2012 US Economy - Everything you need to know in 34 charts

[iNow]

This is a slightly longer read, but very clear, collected, and frankly concise given all that it covers. Sharing it here for my nerdy and curious friends.

http://www.theatlantic.com/business/archive/2012/12/everything-you-need-to-know-about-the-economy-in-2012-in-34-charts/266467/


A few key take-aways for me:

We don't really have a deficit problem right now. We're simply not taking in as much payroll tax revenue since so many people are out of work, and this decrease in revenue has come at the same time that we're paying more outgoing expenditures to help those unemployed with benefits, medicaid, and food. In short, the denominator has shrunk at the same time the numerator has grown.

Long-term, we need to curb health costs as that's the primary driver of the debt. However, the risk of debt comes from bond markets raising our interest rates. That risk, though, is not currently present and our interest rates are historically low, sometimes even negative (which means bond holders are willing to pay us to borrow, which means that we're not seen as a risky investment due our debt despite what we keep hearing from pundits).

Under Obama, discretionary spending is actually down to the lowest levels we've seen since the 1960s. Again, this seems contrary to the narrative we keep hearing. The increases in spending have not been discretionary, though. They've been to help families feed their kids during times of economic turmoil.

Despite all of the talk about how Obama is bad for business, market growth under his leadership has never been stronger. Unfortunately, most of that growth has benefited the corporations and executives and not the workers, whose wages have been flat or even down. Also, our economic problems do not appear to be structural (it's not that people are not trained for the work that's available or that we have the wrong kinds of skills), but instead seem to be based on low demand. People are saving more money overall and not spending it.

If more people bought houses or cars, that would go a very long way toward helping growth, but the housing bubble itself doesn't appear to be the primary reason for the downturn we've faced.

Gains in life expectancy are not as clear as it seems. Almost all of the increases in life expectancy have been with people in the top half of the income distribution. Those in the lower half are not living longer, yet they are the ones that would be disproportionately impacted and harmed by ideas like raising the medicare and social security benefits eligibility age.


One thing that worries me a bit is the growth we've seen in high frequency trading (computers processing thousands of trades per second based on changes of fractions of a cent... in and out before you can blink your eye, yet realizing millions in profit from doing this). More than anything else, it makes me anxious to see how quickly this growth in high-frequency algorithm based trading has occurred. Frankly, I'm not sure we understand well enough what this is going to do to more "human" investors who use the market to prepare for retirement through 401K programs and the like, but who do not have access to these powerful computers and real-time market dances. IMO, it's definitely something to which we should pay attention.


What are your thoughts? Anything stand out to you?

[ralfy]

For me, it's balance of trade:

 

"U.S. Trade Deficit Graphs" (posted in 2009)

 

http://www.calculatedriskblog.com/2009/01/us-trade-deficit-graphs.html

 

and debt levels:

 

"Krugman and the pied pipers of debt"

 

http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

 

But the U.S. is expected to fare badly because of the Triffin dilemma:

 

http://lexicon.ft.com/Term?term=Triffin-dilemma

 

Some more charts are shared here in relation to that:

 

"What Is Wrong With The U.S. Economy? Here Are 10 Economic Charts That Will Blow Your Mind"

 

http://theeconomiccollapseblog.com/archives/what-is-wrong-with-the-u-s-economy-here-are-10-economic-charts-that-will-blow-your-mind

 

"Scary Charts: Consumers Can't Prop Us Up"

 

http://www.wealthwire.com/news/economy/4235

 

"Modern American Economic History in a Few Charts"

 

http://www.nakedcapitalism.com/2012/10/modern-american-economic-history-in-a-few-charts.html

[iNow]

What is your point? I don't have time today to read all of your links, but I suspect you're concerned about our level of debt and present asymmetric between exports and imports? Is this accurate? If so, I'd like to respond with some relevant details that are useful in these discussions, but am unsure if that's your point so want to begin there.

[Janus]

Gains in life expectancy are not as clear as it seems. Almost all of the increases in life expectancy have been with people in the top half of the income distribution. Those in the lower half are not living longer, yet they are the ones that would be disproportionately impacted and harmed by ideas like raising the medicare and social security benefits eligibility age.

 

 

 

On top of that, some of this segment of the population still work in physically demanding occupations. Its a lot harder for them to work an extra few years until they get SS than is is for someone with a desk job.

Edited December 23, 2012 by Janus

[iNow]

Quite right.

[Phi for All]

This is a slightly longer read, but very clear, collected, and frankly concise given all that it covers. Sharing it here for my nerdy and curious friends.

Thanks for these. I want to take my time with them but I'll get back to this.

 

One thing that worries me a bit is the growth we've seen in high frequency trading (computers processing thousands of trades per second based on changes of fractions of a cent... in and out before you can blink your eye, yet realizing millions in profit from doing this). More than anything else, it makes me anxious to see how quickly this growth in high-frequency algorithm based trading has occurred. Frankly, I'm not sure we understand well enough what this is going to do to more "human" investors who use the market to prepare for retirement through 401K programs and the like, but who do not have access to these powerful computers and real-time market dances. IMO, it's definitely something to which we should pay attention.

It worries me as well. It's not in the spirit of the market. It's not about investing in a company, it's about profiting from a system without helping the system, an unbalanced equation.

