United States Heading towards a Depression?

It's almost incomprehensible at this point. I remember people bitching about Bush and the money spent on the war. When compared to Obama's daily spending it makes the war cost look like pennies.

There is nothing misleading here guru... This is reality. What he inherited as you are so quick to point out was 4 times less than it is now. That "4x" is all your boy!!!

 

Actually, the federal fiscal year started on Oct. 1, 2008: About three days before Bush's $700B TARP was passed.

 

We're not talking about the US Fiscal year budget alone, but that along with Obama's additional spending ON TOP of it!

Take away Obama's Trillion Dollar Romps, and that's where the 4x comes in.

 

$700B for TARP, $700B for Obama's stimulus, and about $400B in structural deficits left over from Bush's unfunded war and pharma-entitlement.

This gives us a $1.8 trillion deficit, or about four times last year's total.

Of course, this doesn't even count all of the quantitative easing and balance transfers that the banks have benefitted from, just the parts authorized by Congress and signed by Bush. If we added in all of the money Bush & Obama handed to the banks as part of our deficit, it would probably be closer to ten trillion.

 

You're a little off there. That deficit comes from Obama's increased spending, not TARP and the Stimulus.

TARP has all but been paid back.
The stimulus was only partially used and at this point should just be given back to the people.

The reality is all this additional growth in the deficit can be blamed solely on one inept source. Barry.

 

The situation is getting critical. Much of the positive bounce that the US economy is experiencing is based on government spending like cash for clunkers, aid to states, unemployment insurance etc. How much longer can the Fed continue printing money before there are negative consequences?

1) Excluding autos, retail sales fell 0.6 percent. The Labor Department said initial claims increased to a seasonally adjusted 558,000, from 554,000 the previous week.

2) The number of U.S. households on the verge of losing their homes rose 7 percent in July, as the foreclosure crisis continued to outpace government efforts to limit the damage.

3) Foreclosure filings rose 32 percent from the same month last year, RealtyTrac Inc. said Thursday.


http://news.yahoo.com/s/ap/20090813/ap_on_bi_go_ec_fi/us_economy

Sure. At some point we will not be able to afford the interest. The only solution is inflation to wipe out the debt. But the problem is that inflation is like catching a tiger by the tail.

 

Biggest bank failure of 09, Colonial, along with 4 other small banks. It was also the 6th largest bank failure of all time. (of course thats not counting the ones that are getting bailed out by the government that should have failed like AIG, citigroup, etc).




http://www.marketwatch.com/story/colonial-may-become-biggest-bank-failure-of-2009-2009-08-14





There is another bank in texas that people have been talking about last few weeks that is ready to go down too and its not as big as Colonial, but its a lot bigger than most that have failed.


http://www.bloomberg.com/apps/news?pid=20601103&sid=a9U2i3YXd1UE


SUpposedly there is 300 on the list and is quickly rising every day (up from 90 a year ago) that have levels of underperforming loans at 5 percent or higher. This doesn't mean all will go bust, but a large portion will because they will struggle to raise capital to cover the losses.

 

I'm aware the partisan extremist right wingers like to put a partisan extremist view on every action ever taken.

Consider the following:

1. We are in a deep recession. Virtually all economic news is bad. Possibly the worst of the recession has hit and we are bottoming out. Possibly not. There is plenty of foreboding news. Time will tell if this is the period when the economy starts rebounding or not.

2. The debt is a significant legacy of the Bush years plus the spending by Obama, plus the impact of the recession.

3. Okay, extremists. Here is a little economics 101. In a recession govt tax revenues drop dramatically. Hey kids we have millions of people out of work. Corporate profits were way way way down....many many many losses. There were none of the wonderous capital gains with one time wonderous profits that often hit during boom times.

Consequently that creates a more severe deficit situation as tax revenues drop dramatically.

4. Add lower govt revenues onto an existing structured debt situation which is the legacy of the Bush administration and you have debt up the kazoo.

