalism will do their magic!"  Cheers!

The only risk? I don't think there is a finite set of risks, to be fair. If there was, economic predictions would actually have some real value.

[Hawk4value]

Eric, I understand what you are saying, however I am of the opinion that if you did not have the "tax deductibility incentive" for IRAs etc., people would not save nearly as much and so would have much less for retirement.  Furthermore, lets understand that the savings in these retirement accounts is not just sitting there doing nothing, it is being invested in stocks, bonds, CDs, loans, and in self directed accounts it can be invested in real estate and businesses.  This pool of savings is creating jobs, and with jobs you have more people paying taxes. When you throw in the multiplier effect I believe this money is creating more revenue for the government then it would have.

[ERICOPOLY]

Eric, I understand what you are saying, however I am of the opinion that if you did not have the "tax deductibility incentive" for IRAs etc., people would not save nearly as much and so would have much less for retirement. 

 

I wasn't really saving for retirement though beyond a certain point.  Past a given threshold it's just a tax shelter boosted with interest free non-recourse loan.

 

$60k per year joint pre-tax savings -- and I was 30 years old.  On top of that I was also saving another $7k in after-tax 401k contributions as well as after-tax IRA contributions of another $5k each.  The reason I was doing the after-tax is so that I could then roll them into RothIRAs when I quit, which I of course did  :)  That was a back-door Roth contribution (front door contributions were disallowed due to our incomes).

 

So that's like $77k per year in savings.  For "retirement"... which shouldn't have even happened for another 35 years anyhow.

 

There's a limit to how much I can hold back a smile while I justify these contribution sizes "for retirement".

 

Retire where?  Oh, on my yacht of course.  You'd be surprised at the cost of retirement these days  :D

 

I think you could limit the pre-tax subsidy to something reasonable.  If I were self-employed like my wife we could have bumped it up to about $85k pre-tax (would be even higher if we made more money).  The self-employed enjoy the "profit sharing" contribution which is 25% of profits up to about $160k of income.

 

I think the limit on pre-tax contributions is somewhere near $110k.  Then maybe around $120k if you count after-tax IRA contributions as well. 

 

Meanwhile the only discussion in Washington is about how we can't afford Social Security and must cut back on it.

 

 

 

[ERICOPOLY]

This pool of savings is creating jobs, and with jobs you have more people paying taxes. When you throw in the multiplier effect I believe this money is creating more revenue for the government then it would have.

 

I've heard that said before but it doesn't make sense to me really.

 

People who want to start businesses can generally get funding from the bank.  I'm not sure what the 401k brings to the table in terms of jobs.  I guess maybe the bank securitizes the loan and sells it to the 401k.  At any rate, I think there is already enough idle money available to fund the companies that want to expand.  We could cut this subsidy for a few years and I doubt it would restrict job growth.

 

Then of course some people just buy government bonds in their 401ks.  The government borrows money (the bond) and lends it to the 401k interest-free.  The 401k then buys the bond and collects the interest from the very same government that gave them the loan interest-free.  The poor should be really pissed about this.

 

 

 

[ubuy2wron]

Here is an interesting comparison of this recession compared to many previous through the lens of employment.  I don't think we will see any downturn this severe again in our lifetime.

 

http://1.bp.blogspot.com/-ODF7ytyDJtw/TrPczt2cTcI/AAAAAAAALNk/n--ZKQ7TGAM/s1600/EmployREcalignOct2011.jpg

 

Only if we have another real estate boom/bust. Look at the labels on that graph. It is percent job losses relative to peak employment month. Construction/home building related jobs were huge;I have read that half of the 9% unemployment rate comes from construction and related. Those aren't coming back anytime soon. Housing employed  a ton of people. Peak to trough would be a big number, and you can see it on the graph.

It has been posited by some that the housing cycle is the economic cycle in the post WW2 period there is a ton of evidence on this point if you want to search it out. For all but the the 1% the largest outlays are for housing and cars well perhaps for the bottom 5% this is not true. Autos have started to come back its houses that have not when we are building 1 million new homes a year unemployemnt will drop like a stone. Housing will come back its already started. IF Europe falls off a cliff which it may we will head into a double dip but the recession will look a lot like the recovery job losses will be modest and economic decline will also be modest. This is the price we pay when no fails. If their aint no bust their aint no boom. And for all of you who are hankering for the bust just remember that it just might be you who gets it wrong and becomes the  dead body on the beach.