Balanced Budget Amendment

[swansont]

The wars actually employ people. We are in the toilet even with a wartime economy.

 

I'm not so sure of the impact of this these days. We don't have a draft and don't increase the size of the active duty military during wars anymore; it's actually gone down in the last decade. So it's not like you're mobilizing a million job holders that need replacing. Some of the additional money appropriated for the wars is spent overseas. It's not like WWII where we retooled factories to make war materials. At some point after that we maintained a permanent level of production, which only ticks up marginally when there's shooting somewhere.

[amanda more]

I'm not so sure of the impact of this these days. We don't have a draft and don't increase the size of the active duty military during wars anymore; it's actually gone down in the last decade. So it's not like you're mobilizing a million job holders that need replacing. Some of the additional money appropriated for the wars is spent overseas. It's not like WWII where we retooled factories to make war materials. At some point after that we maintained a permanent level of production, which only ticks up marginally when there's shooting somewhere.

 

That is a good point. We also don't have the reserves of cash which can be unleashed when war spending crashes.

 

I am wondering just how much corporate interests are foreign corporations. So when policy is effected by corporations how much interest do they have in well being of Americans? What American companies are there? For producing type companies there is Exxon, Darden, Ford, GE. But most of the rest are military industrial guys. Follow the money. Who benefitted from holding the debt ceiling hostage.

 

The good jobs around I've seen are the military industrial ones. I think those have a huge multiplier effect.

[Athena]

I wonder if maybe they're waiting for the explanation of why the republicans never bothered to propose such an amendment when they controlled congress and the presidency and were obligating the unpaid-for expenditures that have helped put us in this position.

 

I surely wonder at the media reporting of the budget crisis. Republicans raised the debt ceiling without the big fuss we just had. How is it, now that a democrat is president, raising the debt ceiling becomes a major political struggle? Republicans have also raised taxes. How is it that now a democrat is president, it is so taboo to raise taxes? Why are we not getting good figures on our military expenses, including CIA expenses, and what we spend to buy off political leaders in other countries, including gifts of military aid? Does anyone know how we can access a real accounting of the national budget?

 

Perhaps we should discuss oil and our economy? A budget isn't just about what is owed, but also about how much money is available. That has something to do with oil and fiat money. Like President Carter said we needed to conserve, and Reagan told us we didn't need to conserve, slashed domestic budgets and poured money into military spending, including taking money form Social Security to cover his spending. Our military spending has sky rocket since the 1950'tys and the media just doesn't have much to say about this when speaking of the debt problem. When the value of the dollar goes down, it takes more dollars to pay off debt, and the value of the dollar is tied to oil.

 

I am delighted that this discussion is moving in the direction of the cost of the Military Industrial Complex. We need to take Eisenhower's words seriously. In Germany the Military Industrial Complex was called the New World Order, and since 1958 we have prepared our young to be products for industry, and all serve the Military Industrial Complex, which in turn determines what we need and what will be provided. This is not the democracy we had. To understand this, it is best to study German history and especially the Prussian generals and men like Dr. Friedrich Naumann. As Dr. Friedrich Naumann explains, "The war of the future is a problem of economic organization of the most difficult nature and highest technological achievement, such as has never been hitherto demanded of from any army." What has been happening since WWII is not exactly national defense as we had always managed national defense, it is about the concept of Military Industrial Complex and future wars.

 

The media ignores the Military Industrial Complex and talks of cutting Social Security. The media seriously fails to inform the public, as self governing people needs to be informed, and the Republicans appear especially good at managing the media, and using Christians including Zionist Christians who fund the folks behind Boehner. Yes, industry is using our military, but do not over look the Jewish and Zionist Christian interest which keeps a lot of money flowing to Israel and Egypt as well as military gifts. These places of interest to us, are strategically important especially for the control of oil. The NWO and MIC are about a military force to secure economic interest. Now we are told industry won't give us jobs if we do not give industry tax cuts, putting the burden of the Military Industrial Complex on the individual tax payer.

 

What's the big deal?

The US debt is of the order of 10 or 20 trillion. So is the GDP. The income is about equal to the debt (within a factor of 2 or so).

 

I have a mortgage on my house that's for a bit more than my current income, and when I bought the place it was a debt of about 3 times my income.

Nobody thinks that's a major problem because I can pay the interest (and the capital).

The US can pay the interest and capital too.

Why is the US so upset about being in debt? It's not as if they owe a lot of money.

 

I love your explanation of the problem? I honestly think what we have is the same thing that always existed in history. The wealthy convincing the king why they should not be taxed, and the peasants need to be controlled, as it is the peasants who support everyone with their labor and tributes to the land lord, church and king. Why give them Social Security and a national health plan, if this can be avoided?

Edited August 7, 2011 by Athena

[jackson33]

Clinton's administration saw 23 million jobs created — it almost matched the population growth. Bush II saw 3 million. http://blogs.wsj.com...cord-on-record/

 

Bush II did the worst job of creating jobs in the last 60 years (it's even worse if you look at the jobs created normalized to population). All the hand waves in the world doesn't change that. The Bush policies didn't work. [/Quote]

 

swansont; Your first link above indicated Bush 43 added 3.7M Jobs and your latest 3M, which are you calling correct and the perfect example, why I don't like giving reference links. Then just add a few of the 8M illegal's supposedly getting into the Country, not just from Latin America and I assume working and you might develop a difference perspective.

