United States Heading towards a Depression?

Since when is spending for infrastructure and community needs pork-barrel when health care reform is resisted, 1/6th the economy and the military industrial complex continues as a sacred cow even with Obama and particularly the Republicans. Fiscal discipline, putting Pelosi and the liberals in charge of Pentagon appropriations would be the safest next step forwards in fiscal reform indeed since FDR as their reform of healthcare is proof of intent than political posturing.

 

The economy has rebounded from the worst of the recession. It is in no way strong, but it has rebounded. GDP has moved upward. In fact it jumped by the highest percentage level in many many years. Basically the main stream of miserable news with indicators crashing and moving downward has flattened.

If anything TARP saved the national and worldwide economies from collapsing into a horrendous depression. During mid September 2009 the worldwide banking system was near collapse and short term LIBOR rates had incredibly jumped about 3 percentage points, threatening to impact world wide at least tens of TRILLIONS of dollars of loans.

Subsequent govt spending has most assuredly had some positive impact in assisting GDP growth within a moribund private economy that is not hiring.

The economy is also in both overall lousy shape and in perilous condition. There are no guarantees which way it will move forward.

I'd put govt money, direction and research into new industry growth...and I'd probably direct it to clean energy industries. If it had any impact such as initial govt investment in computers, aviation, jet aviation, the internet, etc. that initial investment made before private industry could invest spurred enormous private industries that have helped to create the size and scope of the US economy....largest in the world.

While we aren't putting money, direction and brains in this area now...so much of the rest of the world is. Solar panel factories are being built around the world. (but basically not here) There is going to be this big world wide development of this industry and the US, because of stupid politics is going to miss on its benefits, its jobs, its wealth creation.

@Breezewood I agree. I'd take a careful but powerful axe to Pentagon spending. Cr@p there is something like close of $300 billion or more in aggregate cost overruns on weapons development. How can taxpayer money be spent so poorly on cr@p we contract to buy...then the provider f*cks up...and instead of penalizing them...we overspend on them. Is that the stupidest use of taxpayer money ever???

 

Median home prices are still at 3.4 years income. In the relatively prosperous years between 1980 and 2000, that number fluctuated between 2.9 and 3.1 years. Expect to see residential real estate keep falling until we're more inline with historical experience.

Housing prices are also above long-term historical norms in terms of inflation-adjusted prices. See more on that at Housing Bubble. The market saw a slight bump when the government threw a lot of our grandchildren's money into home buying incentives, but incentives are a short-term solution to a long-term problem. You can't fix systemic difficulties with by bribing people to behave irrationally. Expect to see a return to the norm here also.

In today's economy, with unemployment floating around 10%, people can't afford housing even at "historically average" rates. This pushes demand down and when demand goes down prices go down with it. This is very likely to push housing prices below historical norms.

But... don't be so quick to sell your house if you don't have something else to invest the money in. Currency In Circulation is fairly stable, but the bubble of Reserve Balances with Federal Reserve Banks can't last forever.

Housing should be expected fall another 10% and may fall another 25% or more, but a long-term fixed interest loan could be a super deal right now. It can't be bad to have a 6% loan when inflation hits the double digits (and hopefully only the double digits!).

Update: I know a lot of this is difficult for some readers to understand and I am not the most easy-to-follow writer. My wife just pointed out a much easier to follow writeup at SeekingAlpha, Bernanke's Dilemma: Hyperinflation and the U.S. Dollar.

Update #2:: The Excess Reserves page at Wikipedia covers an important detail that the SeekingAlpha article didn't dig deeply enough into.

 

Well written post Will. Clearly what the government needs to do as soon as possible is spend money. It really doesn't matter what they spend it on, so long as they spend it because spending is stimulus. This trillion dollar (conservatively estimated) health care bill should be a good starter. I'm thinking several jobs programs and another stimulus package would probably also make sense though, unlike the health care proposal, they only create short term spending. Only through massive new long term government spending can the housing market and our economy as a whole be guaranteed the type of recovery and stability we seek. I'm glad to see our President and congress have not lost sight of the target on this one.