 

Similarly, modern corporate charters don't seem to hold US corporations to any loyalty to the country in a strategic way. It allows corporations to benefit from being a US company without an investment in our economic strength. It bothers me that we're subsidizing some companies without requiring a certain percentage of US workers be employed there.

[ralfy]

What is your point? I don't have time today to read all of your links, but I suspect you're concerned about our level of debt and present asymmetric between exports and imports? Is this accurate? If so, I'd like to respond with some relevant details that are useful in these discussions, but am unsure if that's your point so want to begin there.

 

What we have, essentially, is an economy that holds the reserve currency, and because of the Triffin dilemma, can only operate through increasing debt and spending. Ultimately, economies holding that reserve currency will show growing distrust and move away from it. causing that economy to fall apart. What we are seeing now is the first stages of that economic crisis starting with a combination of one credit crunch after another (e.g., subprime lending, the crisis in Europe and the Arab spring, and now a drop in exports in China, etc.) leading to combinations of unemployment plus high food and oil prices.

 

What makes matters worse is that because we are part of a global system where economies are linked to each other and increased production and consumption of goods are needed to prop up increasing levels of credit (e.g., between $600 trillion to over $1 quadrillion in unregulated derivatives worldwide, and the 2008 crash was initiated by "only" a trillion dollars in subprime lending leading to over $30 trillion worldwide vaporized and governments scrambling to bail out banks). In which case, expect one 2008 financial crash after another throughout the years.

 

But that's not the worst of it, as the resources needed to increase production and consumption of goods are under threat. Conventional oil production, for example, has been relatively flat since 2005, and we're making up for it using non-conventional sources which are more expensive energy-wise and, although might meet basic needs, will not sustain a global economy that needs increasing growth.

 

For details on that and what was pointed out earlier, try this recent article:

 

"Peak Philosophy: The economic contraction narrative needs facts, not theory"

 

http://www.resilience.org/stories/2012-12-21/peak-philosophy-the-economic-contraction-narrative-needs-facts-not-theory

 

It refers to ten trends to consider, with one to three graphs per trend.

[iNow]

Ultimately, economies holding that reserve currency will show growing distrust and move away from it. causing that economy to fall apart.

People like you have been saying this is going to happen for decades. It has not happened. People like you have been screaming since the stimulus took place nearly 5 years ago that this would cause the economy to fall apart and people to abandon the dollar as a safe currency. That also has not happened. At what point will you update your ideology so it finally aligns with the facts on the ground? Ever?

 

What we are seeing now is the first stages of that economic crisis starting with a combination of one credit crunch after another (e.g., subprime lending, the crisis in Europe and the Arab spring, and now a drop in exports in China, etc.) leading to combinations of unemployment plus high food and oil prices.

This is wrong on nearly every level. Unemployment is high because households are saving more, demand is down, and hence so too are sales for companies that employ people. Food prices are up because of extreme drought in agricultural regions, the movement of corn in to fuel, and other factors like population increases in other nations (thus creating competition for that food and higher prices). Fuel costs are actually down right now, but when they were up it was due to saber rattling in the straights of Hormuz and political volatility in the middle east.

 

None of this has to do with people "distrusting the US as a reserve currency." That story you've just told falls immediately apart upon even remedial scrutiny.

What makes matters worse is that because we are part of a global system where economies are linked to each other and increased production and consumption of goods are needed to prop up increasing levels of credit (e.g., between $600 trillion to over $1 quadrillion in unregulated derivatives worldwide, and the 2008 crash was initiated by "only" a trillion dollars in subprime lending leading to over $30 trillion worldwide vaporized and governments scrambling to bail out banks). In which case, expect one 2008 financial crash after another throughout the years.

And yet the number and depth of the crises we've faced have actually DECREASED since implementing the fiat currency. You seem to be arguing, however, that we return to something like gold. When we were on gold, the boom and bust cycle was significantly more common and more profound. Again, your position does not align at all with the facts on the ground.

 

Going back to gold would turn our present day "imagined problem" of price stability into an actual "real problem" of price stability.

 

http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

 

But that's not the worst of it, as the resources needed to increase production and consumption of goods are under threat. Conventional oil production, for example, has been relatively flat since 2005, and we're making up for it using non-conventional sources which are more expensive energy-wise and, although might meet basic needs, will not sustain a global economy that needs increasing growth.

What are you talking about? Natural gas production has surged and that's significantly cheaper than crude oil, and produced in the US. We've also made serious strides in renewables like wind and solar, the cost of both steadily decreasing. So, I ask again, what are you talking about? Your position does not seem connected to reality.

 

[ralfy]

People like you have been saying this is going to happen for decades. It has not happened. People like you have been screaming since the stimulus took place nearly 5 years ago that this would cause the economy to fall apart and people to abandon the dollar as a safe currency. That also has not happened. At what point will you update your ideology so it finally aligns with the facts on the ground? Ever?

 

This is wrong on nearly every level. Unemployment is high because households are saving more, demand is down, and hence so too are sales for companies that employ people. Food prices are up because of extreme drought in agricultural regions, the movement of corn in to fuel, and other factors like population increases in other nations (thus creating competition for that food and higher prices). Fuel costs are actually down right now, but when they were up it was due to saber rattling in the straights of Hormuz and political volatility in the middle east.