(I know, I know Mia is going to say this is not so. Mia believes Jimmy Carter, who was last in office in early 1981 caused this recession.--)

5. Obama has spent like crazy.

Why?

Uh kids....if there hadn't been govt spending to bolster banks and parts of the economy we would virtually assuredly be in a bleak m' f'in DEPRESSION.

Think there have been a lot of job losses? Think where we would be without an effort to save the entire intl banking system (set up during Bush's term) and subsequent efforts to bolster the economy.)

6. The above is called fixing problems. hmmm....under whose administration did the problems occur? (I know....Mia will tell us it was Jimmy Carter. I repeat...Jimmy Carter left office in early 1981. ).

We have huge debt problems. This can cause enormous problems. We are not there yet.

We are in a state of an incredibly weak economy showing very mixed signals.

What do they consist of?

The entire real estate world is in pretty miserable shape. Home mortgages are trending under water. That is very scary. That means it will wipe out what is left of significant personal wealth. That augers for continued low spending on the consumer side.

Some of the price reductions in some market have subsided. Other markets that weren't hit as bad initially are seeing the big price reductions now.

As real estate is overwhelmingly a local phenomena I suspect we will see widely different statistics with overall averages that don't tell the story for particular markets.

Real estate values in the commercial market place are in bad shape. Office vacancy is increasing. Retail vacancy is increasing. Warehouse vacancy is increasing. In the very large commercial market where I live (one of the largest in the nation) values on prime properties have fallen by about 25%. That isn't because of the change in vacancy rates or falling rents. Its that investors have dramatically clamped down on their buying habits.

It puts a lot of commercial values under water wherein values are below debt.

We will see what lenders do with these problems as loans come do.

There is no absolute clear picture of what may occur. Many lenders may well extend existing loans...which beats taking back a property in their eyes.

I am seeing a bit of a mixed bag right now...but it is early in that game.


Hey!!!....Here is some good news.

It appears that much of manufacturing's crash might have bottomed out.

That isn't exactly rosy. The bottoming out is a result of not producing squat for a couple of quarters to allow inventories to get eaten up. With inventories being swallowed there will be more manufacturing.

(clue) follow auto manufacturing including American and foreign manufacturers located here).

That means jobs and hiring.

The economy is in a big big slow slush. Economic news won't be rosy for a long time. We may see ups and downs in economic news for quite a few quarters.

Oh....by the way when big mouth know it all economic commentators flee from America...do you believe anything that comes out of their mouths? I guess if they said stuff like chickens...cluck cluck cluck...it might be meaningful. But they tend to remain as big mouths...take every piece of news and twist it into a partisan diatribe.

I'm hoping for a galloping industry to take off. Where it will be I don't know...but if one takes off it will do wonders for the economy.

 

Real Esate is crazy right now. There are still people asking 400k for a cardboard box. When the price drops 20%, the price is still 320k for the same cardboard box.

At some point inflation will kick-in. Which will actually improve things. The question is whether inflation can be shut down before it goes out of control.

Some of the bigger banks should have been allowed to fail. The Tarp money should have been given to the smaller regional lenders that never got involved with subprime and credit default swaps. It's really crazy that banks are handing out billions in bonuses while at the same time taking bailout money.

I believe that the FIDC is close to running out of money. A run of banks getting shut down could cause the deficit to ballon further.

 

Bogart:

IMHO the big banks suck. those dudes don't deserve bonuses.

What are they all in competition for "biggest losses ever?"

That is the way Wall Street works though. The initial money was to keep the largest institutions from failing so as to keep the world business financial system from failing.

Crap, it is a case of too big to fail, in this case. We should strip the bast*rds of their cash.

just my $0.02

 

These past few days, it was reported that both France and Germany were out of recession. Next was Hong Kong. Then, Japan exits recession yesterday. Was there a clear pattern here that global recession is gradually tapering off and US can join these countries with positive economic growth before the year ends?