 

However, If your saying the economic environment, created by the first Republican Controlled Congress in 40 years (1994), was instrumental in unleashing Capitalist principles into the US marketplace, allowing unprecedented growth, especially in technology, I WOULD AGREE. Bush 43, though certainly not my favorite CONSERVITIVE or President, did not create the Tech Bubble, The Y2K nonsense, Bomb the Trade Center, Pentagon or in fact even the Housing Bubble Burst. He did begin the ill advised process TARP, which went ballistic from day one, of the current bunch, adding two years of a cooperative Congress (2006-2008).

 

http://en.wikipedia.org/wiki/Dot-com_bubble

 

Then if you would calculate into, not ignore, the 2001-2 recession, partially caused by the Federal in overplaying Y2K pre 2000 and the later housing bubble recession, you should note in about 6 of those bush years were pretty good. Net Jobs has meaning and all I'm hearing from the current administration, pundits and some forum members is 2.5 to 4 million created jobs since Jan. 2009, not the net. I'm not even going to address the "saved" jobs, which I could say daily, in buying some 10 cent item, might have saved a factory with 1000 workers.

 

http://www.tradingeconomics.com/united-states/non-farm-payrolls

 

 

I surely wonder at the media reporting of the budget crisis. Republicans raised the debt ceiling without the big fuss we just had. How is it, now that a democrat is president, raising the debt ceiling becomes a major political struggle? Republicans have also raised taxes. How is it that now a democrat is president, it is so taboo to raise taxes?[/Quote]

 

Athena; I'm not sure modern day republicans have raised tax rates, noting that even Kennedy had lowered tax rates, but Republicans have indirectly raised taxes, via allowable deduction cuts. This said, to raise taxes or to lower thresholds deductibles, during a down economy is pretty rare, at the Federal Level. Obama and crew, are practicing "Social Justice" or the "Sharing" philosophy, by targeting certain groups, in this case those that invest or own the economy.

 

It's hard to argue raising the debt ceiling has ever been aggressively argued and many in today's Congress have voted "yes" more than a few times to do just that, but I'll ask you, since 1960 when has the GDP/National GDP ratio, ever been 100% or the obvious need for Corporate participation in a reversal reverse a trend, existed....? IMO, that's "How is it" is, without regards to parties. Remember many Establishment Republicans, are on record saying it should be raised. Now that it is done, with no apparent cuts (not reductions or freezes) until 2285 (exaggerated) that GDP/Debt ratio, with just the Obamacare and College Tuition Policies could and likely would raise that ratio to 120+% (trillion dollar servicing cost) and unsustainable under any conceivable growth projections......IMO.

 

 

I am wondering just how much corporate interests are foreign corporations. So when policy is effected by corporations how much interest do they have in well being of Americans? What American companies are there? For producing type companies there is Exxon, Darden, Ford, GE. But most of the rest are military industrial guys. Follow the money. Who benefitted from holding the debt ceiling hostage.[/Quote]

 

amanda: Every Nation on this planet, with the possible exception of a few hard core Muslim Nations, but including China, Russia, even Venezuela, economically is tied to the US Economy. I'm not very familiar with Darden Restaurants, but most every major Corporation listed on the DOW an S&P 500, do over half their business elsewhere (certainly the profitable parts), many foreign business already operate in the US and untold millions are invested in their versions of a 401K, retirement plan or directly.

 

If the US does NOT get it's act together (Debt Ceiling) and quickly, maybe even this week, we could be in a heap of trouble. The only markets to trade, since the S&P Downgrade, have been Saudi Arabia (down 5%) and Israel down (6-7%) and that alone is not good news. For the record, I don't believe markets in general (all) will have those reactions, but am very concerned about the apparent 17T$ ceiling, just to get by 2012 and the probability the 2012 GDP will be 15.5T$.

Edited August 7, 2011 by jackson33

[amanda more]

I guess history will tell.

 

I think the underlying poor financials that are fudged in such a wholesale way have to collapse like the Ponzi scheme it is.

 

So the clueless drones can be seen as causing the time of the collapse but not the underlying rot.

 

Come to think of it- follow the money. Someone just sold short and they are about to reap a huge margin call. I'd look to the hardliners in Congress. Who funded the Tea party?

 

After all you don't think wealthy Bin Laden types kept their money in as they sent off the 9/11 group? That was a very predictable outcome. This may have almost been as predictable a bet. I'd also check who is invested in Standard and Poors and then would be running it.

 

Difficult? yes, a bit. But taking over aircraft wasn't a piece of cake.

[iNow]

Appreciate the lifting of my ban, Cap'n.

 

 

Does anyone know how we can access a real accounting of the national budget?

http://www.gpoaccess.gov/usbudget/

 

 

When the value of the dollar goes down, it takes more dollars to pay off debt

You actually have this completely backwards. When you contract into a debt, you agree to pay X amount of Y currency by Z date. So, for example you agree to pay 10 dollars by January, 2012. Well, even if the value of the dollar goes down, you still only owe ten of them to the other party. You essentially get to pay off your debt for less total adjusted expenditure. You still pay only 10 dollars (since that was your agreement), even though those ten dollars are now worth less than they were when you entered into the agreement. It's not like they get to say, "Well, now that the value of each dollar is lower, you actually owe us 12 of them." That's not what happens.