 

None of this has to do with people "distrusting the US as a reserve currency." That story you've just told falls immediately apart upon even remedial scrutiny.

And yet the number and depth of the crises we've faced have actually DECREASED since implementing the fiat currency. You seem to be arguing, however, that we return to something like gold. When we were on gold, the boom and bust cycle was significantly more common and more profound. Again, your position does not align at all with the facts on the ground.

 

Going back to gold would turn our present day "imagined problem" of price stability into an actual "real problem" of price stability.

 

http://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/

 

What are you talking about? Natural gas production has surged and that's significantly cheaper than crude oil, and produced in the US. We've also made serious strides in renewables like wind and solar, the cost of both steadily decreasing. So, I ask again, what are you talking about? Your position does not seem connected to reality.

 

People like me? First of all, you don't know me. Second, it's was the opposite. Before the 2008 crash, most said that there would be no crash because the "fundamentals" are sound." Guess what happened?

 

Ideology? Where do you come up with such nonsense? The points given in the first article that I shared are facts, not narratives or ideological arguments.

 

Unemployment is high not only because households are saving more but because the price of oil has doubled and food prices reached record highs:

 

http://www.bbc.co.uk/news/business-14062360

 

The sources include high oil prices (driven by peak oil), global warming, etc.

 

http://edition.cnn.com/2012/12/04/world/asia/food-price-impact/index.html

 

As for distrusting the U.S. dollar, why don't you look up news regarding Russia and China concerning U.S. bonds, gold purchases by various governments, calls for using SDR instead of the dollar, etc?

 

http://www.europeanbusinessreview.com/?p=1124

 

The gold standard is not and never will be a solution because the global capitalist system requires increasing money supply, something that can never be met by limited gold resources. There are only 150,000 metric tons of gold available, or less than one troy oz for each human being.

 

How big is the money supply needed? In 2008, governments scrambled to issue bailouts to deal with "only" one trillion dollars in the subprime lending mess that led to over $30 trillion vaporized worldwide. And we're still in the same mess.

 

That one trillion dollars is only a fraction of between $600 trillion in notional value (reported by the BIS) of unregulated derivatives to over $1.2 quadrillion (reported by Wilmott) that's part of the global market. What happens when more asset bubbles burst? As it is, the U.S. is receiving fewer cents per dollar, and interest rates are close to zero.

 

Natural gas is cheaper and surging? The energy returns for non-conventional production are much lower, and the drop in production from an initial surge for some types of energy can be high. Overall, the IEA argues that at best we will see a 9-pct increase in energy produced from all oil and gas sources put online worldwide for the next two decades:

 

 

In fact, for North America, the IEA states that at best there will be an increase in production to 12 Mb/d during the decade. The problem is that demand is that current demand for the U.S. alone is 19 Mb/d, and as the first link shows, the economy can only continue growing with increasing energy use.

 

Globally, we need energy demand to go up by 1.4 to 2 pct a year in order to meet global economic growth. The IEA states that this is the equivalent of finding one Saudi Arabia every seven years.

 

So, you see, there is nothing that I've shared with you that is based on ideology, and I NEVER argued that a gold standard will solve these problems. If any, I've been stating that we face three predicaments (debt-based global economy, peak oil, and the effects of environmental damage and global warming) that affect each other and very much describe what has been happening from 2006 onward, when conventional oil production has stayed at around 73.5 Mb/d with demand increasing from non-OECD countries. The first link that I shared simply explains ten trends connected to these predicaments using graphs. That's all.

 

With that, I have no idea why you are so antagonistic concerning what I've shared. It is as if you don't want to hear about them to maintain your pollyanna view of the world. If that's the case, then stop asking forum members for their thoughts about the issue!

 

Related:

 

"Chilling economic report strikes fear into CEOs"

 

"Over an early-morning coffee with the chief executive of a FTSE 100 business last week, talk turned to the outlook for 2013. Where I had expected some guarded optimism, instead I heard a chilling analysis."

 

http://www.telegraph.co.uk/finance/comment/9763112/Chilling-economic-report-strikes-fear-into-CEOs.html

Edited December 25, 2012 by ralfy

[iNow]

People like me? First of all, you don't know me.

I mean people who present this specific argument.

Unemployment is high not only because households are saving more but because the price of oil has doubled and food prices reached record highs

Neither of which are driven by our currency. I have already addressed this above.

As for distrusting the U.S. dollar, why don't you look up news regarding Russia and China concerning U.S. bonds, gold purchases by various governments, calls for using SDR instead of the dollar, etc?

I don't need to "go look it up" because I follow this daily. The dollar is still seen as the top place to park money, the bond percentages are insanely low (which directly contradicts your specific claims, btw), and the interest is actually negative in many cases. The fears you cite are not about distrust of the dollar, but instead about distrust of our elected officials to stop behaving dysfunctionally and to make reasonable and rational policy decisions that don't involve voting not to pay off existing debts.

 

I appreciate that this is just my opinion on the topic here, and you may hold a different one, so that's fine. My main point is that the evidence before us does not support your contention that the US dollar is distrusted or that fiat currency is problematic in the ways you assert.

The gold standard is not and never will be a solution because the global capitalist system requires increasing money supply, something that can never be met by limited gold resources.