 

Sure. There is a strong likelihood of that happening.

One of the possibilities is that since inventories are at such amazing lows, production will ramp up way above the levels it has been. That could be the incentive to cause positive overall economic activity above the previous quarter. That would be a sign that would show the same kind of change as Japan, which icebreaker referenced...and the latest nation to see its aggregate economic activity start to grow again.

Its not exactly wonderous news...as Japans latest quarter of economic activity, while higher than the most previous quarter is less than quarters that preceeded the recession.

Did you realize that nations such as Germany and Japan, which have, for the time being returned to a positive economic growth, both utilized massive amounts of govt spending, not dissimilar to the US. Seems as if govt spending across the globe has contributed to forestalling a depression. Hmmmm.....interesting.


That is the ugly part of the entire equation....overall economic activity in the world is less and will remain depressed for a while.

 

One quarter of positive GDP does not mean end of a recession. It could drop again in the following quarter. They are just calling it prematurely. 2 quarters of positive GDP means end of recession.

Although in America we don't use GDP to determine if we are in a recession or not.

 

An article from USA Today speaks to the impact of worsening conditions in the commercial real estate world as it might impact the recession.

The lead sentence:

.

It references various factoids from various sources including....

1. per firm, Real Estate Econometrics...."default rate on commercial mortgages jumped from 1.62% to 2.25% in the first quarter and should hit 4.1% by the end of the year.

2. per firm Real Capital Analytics ...."about $83 billion of office, retail, industrial and apartment properties have fallen into default, foreclosure or bankruptcy this year"

3. Potential big problem is that there is nearly $1 trillion in short term loans due by 2010. Meanwhile according to Deutsch Bank property values are down 40% from peak prices of 2007.

Hmmm....at that rate....I'd bet most of that stuff is under water as most commercial real estate is purchased with a lot of leverage.

Meanwhile banks are often unwilling to seize devalued properties, and Real Capital Analytics says that lenders have foreclosed on less than 10% of the problem loans to date.


All in all the lending problem is a big one. As I suggested earlier, and as referenced here, it appears that many lenders are forestalling actions on problem properties or loans. The financial institutions don't want to take the properties and/or can't or don't want to write off the loans.

This is an issue that will play out over time. Will the lending institutions foreclose on problems, will they extend existing loans, in the midst of tough financial issues. Nobody knows exactly how this will play out in the next couple of years in the aggregate.

Meanwhile I tried to get some information on a different aspect of commercial real estate to get a fix on how it impacts the economy, specifically looking on the absorption, or more specifically "net absorption" of new office space in the country.

While I didn't get totally current numbers I did get net national absorption figures from 2003 to 2008. Those are pre recession numbers. They averaged at about 111 million feet/year from 2003 to end of 2007, with 2007 only absorbing 90 million feet. http://www.costar.com/News/Article.aspx?id=1770F22ABE3A3B377B99B5FB3E7F7752.

The above source is probably the best source on this topic available.

Absorption is always a "net figure". For that 90 million square feet in 2007, possibly firms moved into or took additional gross footage of 130 million square feet but vacated 40 million square feet, still unoccupied.

So lets suggest that instead of occupying a new 130 million square feet in this recessionary period firms only took on 60 million square feet in moves. What is the actual impact on reduced economic activity?

Assume about $70/foot for all costs of relocating. (this is a wild estimate for costs...but it is exactly what I did for the most part of 20 years as a commercial real estate broker)

At $70/foot that would be overall about $4.2 billion in less economic activity spread around the nation. A big number but not horrendous in light of the full impact of the recession and the aggregate loss of activity.

Obviously there is a similar and more severe impact in far less construction occurring now then in the last few years. Still in the great scheme of things relative to what I'm going to describe below...its still not humongous relative to overall economic activity.

I reference this to suggest that any problems from commercial real estate problems will mostly hit the financial institutions. That is where the real issue is at it could impact the recession.