 

The devaluation of the dollar is actually GOOD for debtors. It's the creditors who suffer from the lower value, which is opposite of what you stated here.

[swansont]

swansont; Your first link above indicated Bush 43 added 3.7M Jobs and your latest 3M, which are you calling correct and the perfect example, why I don't like giving reference links. Then just add a few of the 8M illegal's supposedly getting into the Country, not just from Latin America and I assume working and you might develop a difference perspective.

 

The 3.7M was in a link from a 2007 article, comparing "effort to date" numbers (6 yrs of presidency). IOW, jobs were lost subsequent to that.

 

However, If your saying the economic environment, created by the first Republican Controlled Congress in 40 years (1994), was instrumental in unleashing Capitalist principles into the US marketplace, allowing unprecedented growth, especially in technology, I WOULD AGREE. Bush 43, though certainly not my favorite CONSERVITIVE or President, did not create the Tech Bubble, The Y2K nonsense, Bomb the Trade Center, Pentagon or in fact even the Housing Bubble Burst. He did begin the ill advised process TARP, which went ballistic from day one, of the current bunch, adding two years of a cooperative Congress (2006-2008).

 

http://en.wikipedia.org/wiki/Dot-com_bubble

 

Then if you would calculate into, not ignore, the 2001-2 recession, partially caused by the Federal in overplaying Y2K pre 2000 and the later housing bubble recession, you should note in about 6 of those bush years were pretty good. Net Jobs has meaning and all I'm hearing from the current administration, pundits and some forum members is 2.5 to 4 million created jobs since Jan. 2009, not the net. I'm not even going to address the "saved" jobs, which I could say daily, in buying some 10 cent item, might have saved a factory with 1000 workers.

 

http://www.tradingeconomics.com/united-states/non-farm-payrolls

 

Yeah, the job of the president is tough. But it's not like Bush II is the only one to face challenges.

 

BTW, a bombing of the WTC and Y2K happened under Clinton.

[jackson33]

amanda;Here is another link, with an actual accounting of spending of US/State Governments back to the beginning (1875)....scroll down a little, on the right hand side are all current budget proposals. Keep in mind the House, responsible for making US Budgets, did not produce one for 2010 or 2011 and Ryan's House Budget for 2012, was tabled by the Senate.

 

http://www.usgovernmentdebt.us/budget_pie_gs.php?span=usgs302&year=1875&view=1&expand=&expandC=&units=b&fy=fy11&local=s&state=US#usgs302

 

As the dollar goes down in value, what you buy will cost more, but Bonds are contracts, with established interest rates. What might happen is current US Bonds to be transfer could requires a higher interest, the yield price having increased. As for all this talk of your loans increasing, unless your under some kind of adjustable or have credit cards, those loan won't change rates.

 

Yes, those that sold short Friday, probably quite a few since talk of a Rate Cut was all over the place, could profit, but as you said, "history will tell".

 

 

 

iNow, nice to see you posting in Politics...at least at the moment.

 

 

The 3.7M was in a link from a 2007 article, comparing "effort to date" numbers (6 yrs of presidency). IOW, jobs were lost subsequent to that.[/Quote]

 

Got it...

 

Yeah, the job of the president is tough. But it's not like Bush II is the only one to face challenges.

 

BTW, a bombing of the WTC and Y2K happened under Clinton. [/Quote]

 

The first Bombing and the second are not comparable, a truck bomb or four loaded airliners, but if I wanted to argue the point (I don't) I'd suggest, if Clinton had addressed the first as an attack on the Nation, not a criminal matter, we might not have had the second attack. The build up to Y2K ended January 1st, 2000, when the world kept spinning, planes didn't drop from the sky and 10's of millions paid money to update their computer equipment, a few days before Bush took office. If that didn't precipitate the Tech Bubble crash, it certainly didn't help matters.

 

 

 

Thread; As of 6:21 ET 8/7, the future markets for US Stocks are down, the DOW down 290, S&P down 30, Nasdaq down 51, Gold up 40 to near 1700. More will be known at 8PM, when Japan's Nikki opens, but so far their is nothing to panic over, strictly IMO.

[doG]

But it is the volume of the commodity (which for whatever-- crazy or not-- reason is in demand) that determines the growth rate of the economy, isn't it?

IMO it really comes down to consumption vs production. As long as we consume more and produce less the deficit will grow. It's time for this country to cut back to the consumption it can afford while we try to get everyone back to production.

 

Clinton's administration saw 23 million jobs created — it almost matched the population growth. Bush II saw 3 million. http://blogs.wsj.com/economics/2009/01/09/bush-on-jobs-the-worst-track-record-on-record/Bush II did the worst job of creating jobs in the last 60 years (it's even worse if you look at the jobs created normalized to population). All the hand waves in the world doesn't change that. The Bush policies didn't work.

I tend to believe many of the jobs in those era were the buildup of jobs in the housing bubble. Clinton enjoyed the most benefit of that growth but by the time Bush II took over that bubble was ready to pop. We're in the shape we're in now because of all the 10, 20 and 30 year careers in a sector that ultimately caved in.

