F. George McDuffee wrote:
On Fri, 30 Oct 2009 22:27:05 -0800, "John R. Carroll"
wrote:
F. George McDuffee wrote:
On Fri, 30 Oct 2009 17:10:15 -0800, "John R. Carroll"
wrote:
snip
You appear to be correct in your observation that the only thing
the "rescue" programs have accomplished was the immediate and
total economic collapse (which may be justification enough). As
you observe, unemployment continues to increase
It isn't the increases in the unemployed that are troubling.
What's bad, and beyond a point can't be recovered from, is the
decreasing percentage of the adult population on a payroll.
There is a difference. You might not have considered it but yuo
certainly understand.
This is a very good point and one everyone should consider. With
the gross change of the U.S. economy away from heavy industry and
mass production to a [financial] service based economy no one
knows what that tipping point is not how close to it we are.
It isn't really that hard to come up with an educated guess.
There is, of course, no crystal ball but undercapitalization is pretty well
understood and that's what we are talking about when considering a consumer
based recovery.
Get out your pencil and do a little quick math as if you were advising a
client on a turnaround. Rough out the cash flow and reserve requirement (ie.
earnings) necessary to create seven million jobs to replace what's been
lost, increase savings to 8% of income and add 135,000 new jobs per month to
the real economy. I say "earnings" because we have already gone from a
paycheck to paycheck model where people hold their own to one where people
fall behind either by depleting their savings, assets or both. The reserve
is largely gone or will be soon.
That's what will have to be added to GDP and the entire amount will, by the
definition of our hypothetical, have to come from an increase in consumer
wherewithal. 100 million employed can't generate three trillion dollars in
fresh spending unless they see their disposable income jump by $30,000.00.
The only remaining feature to decide is the time frame, which I feel would
be two years to get the desired result. Every additional year would require
another trillion and a half dollars. You don't have to fart around with a
calculator for long to understand something basic. A consumer driven
recovery not only isn't going to happen, it can't.
I don't attribute the significance to this that you do.
Not in terms of the future of the American economy. Those bank
failures impact the shareholders but not depositors and any business
they were doing gets done by the survivor/purchaser.
In the long run, it's a self licking ice cream cone because the
banks pay premiums for just this eventuality.
That the FDIC/FSLIC might run short of cash isn't anything but a
short term issue that Congress and thr Federal Reserve can, and will
deal with.
In the long run we are all dead anyhow. Its the short run that
is of concern. Many of the commercial real estate mortgages were
used to back CDOs which are now going sour just as the
alt-a/subprime backed CDOs did. By itself, this will be a huge
hit, but there are large numbers of derivatives based on these
CDOs, thus the high, i.e. excessive, leverage works just as well
to amplify the losses as the gains. For example see
http://www.bloomberg.com/apps/news?p...d=aoRYl03Rw1_g
http://www.bloomberg.com/apps/news?p...d=aDY0DAlVpb6M
http://www.bloomberg.com/apps/news?p...d=aEfyyJXNfGxE
None of that will impact Joe Blow, George. Not more than it already has.
The mirage or schimera that someone's 401K is actually worth anything is one
of those, not reality.
The illusion currently parading around as the DOW is a slight of hand, not
reality.
Were you to "cash out" the DOW today, you'd get a pretty rude suprise and a
BILL instead of a check, once the liquidation was complete.
Corporate America, in fact, is beginning to suffer the consequences
of GW Bush disease. They aren't believed even when they speak the
absolute and unvarnished truth.
I am not sure anyone in the "leadership" positions understands
what "the truth" means anymore.
Sure they do. They wouldn't be able to manipulate otherwise.
Don't confuse intentions and purposes with a lack of understanding and I
don't, in fact, believe you do.
You, like most people, would rather believe in stupidity and ignorance over
avarice, greed and self perpetuation at any price.
That isn't something that can be recovered from except through
catharsis. Americans currently have little faith in their Congress
but it's interesting to note the plunge in that same measure when
business leaders are concerned.
It's results, good and bad, that really form opinion George, and
they are.
Let us hope so. However from the postings to this newsgroup and
many other instances, it appears that increasing numbers of the
population are highly susceptible to propaganda and will ignore
the facts if told to do so, even when this is contrary to their
own self interest.
Been that way forever.
The exception is when crisis forces awareness and that's why I say the
latest opportunity has been squandered.
Perhaps we'll make better use of the next chance. I doubt we'll have long to
find out.
--
John R. Carroll