Agreed, but it's also bad for other reasons. It's much more volatile and puts us unnecessarily into a monetary straight jacket. Since we don't appear to disagree here, I'll move on. I would, however, be curious what you'd replace the dollar with if not something like gold (as you appear very much to be arguing against the dollar).

How big is the money supply needed? In 2008, governments scrambled to issue bailouts to deal with "only" one trillion dollars in the subprime lending mess that led to over $30 trillion vaporized worldwide. And we're still in the same mess.

Have you considered that the bailout was actually too small to deal with the depth of the shock we experienced? I suspect such an idea is anathema to you, but there is good reason (many, in fact) to suggest that this is exactly the case. Too many countries went to austerity and made the crisis even more prolonged, as evidenced by the different states of the economy here and in Europe right now.

That one trillion dollars is only a fraction of between $600 trillion in notional value (reported by the BIS) of unregulated derivatives to over $1.2 quadrillion (reported by Wilmott) that's part of the global market. What happens when more asset bubbles burst?

I agree with you here that we need to regulate and track the shadow markets much better. Please note, though, that my replies to you have been specific to your attacks against the dollar as a currency and that is peripheral to this comment from you above. We will always have bubbles no matter what method we use to track value (whether it's gold, the dollar, or Facebook notes).

Natural gas is cheaper and surging? The energy returns for non-conventional production are much lower, and the drop in production from an initial surge for some types of energy can be high. Overall, the IEA argues that at best we will see a 9-pct increase in energy produced from all oil and gas sources put online worldwide for the next two decades:

My comments were specific to the US since you were arguing about the dollar. Don't move the goal posts and talk about the globe as a whole, especially since we don't share one currency type across the planet. When viewed in this context, my comments were both accurate and appropriate. Natural gas is very much surging and very much enjoying decreased cost.

I've been stating that we face three predicaments (debt-based global economy, peak oil, and the effects of environmental damage and global warming)

We agree on two out of those three, but I do not agree with you that our "debt-based economy" is a problem in the ways you propose. This was the target of my comments toward you about ideology, even if I misperceived your stance on gold (again, though... if you're arguing against the dollar or fiat currency in general, then WTH will you use to replace it if you don't use gold?).

 

Either way, this thread isn't about peak oil, so if you want to discuss that topic then open a new thread.

It is as if you don't want to hear about them to maintain your pollyanna view of the world.

Just out of curiosity, what specifically have I said that makes you think I have a pollyanna view of the world? This comment made me chuckle and I'd like to know what specifically I've said that inspired it.

[overtone]

What we have' date=' essentially, is an economy that holds the reserve currency, and because of the Triffin dilemma, can only operate through increasing debt and spending. Ultimately, economies holding that reserve currency will show growing distrust and move away from it. causing that economy to fall apart. What we are seeing now is the first stages of that economic crisis starting with a combination of one credit crunch after another (e.g., subprime lending, the crisis in Europe and the Arab spring, and now a drop in exports in China, etc.) leading to combinations of unemployment plus high food and oil price -- - - -

and the 2008 crash was initiated by "only" a trillion dollars in subprime lending leading to over $30 trillion worldwide vaporized and governments scrambling to bail out banks). In which case, expect one 2008 financial crash after another throughout the years [/quote'] Predatory subprime lending (a normally small subset of the subprime lending, which is in turn a minor fraction of the banking and financial industry) is not a response to reserve currency issues, but a standard and formerly common form of predatory banking that was banned by law from 1933 or so until the last few years before the crash in the US. The crash started in the derivatives market, and was not caused by subprime lending, but by unregulated and inherently unstable dealings in that very large and very new market. The US Fed had nothing to do with it, which was a large part of the problem – it was supposed to have interfered and imposed sound regulations and curbs on what foolishness and greed fell under its purview, decades before.

 

Some comments on a couple of the links (after which I quit reading them, sorry):

1) The Triffin effect assumes exponentially increasing trade account deficits, and not matched by increasing productivity in the reserve currency economy (an otherwise expected result of the economic advantages of holding the reserve currency). It also assumes uncurbed and unregulated capital flow across national boundaries. Both of those afflict poorly managed industrial economies – with incompetent governments and ungoverned, predatory international banking – rather than an inherent and unavoidable problem with global capitalistic economies .

2)

2 - U.S. government debt is absolutely exploding. The U.S. national debt is currently $14,081,561,324,681.83. It is more than 14 times larger than it was back in 1980. Unfortunately, the national debt continues to grow at breathtaking speed. In fact, the Obama administration is projecting that the federal budget deficit for this year will be an all-time record 1.6 trillion dollars. Can we afford to continue to accumulate debt at this rate?.... [/quote'] The graph accompanying this in the link is obviously wrong – it shows a national debt increase of less than 500 billion for 2008, for example, which is less than the total of the various war appropriations, bailouts, and emergency spending measures enacted in that year (without a single tax hike, so entirely borrowed), never mind the standard official Bush budget deficit (over 400 billion itself IIRC).

That kind of error leads me to mistrust the hyperbole, and noticing that the debt/GDP ratio is the more relevant number (look at the very small bump caused by the nearly bankrupting and country-impoverishing deficit financing of WWII , for an illustration of how misleading the simple dollar graph would be if it were soundly accounted).