[iNow]

I tend to believe many of the jobs in those era were the buildup of jobs in the housing bubble. Clinton enjoyed the most benefit of that growth but by the time Bush II took over that bubble was ready to pop. We're in the shape we're in now because of all the 10, 20 and 30 year careers in a sector that ultimately caved in.

That's a belief held by many, but it doesn't seem supported by any of the data.

 

 

First, construction during those years never accounted for more than 5% of GDP (source). Of our entire economy, the housing bubble jobs accounted for only a small fraction.

 

Second, unemployment since then has had cross sector consistency, and housing, construction, and all related don't stand out in any meaningful way, and are (in fact) quite unremarkable.

 

 

http://www.epi.org/analysis_and_opinion/entry/debunking_the_theory_of_structural_unemployment/

 

Construction: It is true that construction has suffered in this downturn, losing nearly two million jobs, or 25% of all private-sector jobs lost. But this is not what is fueling the unemployment problem. Figure A shows that in the second quarter of 2010, unemployed construction workers comprised 12.4% of the unemployed and 12.5% of the long-term unemployed: They are no more likely to be long-term unemployed than those displaced from other sectors. Even before the recession, in 2007, unemployed construction workers were 10.6% of all unemployed and 11.0% of the long-term unemployed.

 

 

<...>

 

The shortfall of job openings in this recovery is pervasive, and spans nearly every sector including labor intensive service industries such as hospitality, entertainment and accommodation. Construction is responsible for just 6% of the overall shortfall in openings.

<...>

It is time to stop thinking about unemployment and the failure to generate job openings as being driven by developments in particular sectors since the trends are pervasive across all sectors.

<...>

This measure shows how far short this recovery’s job openings are to those of the earlier recovery for each sector. It is clear that the shortfall in job openings is pervasive, occurring in every sector (except mining). Recent openings averaged 72% of those in the earlier recovery. Sure, recent construction job openings were just 58% of those in the earlier recovery. However, the shortfall in job openings was also very severe in labor intensive service industries such as hospitality, entertainment and accommodation.

<...>

Widespread claims that our unemployment crisis is structural are not only inaccurate, but they imply that macroeconomic tools such as fiscal policy (spending or tax cuts) or monetary policy can not address our unemployment crisis. Surprisingly, perhaps amazingly, there’s no systematic empirical evidence for such assertions. Policy makers should understand that the problem faced by the unemployed is a simple scarcity of jobs, a feature of the labor market facing every group of workers regardless of education, sector, occupation or location.

 

In short, those construction workers account for only one tenth of the overall unemployed.

 

 

I do, however, agree with you that we need more production to counter balance the consumption, and the current split is far too skewed. The challenge, of course, is that austerity and retractionary measures during a time when interest rates are already against the zero bound is one of the surest ways to further depress our already recessed production.

[swansont]

The build up to Y2K ended January 1st, 2000, when the world kept spinning, planes didn't drop from the sky and 10's of millions paid money to update their computer equipment, a few days before Bush took office. If that didn't precipitate the Tech Bubble crash, it certainly didn't help matters.

 

384 is "a few days"? Bush was sworn in on Jan 20, 2001

[doG]

First, construction during those years never accounted for more than 5% of GDP (source). Of our entire economy, the housing bubble jobs accounted for only a small fraction.

I tend to disagree with that. I notice that you've effectively reduced housing bubble jobs to only the construction workers. What about all of the jobs producing construction materials, appliances, furniture and all of that with new infrastructure related to housing like schools, shopping centers, roads and everything else that was related to housing developments. Then there was all of the related banking industry people from appraisers to loan officers. The housing bubble was a many tentacled beast that touched far more people than just construction workers.

[iNow]

I notice that you've effectively reduced housing bubble jobs to only the construction workers. What about all of the jobs producing construction materials, appliances, furniture and all of that with new infrastructure related to housing like schools, shopping centers, roads and everything else that was related to housing developments.

That wasn't my intent, but I take your point. It seems obvious to me that construction was the "center of gravity" in the housing market, but materials and infrastructure obviously play a key role. It was never my intent to ignore that, or to pretend it wasn't a factor, but there are two ways I can respond.

 

Let's assume that all of those other industries had a 1:1 alignment with construction (which I think is far overstating it, but just for the purpose of discussion, let's assume that for every construction job there was also a materials or bank job). That still means that only 10% of GDP was tied to the market. I've doubled the actual number, and your argument still doesn't hold. Even doubling the number, 9 out of every 10 jobs were outside this sector. Hell, let's say that for every 1 construction job, there were 2 related jobs in other sectors. That still means that only 15% could be tied to the bubble. For your argument to hold, we'd have to assume something like for every 1 construction job, there were 12-15 in other related industries (meaning that if we assume this then the overall housing bubble accounted for 60% - 70% all jobs), and that's just not what we faced.

 

The second response I see against your point is that most of those other non-construction jobs are still there. Those schools didn't go away, nor did the shopping centers, or the people putting together and selling washing machines or furniture. Those workers are (for the most part) still working. I understand the story you're trying to tell, but the facts are getting in the way of it's veracity.

 

 

 

Then there was all of the related banking industry people from appraisers to loan officers. The housing bubble was a many tentacled beast that touched far more people than just construction workers.