The issue is ....what will happen with the properties that have lost value, are under water relative to their mortgages and what will happen with the loans due in the next two years?

The point is .....nobody knows. The aggregate impact will be the result of lots of market decisions. If lenders/banks/financial institutions don't foreclose in great numbers or extend loans...the institutions won't be hit as badly. If they do foreclose or are forced to take write downs on these properties then many financial institutions and particularly banks will have miserable problems with enormous losses.

At its worst it would create a severe financial hardship on the financial industry and then reverberate through the economy.


The extremist right wingers look at some of the data, connect it to the current administration and then proclaim that everything the current govt does is evil and will f*ck up the economy.

That is far from the truth and far from reality. The markets will play themselves out. Individual property owners and individual lenders will deal with each situation. The aggregate impact will end up reflecting these situations. Nobody knows exactly how it will play out.

 

Much of the growth in Japan was from exports to China and $264 in Stimulus. France and Gemany have done well with the cash for clunkers. But the difference is that cars are a bigger part of their economies. Germany alone has VW, Mercedes, BMW, Porsche, Audi, and Opel.

http://www.bloomberg.com/apps/news?pid=20601080&sid=aEoI0GUP57kw

It looks like Banks are hiding their loses by not foreclosing.

It appears that housing will continue to decline into 2011. Which is not saying much. Many people are still asking 2x-3x of 2000 prices.

 

So what, Bogart. They have moved from bad to good, from shrinking to growing.

At least for the time being. Those are positive signs. One of the alternatives in this economic crisis is for this recession to swoop southward and become a monstrous depression.

So many alternatives. Nobody knows despite all the predictions of death and destruction from the Far Right know it alls. All the aggregate signs are simply accumulations of millions of transactions. In aggregate they give some kind of "total" picture.

Its always a moving target.

With regard to the commercial real estate situation....again its a moving target. I lived through this in the 1980's. S&L's had these crappy office building loans. Really weak specialty accounting rules allowed them to forestall writing off the loans. Ultimately it all came tumbling down.

could the same thing happen? possibly. I don't think its as bad now as it was in 1989 when commercial collapsed nationwide--which followed the earlier crash in the Southwest.

I look at the markets in DC region --and over the long haul this market is always healthier with less vacancy than anywhere else in the nation. My views could be skewed because of that.

nevertheless there are large amts of vulture funds, both domestic and foreign that would swoop up viable buildings if their values plummet. That is very different than in 1989....by a quantum leap.

That could dramatically change the equation with financial institutions.

We will see over time.

One last thing, Bogart, with regard to housing prices. I imagine what you are seeing are very local conditions to your region. Housing prices are very local. Some regions have seen incredible price drops. In my large region there are example of both home prices in certain more affluent areas have stayed rather high.

In other submarket areas where foreclosures hit hard home prices just tanked into way low prices, possibly reflecting prices in the 1980's or early 1990's for those subregions. A very mixed bag.

 

In an OpEd in the NYTimes today Warren Buffett addressed the recession, fedral govt efforts to combat it, current status of the economy, rising levels of debt and the potential for inflation and rising interest rates.

Buffett is one of the handful of people in the world that best personifies the glories and successes of capitalism. I suppose he is the most successful investor in the world. He has made fortunes for himself, his company and countless investors in his company Berkshire Hathaway. I guess he is currently either the 1st, 2nd, or 3 wealthiest person in the world.

You can read the article for yourself here, called the Greenback Effect .

In titling it that way he is bringing attention to the potential negative impact of huge volumes of debt and rampant printing of money.

Buffett is not an idealogue on any side of the fence. He is first and foremost an incredibly successful businessman and investor.

First Buffett salutes the efforts of the Federal Govt and the personnel at the Federal Reserve in combatting the sizable financial crisis that hit at its worst last September. He absolutely credits the govt for keeping this recession from turning into a full blown depression. He acknowledges mistakes in the midst of the effort (though doesn't point to specifics) but acknowledges how could one not make mistakes in the midst of this sudden catestrophic crisis.