6 - As tens of thousands of U.S. factories get shut down and as millions of our jobs get shipped overseas' date=' the number of unemployed Americans continues to go up and up and up. [/quote'] The graph shows no such thing. It shows two large spikes in unemployment – the oil shock and Reagan Recession, and the Bush Collapse. Other than those, we see generally stable cycles of small economic good and bad times. There is no reason to think that the policies in force before Reagan would not produce the unemployment levels normal before Reagan, or that the policies in force before Bush would not produce the employment levels normal before Bush.

7 - The median duration of unemployment in the United States is in unprecedented territory.

No' date=' it isn’t. There is precedent, 1929 – 34, and it is exactly what one would assume – the last time we had a crash like this, which was also the last time we had banking and financial system uncurbed by New Deal regulations. Coincidence?

8 - Since the Federal Reserve was created in 1913, the value of the U.S. dollar has declined by over 95 percent.

This directly undermines the earlier claims of exploding US debt. It also fails to correct for productivity and other structural changes – there is no simple “the value” of a dollar. Consider how much more information, arithmetical calculation, accounting and printing and bookwork of all kinds one can buy for a dollar now.

10 - All of this new money is creating tremendous inflation. In particular' date=' the price of oil is now ridiculously high. A high price for oil is very, very bad for the U.S. economy. Our entire economic system is based on being able to use massive quantities of very cheap oil. [/quote'] The price of oil is set on a world market, not under the control of the Fed this guy blames for everything. In addition, he seems oblivious to the obvious - in an article on “what is wrong with the US economy”, the statement that “Our entire economic system is based on being able to use massive quantities of very cheap oil” should ring a bell, get a mention, something, eh?

 

It's at least possible, for example, given his arguments above, that a high price for oil might be the factor that saves the US economy from complete destruction.

Edited December 25, 2012 by overtone

[iNow]

I love that claim about "inflation is at an all time high." It's just not. Core inflation is actually rather low right now, despite the temporary and generally fading bumps we sometimes see in headline inflation on things like fuel and food.

 

 

[ralfy]

I mean people who present this specific argument.

 

Neither of which are driven by our currency. I have already addressed this above.

 

I don't need to "go look it up" because I follow this daily. The dollar is still seen as the top place to park money, the bond percentages are insanely low (which directly contradicts your specific claims, btw), and the interest is actually negative in many cases. The fears you cite are not about distrust of the dollar, but instead about distrust of our elected officials to stop behaving dysfunctionally and to make reasonable and rational policy decisions that don't involve voting not to pay off existing debts.

 

I appreciate that this is just my opinion on the topic here, and you may hold a different one, so that's fine. My main point is that the evidence before us does not support your contention that the US dollar is distrusted or that fiat currency is problematic in the ways you assert.

 

Agreed, but it's also bad for other reasons. It's much more volatile and puts us unnecessarily into a monetary straight jacket. Since we don't appear to disagree here, I'll move on. I would, however, be curious what you'd replace the dollar with if not something like gold (as you appear very much to be arguing against the dollar).

 

Have you considered that the bailout was actually too small to deal with the depth of the shock we experienced? I suspect such an idea is anathema to you, but there is good reason (many, in fact) to suggest that this is exactly the case. Too many countries went to austerity and made the crisis even more prolonged, as evidenced by the different states of the economy here and in Europe right now.

 

I agree with you here that we need to regulate and track the shadow markets much better. Please note, though, that my replies to you have been specific to your attacks against the dollar as a currency and that is peripheral to this comment from you above. We will always have bubbles no matter what method we use to track value (whether it's gold, the dollar, or Facebook notes).

 

My comments were specific to the US since you were arguing about the dollar. Don't move the goal posts and talk about the globe as a whole, especially since we don't share one currency type across the planet. When viewed in this context, my comments were both accurate and appropriate. Natural gas is very much surging and very much enjoying decreased cost.

 

We agree on two out of those three, but I do not agree with you that our "debt-based economy" is a problem in the ways you propose. This was the target of my comments toward you about ideology, even if I misperceived your stance on gold (again, though... if you're arguing against the dollar or fiat currency in general, then WTH will you use to replace it if you don't use gold?).

 

Either way, this thread isn't about peak oil, so if you want to discuss that topic then open a new thread.

 

Just out of curiosity, what specifically have I said that makes you think I have a pollyanna view of the world? This comment made me chuckle and I'd like to know what specifically I've said that inspired it.

 

As far as I know, the majority insisted in 2007 that there would be no crash in 2008 because the "fundamentals" are sound. Only Schiff, Roubini, Taleb, and others argued otherwise, and by 2008 they were proven right.

 

The issue isn't "currency" but a reserve-currency economy. Look up the "Triffin Dilemma."

 

Your references to bond percentages and negative interest rates proves my point. The U.S. has been engaged in form of quantitative easing after another in order to avoid more credit crunches, and it's running out of ammo.

 

http://finance.yahoo.com/blogs/daily-ticker/fed-speaks-doesn-t-much-ammo-says-bob-140039083.html

 

receiving fewer cents for every dollar it needs to borrow. And prime lending, commercial real estate debt, consumer debt, student loan debts, and more are creeping in, together with the rest of between $600 trillion to over $1.2 quadrillion in unregulated derivatives (notional value) worldwide. As it is, governments struggled just to cover losses stemming from only $1 trillion in subprime lending, leading to over $30 trillion vaporized worldwide. Where do you think governments will get bailout funds to cover more losses as they come in? What? Print even more money? Stop kidding yourself.