Same as my second point above. The vast majority of those banking industry workers still have jobs, so the numbers don't support your point. Yes, there were employees in banking who had work tied to the housing bubble, but they didn't lose their jobs en masse (as they did in construction) when that bubble burst. I'm totally cool with you believing that many of the jobs in that era were due to the housing bubble (even though the term "many" is hardly quantitative). I'm just pointing out that the data doesn't really reinforce that belief, and actually suggests that belief might be a bit misguided.

Edited August 8, 2011 by iNow

[swansont]

I tend to believe many of the jobs in those era were the buildup of jobs in the housing bubble. Clinton enjoyed the most benefit of that growth but by the time Bush II took over that bubble was ready to pop. We're in the shape we're in now because of all the 10, 20 and 30 year careers in a sector that ultimately caved in.

What was the bubble, though? The fuel of subprime and fraudulent loans jumped sharply midway through Bush II's administration (and they were largely not bought by the GSE's)

 

http://en.wikipedia.org/wiki/File:Mortgage_loan_fraud.svg

http://en.wikipedia.org/wiki/File:U.S._Home_Ownership_and_Subprime_Origination_Share.png

 

AFAIK most mortgages are no longer than 25- or 30-year loans. 30 years out you have no loans left to be a problem. Even 10 years out, give the rise in the market, how many loans would have been under water? The value of the house has risen and you have accrued some equity from the loan payback.

 

http://en.wikipedia.org/wiki/Subprime_mortgage_crisis#Boom_and_bust_in_the_housing_market

Between 1997 and 2006, the price of the typical American house increased by 124%.[46] During the two decades ending in 2001, the national median home price ranged from 2.9 to 3.1 times median household income. This ratio rose to 4.0 in 2004, and 4.6 in 2006.

——

 

So if you bought during Clinton, your average house probably doubled in value (if not more). 50% equity if you had financed 100% of it and paid nothing but interest. If you default, the bank does not take a loss, even if prices had dropped by 50% (and they only dropped about 20%). (In fact, an average house bought under Clinton would have been worth more in 2009 than when it was purchased) Any such loan would not contribute to the crisis.

 

 

I've seen nothing that contradicts the idea that the biggest problem by far were loans issued in the ~5 years prior to the crash. Without the loans there is no added construction or ancillary work.

 

That wasn't my intent, but I take your point. It seems obvious to me that construction was the "center of gravity" in the housing market, but materials and infrastructure obviously play a key role. It was never my intent to ignore that, or to pretend it wasn't a factor, but there are two ways I can respond.

To be fair, if construction unemployment went from comprising 10% of unemployed to 12%, then it means that construction was hit proportionally harder.

[waitforufo]

When the housing bubble burst, the economic impact was much greater than construction employment and the multiplier effect associated with that construction employment. Homes are the primary asset of middle class citizens. As their home equity grew, they refinanced their homes and spent the equity. This equity spending fueled the economy. Well now people have negative home equity. No refinancing and no associated spending. So the economy is out of gas. Construction employment could have continued unchanged and we would still be in the same boat as we find ourselves today.

 

This should not be a surprise. We all watched the Japanese do this same thing to Japan in the 80’s. Perhaps they were worse. They created 100 year mortgages.

[iNow]

Homes are the primary asset of middle class citizens. As their home equity grew, they refinanced their homes and spent the equity. This equity spending fueled the economy.

I tend to agree, but reinforcing some of the points swansont made earlier in the thread, that's the fault of the banks giving those loans on questionable equity, not on the housing market itself. This wasn't a bubble problem, it was a bad decision from lenders problem. It's peripherally related to the housing bubble, but not one and the same.

[waitforufo]

I tend to agree, but reinforcing some of the points swansont made earlier in the thread, that's the fault of the banks giving those loans on questionable equity, not on the housing market itself. This wasn't a bubble problem, it was a bad decision from lenders problem. It's peripherally related to the housing bubble, but not one and the same.

 

That seems like a strange way to look at the problem to me. Refinancing and the resulting spending of equity was the compressor pumping air into the bubble. Yeah, the banks were complicit, but so was the government through their encouragement and or intentional lack of oversight of Fanny Mae and Freddie Mac. The big culprits however were the people borrowing the money. You let those individuals off way to easy. I and most Americans will never see those people as victims.

[Essay]

I don't think it was just the little people clamoring for loans that fueled the bubble:

I wrote this last night, but was only repeating other posts by the time....

But now it seems relevant again (though it should have been rewritten, edited, etc.).

 

Demand (except for essentials) is mostly generated through public perception, or what people value. The demand for beaver hats, and the transition to silk hats, is a good example of supply, demand, and a NEW commodity.

 

The housing bubble doesn't just relate to [employment levels in] construction though, since the purchase of new houses also drove [employment levels in] the production and consumption market of furnishings, appliances, utensils, decorations, various electronics, landscaping, schools, shops, markets, and entertainment, and so on. So it isn't surprising that employment is down across-the-board following the reversal in housing growth.

 

The point about a NEW commodity, with enough volume to drive growth....

Passé commodities sustain growth, but only NEW commodities can drive new growth, and feed a growth spiral.

 

===

 

And I think we need to realize that only real commodities create real value in the long run. Loans shouldn't be used as a commodity, even though it is hard to find any new commodity with the almost limitless volume of loans (and their derivatives).

edit: this is the "housing bubble part"

 

But having done so, now almost 30% of our GDP is based on the paper structure that defines the financial, banking, and real estate sectors.