Part of the effort to keep the economy from collapsing into an entire meltdown was as he described it...."a gusher of federal money playing an essential role in the rescue."

He then says we are "out of the emergency room and appear to be on a slow path to recovery"

He acknowledges that the feds continue to pour money into the problems of the economy. He states "For now, most of those effects are invisible and could indeed remain latent for a long time. Still, their threat may be as ominous as that posed by the financial crisis itself."

Buffett puts US debt issues in an historical basis and on a basis of debt versus GDP (gross domestic product). Those are apt descriptions. It compares current debt to decades of carrying debt...and how we did with it, and compares it to GDP which is a factor in determining how well the US can do with paying the debt off.

This fiscal year the annual deficit witll rise to about 13% of GDP. This is more than twice the highest rate ever in the US since 1920 (not including war time years) (In wars like WW1 and WWII debt versus GDP was off the charts and extraordinarily high.).

That is not only unprecidented high it is TWICE the non war time highest.

He compares total debt carried by the public (the holders of this debt). At the rate we are going. During this fiscal year he anticipates that publicly held total debt will rise to 56% of GDP. Increasing about 1% point a month from 41%.

At 56% we will be at unprecedented levels (non war time periods) but it will be lower than that of some other nations such as Japan and Italy.

At some point, and neither Buffett or you or I know....as this debt rises it will be untenable and create an enormous financial crisis.

He goes on to point to the potential issues.

On the one hand politicians can deal with it by a combination of cutting government expenses or increasing taxes. Politicians hate to do either. It tends to get them driven out of office. The population gets pretty pissed off about either one. On the other hand he expresses what John Meynard Keynes (a key economist) expressed many decades ago. Inflation is a status that defies blame, allows the politicians to stay in office, but at the same time enable the government to stay in office and obtain more revenues.

Buffett reminds us that there is nothing inherently evil or destructive about increasing debt. If an economy grows robustly it has the capacity to handle larger amounts of debt.

On the other hand, inflation tied with this debt is an incredibly ruinous situation. The worst we have suffered in the US occurred during the late 1970's and early 1980's. As bad and suffocating as it was it was no where's near as ruinous as the hyper inflation that hit Germany after WWI and probably was a major contributing factor to the rise of Nazism and WWII nor the ruinous inflation of "banana republics".

Buffett finishes his "op ed" by stating; "Our immediate problem is to get our country back on its feet and flourishing--""Whatever it takes"" still makes sense".

Once recovery is obtained Congress must deal with the issues of rising debt to GDP.


Warren Buffett has more economic knowledge in his pinkie than the combined economic knowledge of every big mouth in this forum (myself included).

He is not an idealogue that tries to tie every piece of economic news and data into an attack on any administration. He is a realist.

He addrsses all concerns--the state of the current economy and efforts (called --emergency fixes) that can create still another future ominous crisis.

It would be wise to pay attention to him.

 

Sorry gotta disagree with you Warren Buffett is a liberal pompous ass who doesn't know basic economics. Peter schiff has owned him on all levels. I wouldn't listen to anything that Buffett says. He is a scumbag of the highest level. You probably believe in make believe Keynesian economics which is why you think he is so great.

 

LOL.

We can all see Buffett achievements in life but we know nothing about you. Can you tell us how many billions you have made based on your superior knowledge of economy?

 

How immature and showing a complete removal from reality. "owned him"? in what way...by preaching to people who already believe the same fantasy theories as Peter Schiff? That is worthless?

"Buffett is a liberal pompous ass"? What gives? Here is a guy who is one of the most successful practitioners of business and an understanding of markets in the history of the world. In other a person who acts and succeeds...and doesn't blow hot air on make believe theories.

Having done so ....Buffett supports SOME policies in line with some aspects of Democratic perspectives....not liberal at all.

And you call him a pompous ass? What have you done ever?

what a waste of hot air.