 

Again, read up on the news, especially about plans by BRIC to use SDRs, trading with Iran using the yuan and other currency, Russia divesting of treasury bonds and China doing so partially with its own, various governments worldwide buying more gold, etc. These are reported by Reuters and other agencies, so you can find them very easily. I'm surprised that you don't know even though you claim that you study the matter daily.

 

I never thought that the bailouts were too small? That's EXACTLY my point. The problem is that governments struggled just to cover losses stemming from ONLY a trillion dollars in subprime lending. Four Wall Street banks are exposed to over $40 trillion in unregulated derivatives, U.S. banks in general to up to ten times that, in a global market with between $600 trillion to over $1.2 quadrillion in notional value. Where on earth will governments find the bailout money to cover those levels of risk?

 

You still don't get it, do you? The weakening dollar is the result of increasing financial risks! Put simply, the Fed has to create more dollars to cover losses of top Wall Street banks, and that involved only a fraction of the total market. It has reached the point that this problem, coupled with peak oil, has now spread to various Middle East countries, the Euro zone, and even Japan and China. Stop imagining that this is not a global situation and that economies are not coupled to each other!

 

Again, the U.S. is a debt-based economy, with around 70 pct of it dependent on consumer spending. It's had trade deficits for the last four decades, and the only reason why it can gobble up so much resources (such as almost 20 Mb/d of oil for a population that makes up less than 5 pct of the world's) is that it creates the reserve currency, in turn backed up by the military and used exclusively for trading oil. But now the situation has changed given peak oil and financial risks stemming from Wall Street, leading to the ff.

 

"75 Economic Numbers From 2012 That Are Almost Too Crazy To Believe"

 

http://www.shtfplan.com/headline-news/75-economic-numbers-from-2012-that-are-almost-too-crazy-to-believe_12212012

 

Finally, why is peak oil involved in this issue? Because it is the real problem of the current crisis and is being masked by fallout from financial risks. Read the ff. for details:

 

http://www.motherjones.com/kevin-drum/2011/08/our-oil-constrained-future

 

What will it take to recover from the current crisis? We will need to ensure economic growth by making resources readily available, and that will require more oil. How much more oil? According to the IEA, just to maintain current economic growth, at least one Saudi Arabia every seven years.

 

And that's assuming that conventional oil production doesn't drop. Morgan Stanley and others argue, though, argue otherwise:

 

http://www.businessinsider.com/oil-spare-capacity-2013-2011-2

[iNow]

The problem is that your position has not proven accurate. You have chosen to follow a school of economics that has been consistently wrong and that has regularly made prediction after prediction that did not happen. You seem unwilling to acknowledge this, so I see no point in continuing with you here. Thanks for your interest and participation.

[ralfy]

What are you talking about? I'm not even raising any particular "school of economics" but simply pointing out to you what has been taking place. The article on economic numbers alone should make you rethink your views. The problem is that you are unable to accept those facts and want to continue imagining that what I'm raising is some "ideological" point. The bigger problem is that you can't interpret them, hence your need for me to explain to you every point.

 

Want another chart to consider? Try this one:

 

http://www.zerohedge.com/news/2013-01-01/putting-americas-tax-hike-perspective

 

Now, I'm guessing you can figure out the point for that one!

Edited January 2, 2013 by ralfy

[iNow]

What are you talking about? I'm not even raising any particular "school of economics" but simply pointing out to you what has been taking place.

You may not realize it, but you're arguing with the same philosophical bent as the Chicago-style schools of autrian economics, along the lines of purist libertarianism as espoused by followers of Ludwig von Mises. What you're putting forth are facts, yes... but they are basically being presented as facts out of context and in isolation, and the idealized conclusions of you and your sources don't apply to the functioning market nor have they made accurate predictions, IMO. Distilled down to its essence, it's economics based on logic instead of data and experience, and unfortunately that logic is often rooted in faulty premises.

 

I can interpret your points just fine. Please remain focused on the topic and not on me personally. You don't need to explain every point. It's just that I've engaged in this same discussion with people remarkably similar to you more times than I care to count. It's grown boring and tiresome for me, along the lines of debating evolution with a creationist.

 

Your views differ from mine. That's fine. You don't need to question my integrity or intelligence as a result of this differing opinion. I think you're mistaken, and I feel that I'm arguing on behalf of a school of thought that has proven accurate at nearly every pass for the last 70 years. You disagree, no worries, as you are welcome to your opinion that this approach I have taken and support is inaccurate despite the evidence in its favor.

 

On another note, not sure why you felt the need to throw in a completely unrelated graph about tax revenues versus current deficit, as that is not related to what's been put forth here in this thread. You may as well have inserted a link describing how to make homemade pretzels.

[ralfy]

You may not realize it, but you're arguing with the same philosophical bent as the Chicago-style schools of autrian economics, along the lines of purist libertarianism as espoused by followers of Ludwig von Mises. What you're putting forth are facts, yes... but they are basically being presented as facts out of context and in isolation, and the idealized conclusions of you and your sources don't apply to the functioning market nor have they made accurate predictions, IMO. Distilled down to its essence, it's economics based on logic instead of data and experience, and unfortunately that logic is often rooted in faulty premises.