 

30%! I guess that is what "too big to fail" refers to, eh?

Even 15-20%, from the heathcare sector of GDP, is probably too big to fiddle much with....

But I can see why we need to gradually and carefully untangle that sliced-n-diced house of cards, and why we can't easily switch our HC system overnight.

 

3% ...Just three percent of GDP... is covered by the tangible contributions from our agriculture, mining and drilling sectors. ~[iirc]

===

 

Does this seem problematic; having such a skewed ratio of tangible to virtual commodities supporting the GDP?

 

And consider the relative employment associated with those sectors: That is lots of cash for a group of paper-pushering cardsharks, and very little for the fieldhands and miners.

 

It would be nice to have a NEW tangible commodity that was valued enough to maintain a demand-driven growth spiral, which would help shift that ratio of tangible to virtual GDP toward a more healthy balance.

===

 

disclaimer: I value biodiversity, and I understand the importance of paper-pushing cardsharks to proper ecosystem functioning; but their population has become dangerously unbalanced... with too many predators and not enough prey at the base of the food chain.

 

So it would follow that we need more tangible commodities that can support and enlarge the base of the [economic] food chain. imho... thinking of this from a biochemist's perspective.

===

 

edit: It was loans (mostly housing related) that were being pushed as the hot new commodity, that caused the bubble and the attending house of cards; not the consumers only trying to keep their heads above water by "buying a house" since their incomes weren't increasing by any positive amounts. imho....

 

~

Edited August 8, 2011 by Essay

[swansont]

That seems like a strange way to look at the problem to me. Refinancing and the resulting spending of equity was the compressor pumping air into the bubble. Yeah, the banks were complicit, but so was the government through their encouragement and or intentional lack of oversight of Fanny Mae and Freddie Mac. The big culprits however were the people borrowing the money. You let those individuals off way to easy. I and most Americans will never see those people as victims.

 

The administration's allergic reaction to regulation was definitely an issue (and the Dems suffer from this as well when it comes to banks), but the lack of oversight of the GSEs was only a small contribution. From my earlier link: More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions IOW, only 16% of the subprime loans were purchased by Fannie and Freddie that year. Between 2004 and 2006, when subprime lending was exploding, Fannie and Freddie went from holding a high of 48 percent of the subprime loans that were sold into the secondary market to holding about 24 percent. This when the subprime market more than doubled as a fraction of mortgages.

 

The banks were lending to people who could not afford it. They assumed the risk, and should have been watching out more carefully. They did not, and the government wasn't there to force them to eat their brussels sprouts. Of the lender and customer, the lender should have had far more expertise in assessing the ability to repay the loan. The banks screwed the pooch.

[iNow]

Yeah, the banks were complicit, but so was the government through their encouragement and or intentional lack of oversight of Fanny Mae and Freddie Mac.

The Fannie Freddie reference is a big red herring. I know that's what the narrative says, but that's not what the data shows.

 

 

http://modeledbehavior.com/2010/08/27/fannie-freddie-acquitted/

In this case government subsidies in the housing market are a bad idea for a host of reasons and have been for years. I will testify to this with vigor and passion.

 

However, that does not mean that Fannie or Freddie caused the housing bubble. Indeed, by my count they were among the biggest victims of it.

 

The proper question is not: What story is consistent with my general philosophy or worldview?

 

The proper questions is: What story is consistent with the facts?

 

Fact One: Fannie and Freddie’s primary business of subsidizing conventional loans was not a driver of the housing the bubble. Indeed, conventional loans represented less than a third of all mortgage originations during the peak price acceleration years.

 

This was a phenomenon of private-label non-conventional loan securitization.

<...>

Fact Two: Fannie and Freddie lost market volume during the boom. That is, during the boom not only did the fraction of loans securitized by Fannie and Freddie fall, but the absolute number fell. At the same time the absolute number of private-label securitizations rose.

 

There is a simple and obvious reason for this. The development of structured products meant that for many consumers the free market offered a more attractive loan than the government subsidized one.

<...>

Fact Three: The major losses to Fannie and Freddie came through their expansion into guaranteeing non-traditional loans, not through their portfolio. That is, yes like every other financial entity Fannie and Freddie were buying subprime packages in the secondary market. However, these losses were relatively mild.

<...>

Fact Four: The key change in the Fannie / Freddie business model was their expansion in the types of loans they willing to guarantee. In particular moving into the Alt-A and Interest-Only categories.

 

As we can see these loans began to seriously underperform as the economy deteriorated. These loans were not a part of the original “crap hidden by structure” subprime business. Fannie / Freddie borrowers on had on average credit scores above 710 and equity (or down payment) of above 25%.

<...>

Fact Five: The higher number of Alt-A and Interest Only loans combined with ultimately higher delinquency rates have meant that a plurality of losses have come from these two categories. These loans were vulnerable not because the borrowers were poor low-credit individuals that the government was taking pity upon but because the loan concepts were predicated on rising or at least stable housing prices.

<...>

Fact Six: Areas with the largest collapse in home prices have accounted for most of Fannie and Freddie losses. Refer to the same graph above.

 

This is further evidence that it was the collapse of the bubble and not betting on people who were poor credit risks that induced major losses at Fannie and Freddie.