 

When I look at the last two pages of posts here, I see a lot of factors that contributed to the present mess.

But I keep thinking about the game changer... when Ronald Reagan was President he decided that the way to cut government spending was to cut taxes so the government would have less money to spend - "starve the beast" was the phrase I remember from the time.

The problem is, the Democratic congress didn't go along with the plan. They continued spending, even overriding a few of Reagan's vetos. Thus was born the new rule of politics that would forever dominate our nation. As P.J. O'Rourke put it in his mesmerizing book "Parliament of Whores":

There is no political advantage for a Congressperson to NOT spend money, because the more money a politician spends, the more power they gain.

And, there is my own personal rule, which I like to direct at political extremists of all types: Blame is NOT a solution.

"A democracy cannot exist as a permanent form of government. It can only exist until a majority of voters discover that they can vote themselves largess out of the public treasury"
18th century historian Alexander Tyler

 

Three things need to happen in the US.

1. Someone needs to take Pelosi out.
2. Biden needs to be committed to rehab and removed.
3. Obama needs to commit suicide.

Short of the rest of us exercising our 2nd Amendment rights to the extreme, I see no other option in the short term!

 

LOL.

It is always fun to see how brave the trailer park people will become after couple of beers.

 

My jealous stalker.. you're so sweet.

How many times must I tell you I am happy as a heterosexual. Please stop PM'ing me pictures of yourself.

 

Are you saying you consider yourself heterosexual now after your sex change operation and becoming debunk wife?

 

No . What I am asking you here publicly is to stop harassing me and sending me pictures of yourself. It's gone a little too far, and I am likely going to contact Homeland Security as a final step. Now go away.

 

Mia, I definitely wouldn't put it as harshly as you did.

But I think that we'd see things improve dramatically if Pelosi resigned as Speaker. If I understand the rules correctly, unlike the Senate, in the House it requires the Speaker's consent to bring a floor vote. Health care is taking so long because Pelosi won't allow a floor vote until she has enough votes to pass. I think they'll never get the votes, and like someone else already wrote here it's now about saving face.

When the Democrats started running the country in 2007, Bush's approval rating was so low he couldn't push an agenda through Congress. Pelosi was completely in charge of the country and she had all the power. When Obama took office, Pelosi didn't relinquish power. It's possible that she politically maneuvered Harry Reid into non-importance. And Pelosi has opposed Obama at every turn.

Nancey Pelosi is in charge and she is running Congress and the country.

In my opinion, Obama has zero influence over Congress. He can't be blamed for anything because he's the weakest President since Andrew Johnson. And Rahm Emanuel doesn't cast a reflection in a mirror...

 

Based on what you said? That's pretty much why I've given a harsh assessment of what needs to take place to insure this country is not messed up for another 50 years by the loons on the left. Pelosi needs to be removed by any means necessary. She's dangerous and out of control.

 

Big words for someone who never dared to join the war in Iraq or Afghanstan while being a loud mouth supporting it.

Where will you be while these things suppose to happen? Are you going to be hiding under your bed drinking beer?

 

Not everyone drinks alone like you do, gworld.

 

Are you capable of putting up an educated argument?

Pretty much everything you post here conforms to the stereotypical Republican hick mindset.

 

Well, it was the US government / FDR that caused 'The Great Depression'. The government didn't interfere in the recession of 1919-1920, the economy corrected itself.

 

That would have worked a lot better if the Balanced Budget Act has not been overturned as unconstitutional. To fix this is going to require a Constitutional amendment. If I recall those years correctly, the author of that plan was Grover Norquist.

Here's some odd news: Only 21% Say U.S. Government Has Consent of the Governed.

 

Doesn't ring a bell - oh, sorry I guess we should not be mentioning sound bells when discussing Ronald Reagan.....first or second term.

 

Truth not only hurts. It's difficult for some to comprehend as well.

 

Why does this sound like Star Wars - Episode 1 (I think - the one where they vote to give the one senator all authority - I am not nerdy enough to know all the names, etc...)