 

I can interpret your points just fine. Please remain focused on the topic and not on me personally. You don't need to explain every point. It's just that I've engaged in this same discussion with people remarkably similar to you more times than I care to count. It's grown boring and tiresome for me, along the lines of debating evolution with a creationist.

 

Your views differ from mine. That's fine. You don't need to question my integrity or intelligence as a result of this differing opinion. I think you're mistaken, and I feel that I'm arguing on behalf of a school of thought that has proven accurate at nearly every pass for the last 70 years. You disagree, no worries, as you are welcome to your opinion that this approach I have taken and support is inaccurate despite the evidence in its favor.

 

On another note, not sure why you felt the need to throw in a completely unrelated graph about tax revenues versus current deficit, as that is not related to what's been put forth here in this thread. You may as well have inserted a link describing how to make homemade pretzels.

 

Actually, my arguments work against Mises et al. They assume that with a gold standard and less government things will be fine. My argument is that the economic crisis will not be solved no matter what happens. My reason is scientific:

 

There are limited resources, esp. oil, and mass manufacturing and mechanized agriculture that are heavily geared towards the use of oil. High levels of energy returns are needed to meet increasing demand worldwide due to a growing global middle class in BRIC and emerging markets.

 

Capitalism, whether state or free market, requires increasing amounts of resource use for painfully obvious reasons: the increased production and consumption of resources are needed to ensure profits, which in turn are used to as capital to increase production and consumption. With competition, the need to increase production becomes higher. All these can be determined very easily by looking at consumption levels of oil, demand for various resources, etc. worldwide, as well as money supply.

 

As more move to service and finance to earn money, then more money has to be created. Again, the reason is painfully obvious: the interest paid or the return on investment adds to money supply. That's basically it. How much credit do we need to cover? According to the BIS, at least $600 trillion in unregulated derivatives worldwide. For one expert, even higher: around $1.2 quadrillion. The source of the 2008 crash, leading to one wave after another, as seen in the Arab Spring, the Eurozone crisis, and even real estate bubbles in China? $1 trillion.

 

How is this connected to the U.S. economy? It is a reserve-currency economy, which explains why it dropped the gold standard in '71 in order to create more credit, engage in voodoo economics from '81 onward, initiated further deregulation in '01 onward, and finally experienced what will likely be the first of many crashes in 2008. That was from subprime lending. What happens when the Fed runs out of bullets? Will prime lending come next? How about commercial real estate? Student loans? A fiscal cliff?

 

So, you see, it's not really a matter of differences in views. It's that your views of the situation are very limited, focusing only on moving funds here and there, tweaking interest rates further in order to sustain spending, etc., which very much explains why you see everything I've presented so far as nothing more than "homemade pretzels."

 

With that, I don't think you should grow bored by this, as everything that I've shown to you is not only basically new to you, it's also something that you still don't think is related to what you've shared. But don't worry, you'll get it right one day.

 

In any event, if there's anyone who should be bored by this, it should be me. You have no idea how many times I have to explain the most basic aspects of this current crisis to those who see anything that they can't or won't understand as "homemade pretzels," including the incredibly basic issue of how to address over a trillion dollars in deficits with tax revenues less than a tenth of that, except by, perhaps, buying more cars and houses, as if more spending through debt will solve a problem caused by too much spending and debt.

 

That's it. I'm outta here.

[iNow]

Focusing solely on oil without incorporating inputs for innovation and other energy sources strikes me as a fundamental flaw in your reasoning.

 

That trillion dollars in deficit you reference is also not as big and scary as you make it out to be. Most of it is because revenues have gone down (more people out of work, fewer payroll taxes collected, on top of the Bush tax cuts) at the same time that expenditures on social safety nets have gone up (unemployment insurance, medicaid, food stamps, etc.) for those people who are out of work through no fault of their own. Essentially the numurator has grown at the same time the denominator has shrunk... exactly as I described above.

 

Once more people go back to work, that deficit that scares you so much becomes much smaller and more manageable, and we don't need to invent new explanations or schools of thought or invoke massive draconian cuts to make that happen.

[iNow]

Updated for 2013: http://www.theatlantic.com/business/archive/2013/12/the-most-important-economic-stories-of-2013-in-42-graphs/282193/

 

The Most Important Economic Stories of 2013in 42 Graphs

A record year for stocks. A meh year for wages. A weird year for Wall Street.

Two I've selected shown below.

 

 

[overtone]

Even that modest growth in "real hourly wages" from 2000 until 2011 looks like an artifact - takehome wages for most jobs have not risen in real terms, often not even in nominal terms (every job I've had over the past twenty years is paying its current holder less per hour than it paid me, real takehome, and most new jobs are in "service" where the pay sucks).

 

I'm wondering if maybe they are taking some kind of awkward average and overlooking stuff - improperly accounting for layoffs in government, say, where the hourly wages were always a bit low, or omitting extra tax bites locally, or averaging in overtime pay, or possibly not calculating health benefits etc accurately (if inflation drives up the price of employer provided medical insurance, adding that into the real hourly wage misleads).

[ralfy]

Focusing solely on oil without incorporating inputs for innovation and other energy sources strikes me as a fundamental flaw in your reasoning.