 

 

http://www.americanprogress.org/issues/2010/12/financial_crisis.html

• Parallel bubble-bust cycles occurred outside of the residential housing markets (for example, in commercial real estate and consumer credit).

• Parallel financial crises struck other countries, which did not have analogous affordable housing policies

• The U.S. government’s market share of home mortgages was actually declining precipitously during the housing bubble of the 2000s.

 

<...>

 

Mortgages originated for private securitization defaulted at much higher rates than those originated for Fannie and Freddie securitization, even when controlling for all other factors (such as the fact that Fannie and Freddie securitized virtually no subprime loans). Overall, private securitization mortgages defaulted at more than six times the rate of those originated for Fannie and Freddie securitization.

 

http://www.ritholtz.com/blog/2011/07/why-wallison-is-wrong-about-the-genesis-of-the-u-s-housing-crisis/

Did Fannie and Freddie buy high-risk mortgage-backed securities? Yes. But they did not buy enough of them to be blamed for the mortgage crisis.[ii] Highly respected analysts who have looked at these data in much greater detail than Wallison, Pinto, or myself, including the nonpartisan Government Accountability Office, the Harvard Joint Center for Housing Studies, the Financial Crisis Inquiry Commission majority, the Federal Housing Finance Agency, and virtually all academics, have all rejected the Wallison/Pinto argument that federal affordable housing policies were responsible for the proliferation of actual high-risk mortgages over the past decade.[iii]

 

Indeed, it is noteworthy that Wallison’s fellow Republicans on the Financial Crisis Inquiry Commission—Bill Thomas, Keith Hennessey, and Douglas Holtz-Eakin, all of whom are staunch conservatives—rejected Wallison’s argument as well.

<...>

[ii] Jason Thomas and Robert Van Order of George Washington University explicitly reject the claim that the affordable housing goals were a major driver of demand for subprime MBSs, for at least three reasons. First, Fannie and Freddie were only buying AAA-rated securities, which means that others were buying the riskier, lower-rated subprime securities. Second, unlike the lower-rated tranches, AAA-rated tranches had very short durations, which means that to a large degree, the two mortgage finance giants’ purchases of subprime securities were simply replacing their own expiring holdings. Third, Fannie and Freddie only purchased mortgage-backed securities, not derivatives such as collateralized debt obligations or credit default swaps. Thus, looking at their purchases of subprime mortgage-backed securities actually significantly overstates their share of the total offering of subprime securities (since synthetic collateralized debt obligations and credit default swaps could mimic the risk/reward offerings of mortgage-backed securities). Moreover, as Thomas and Van Order point out, the fact that synthetic CDOs and CDSs could be created without originating new loans essentially meant that the supply of subprime securities was infinite.

 

[iii] This blame primarily goes to private-label securitization, which, as I noted in “Faulty Conclusions,” is responsible for only 13 percent of all outstanding loans but 42 percent of all seriously delinquent loans. Conversely, Fannie and Freddie are responsible for 57 percent of all outstanding loans but only 22 percent of all seriously delinquent loans. If, as Wallison and Pinto claim, Fannie and Freddie were responsible for 12 million high-risk loans (of 27 million total high-risk loans), then one would expect to see an exponentially higher delinquency rate for Fannie and Freddie, and a much larger share of delinquent loans.

 

 

And frankly, I'm not letting anybody "off too easy." I'm simply trying to ensure that we all use reality as our baseline, and confirm the accuracy of our premises before drawing conclusions from them.

Edited August 8, 2011 by iNow

[jackson33]

These adjustment left Fannie and Freddie exposed to a large decline in housing prices. This is exactly what happened and Fannie and Freddie reaped enormous losses because of their exposure.

 

Had Fannie and Freddie stuck to their traditional role of guaranteeing low value traditional loans rather than trying to stay competitive in bubble areas their losses would have been substantially less.

 

In short, attempting to subsidize the American dream for low and moderate income families may be a fundamentally bad policy. However, it does not appear to be either the origin of the housing bubble or the source of Fannie and Freddie’s trouble.[/Quote]

 

Summery comments from your link.....

 

The Fannie Freddie reference is a big red herring. I know that's what the narrative says, but that's not what the data shows.[/Quote]

 

iNow; Well here we go and in keeping with my discussions with swansont, what F/F were guaranteeing/buying in the earlier years, slowing through decreased requirements, while increasing the limits (as your article suggest), they got themselves into trouble.

 

And frankly, I'm not letting anybody "off too easy." I'm simply trying to ensure that we all use reality as our baseline, and confirm the accuracy of our premises before drawing conclusions from them. [/Quote]

 

Question; If there are two opposing viewpoints (premises), believed by the makers to be true, then subjective, just where is that baseline? I believe through Dodd, Franks, Rangle (from the 90's) and others, that F/F, from the time Fannie Mae was privatized and Freddy established Late 60's), were indeed involved in the eventual financial crisis. Privatization alone was based on budget problems, said to loosen up money for the Vietnam War effort, but regulated from that time, like no other private enterprise. If you like, I'd argue the concept itself was a welfare program, back to the late 30's, encouraged by every President or Congress, since....

 

To be fair, I ALSO believe and in no way connected to F/F, that "Home Flipping" was a major factor, in turn CONSTRUCTION, which I think was doG's argument. You had major builders, sometimes with few employees, contracting out every aspect of major projects (hundreds of units), some selling out before building began, though this is not the issue. That is a small contractor, employing hundreds of contractors, with 10's of thousands of workers, BEFORE you even get to other infrastructure.

 

The bubble explained, not necessarily the cause for a financial crisis, IMO;

 

http://en.wikipedia.org/wiki/File:Shiller_IE2_Fig_2-1.png

[iNow]

Question; If there are two opposing viewpoints (premises), believed by the makers to be true, then subjective, just where is that baseline?

I posit that this "baseline" is established by the side which presents supporting evidence which is actually related to their claims. Unfortunately, in these discussions it seems more common that one side relies on an abundance of evidence from multiple sources, whereas the other side relies on assumptions themselves rooted in questionable premises. Also, this "other side" when sharing data tends to present something completely unrelated to the topic at hand, so essentially continues to ignore the burden of proof. You may feel otherwise, though, since (as you mention) it's subjective, but that's where I'd put the baseline. It lies squarely with the group who relies on evidence, makes internally consistent claims, and uses more than mere assumption to present their case.

[doG]

The danger of using unemployment statistics to illustrate unemployment...

 

Jobs: Worse than you think

 

The U.S. labor force is shrinking, as more Americans are giving up hope.

Last month, only 58.1% of Americans age 16 and over were employed, a significant drop from before the recession and the lowest since 1983....

 

I, like hundreds of others in the area, was a heavy equipment mechanic. The local Caterpillar dealer laid off over 165 of 200 mechanics 2 years ago. They've hired none back. The local John Deere dealer also laid off about 75% of its force as did the Komatsu dealer and many more. None are hiring. If a position does open there's hundreds of us vying for the one position. Most of the private companies that were these companies customers are gone now.

 

I gave up what I had been doing for 30 years.. The story is the same for all the excessive roofers, drywall hangers, plumbers, electricians, painters, etc. etc. There will never again be enough positions to put us back to work in the careers we had for the last 20-30 years. There is no openings doing what we've always done.

 

I took a lab job at a local paper mill. One of their biggest customers used to be the carpet mills buying paper cores to roll carpet on. Most of those mills are closed now and the little towns that depended on them have all but dried up. Hundreds of more out of work and never going back to what they've always done. It's the same with cabinet makers here, most are gone.

 

The housing bubble inflated for 30+ years. I was part of it for 30 years and never again will there be enough positions in my trade to put us all back to work. My trade is likely decimated for the remainder of my working life. The same is true for a great number of people my age that have never done anything else that were directly or indirectly employed by the bubble.. A large percentage of that 40% of the country that's not working is those of us that lost our jobs when the bubble burst, our careers. Its not just us either but all the people laid off from small businesses that depended on our money in the economy. To make matters worse many of them need entry level jobs so they can learn to do something else now and there's just not that many entry level jobs out there. I run into them regularly here. Past customers and coworkers that exhausted their unemployment long ago and have yet to find those positions to give them a start at something new.

[iNow]

The housing bubble inflated for 30+ years. I was part of it for 30 years and never again will there be enough positions in my trade to put us all back to work. My trade is likely decimated for the remainder of my working life. The same is true for a great number of people my age that have never done anything else that were directly or indirectly employed by the bubble.. A large percentage of that 40% of the country that's not working is those of us that lost our jobs when the bubble burst, our careers. Its not just us either but all the people laid off from small businesses that depended on our money in the economy.

Yours is a story I've heard many times, and I'm sorry to hear that you've been impacted so profoundly by all of this. I don't discount how much this situation in which we find ourselves sucks. I know how bright you are, and recognize your strengths, and would hire you myself in a heartbeat if I had the option to do so (as I met you years ago under another username on another site and I know what you bring to the table). I wish you well, and I hope you know that these words are sincere and my sentiment authentic. A lot of my colleagues are in the same position. Guys who worked for years in the same engineering position now trying to find their way again on a completely new path, but struggling to find a path that will keep their families safe and their well-being protected. It sucks, and I don't deny that.

 

I'm just saying, looked at across the entire economy... Just the numbers... The housing bubble still only accounts for at most 20-30% of that 40% of all US citizens who comprise the unemployment numbers. It doesn't change how it feels on a personal level, but that's what the overall economy shows. The bubble played a big role, but the unemployment issues we face right now extends far beyond that.

[doG]

I'm just saying, looked at across the entire economy... Just the numbers... The housing bubble still only accounts for at most 20-30% of that 40% of all US citizens who comprise the unemployment numbers. It doesn't change how it feels on a personal level, but that's what the overall economy shows. The bubble played a big role, but the unemployment issues we face right now extends far beyond that.

And I'm not trying to suggest by any means that the bubbles accounts for all of it. I am pointing out that current unemployment numbers don't show the whole picture, they show 9-10% unemployment where we really have 40% of our workforce out of place. that's a big difference in reported unemployment versus real unemployment. All of those that have exhausted their benefits and given up aren't shown in those numbers anymore.

 

I am also trying to show that the 20-30% of the 6.6 million people represents about 1.5 million people that will not go back to work at what they were doing for what they were making. I hope some of them have the skills to leverage other opportunities. I know science saved my butt. I'm not making what I was but I have a good stable job now so I'm not another dependent on the system.