It's the other way round, as energy is the main driver of a real economy. What we are seeing now is growth based on increasing credit, and that's something that can and has been created easily. Hence,

 

http://www.washingtonsblog.com/2012/05/top-derivatives-expert-finally-gives-a-credible-estimate-of-the-size-of-the-global-derivatives-market.html

 

See if you can figure out where to get the oil and other resources to keep that propped up.

 

That trillion dollars in deficit you reference is also not as big and scary as you make it out to be. Most of it is because revenues have gone down (more people out of work, fewer payroll taxes collected, on top of the Bush tax cuts) at the same time that expenditures on social safety nets have gone up (unemployment insurance, medicaid, food stamps, etc.) for those people who are out of work through no fault of their own. Essentially the numurator has grown at the same time the denominator has shrunk... exactly as I described above.

That's because the deficit isn't the only problem for the U.S. It has over $200 trillion in unfunded liabilities:

 

http://www.npr.org/2011/08/06/139027615/a-national-debt-of-14-trillion-try-211-trillion

 

Once more people go back to work, that deficit that scares you so much becomes much smaller and more manageable, and we don't need to invent new explanations or schools of thought or invoke massive draconian cuts to make that happen.

http://www.financialsense.com/contributors/ronald-cooke/will-america-ever-pay-of-its-debt

 

And that's not the only problem:

 

http://www.zerohedge.com/news/2013-12-09/37-reasons-why-economic-recovery-2013-giant-lie

[iNow]

What we are seeing now is growth based on increasing credit

Credit is NOT increasing. Perhaps you instead meant to say that "in the past, part of our growth was due to over-leveraging and that's some of the reason we are struggling now?" If that's not what you meant, you are simply wrong.

 

 

Alternatively, maybe you're making some off-hand remark about borrowing and China? It's hard to tell, but I really don't care. I'm unsure why you're trying to force this thread to be about oil and debt. If you'd like to discuss those things, you should open your own thread.

 

This one is intended to be more objective and not about any specific issues. I created it a year ago with several useful charts summarizing the major economic issues throughout 2012. When a similar overview became available last week for 2013, I posted that as an update.

 

If you want to rant about spending or debt or oil or whatever else, open your own thread. This really isn't the place for it.

Edited December 14, 2013 by iNow

[ralfy]

Credit is NOT increasing. Perhaps you instead meant to say that "in the past, part of our growth was due to over-leveraging and that's some of the reason we are struggling now?" If that's not what you meant, you are simply wrong.

 

I'm not referring to credit availability but debt levels. Keep in mind that debt goes up when the amount of credit increases: Hence,

 

from October:

 

"U.S. debt jumps a record $328 billion — tops $17 trillion for first time"

 

http://www.washingtontimes.com/news/2013/oct/18/us-debt-jumps-400-billion-tops-17-trillion-first-t/

 

A few days ago:

 

"Debt Up $3T In Less Than 3 Yrs Under Boehner's Deals; More Than Under All Presidents from Washington Through Reagan"

 

http://cnsnews.com/news/article/terence-p-jeffrey/debt-3t-less-3-yrs-under-boehners-deals-more-under-all-presidents

 

Gross and public debt, etc:

 

https://en.wikipedia.org/wiki/National_debt_of_the_United_States

 

For long-term and global trends, total debt went up by 300 pct during the last decade:

 

http://www.economist.com/blogs/buttonwood/2011/10/unemployment-and-deleveraging

 

And now three times what is earned:

 

http://blogs.wsj.com/economics/2013/05/11/number-of-the-week-total-world-debt-load-at-313-of-gdp/

 

and that doesn't include the notional value of unregulated credit that has to be covered:

 

http://www.washingtonsblog.com/2012/05/top-derivatives-expert-finally-gives-a-credible-estimate-of-the-size-of-the-global-derivatives-market.html

 

Alternatively, maybe you're making some off-hand remark about borrowing and China? It's hard to tell, but I really don't care. I'm unsure why you're trying to force this thread to be about oil and debt. If you'd like to discuss those things, you should open your own thread.

It's increasing globally, and for the U.S.:

 

http://blogs.reuters.com/rolfe-winkler/2009/09/30/krugman-and-the-pied-pipers-of-debt/

 

The reason why I'm not forcing but adding these two points is that ultimately the amount of credit created should be seen in light of what is currently taking place (e.g., bailouts, billions of dollars of quantitative easing, debt ceilings reached, ultimately boiling down to "recovery" based on increased credit created to deal with a problem caused by too much credit created), and oil in terms of the economy:

 

http://www.theatlantic.com/business/archive/2012/03/the-110-effect-what-higher-gas-prices-could-really-do-to-the-economy/254386/

 

http://www.dailyfinance.com/2011/02/23/what-do-rising-oil-prices-mean-for-u-s-economic-growth/

 

http://oilprice.com/Energy/Oil-Prices/The-Devastating-Economic-Impact-of-Constantly-High-Oil-Prices.html

 

and that's because in the end, what drives economies isn't money but oil and other resources that give value to the same. But unlike money creation which can be done easily, resources have physical limitations. Hence,

 

http://www.motherjones.com/kevin-drum/2011/08/our-oil-constrained-future

 

http://ourfiniteworld.com/2012/07/18/how-much-oil-growth-do-we-need-to-support-world-gdp-growth/

 

That's why one has to see the economy, if not the global economy, amid conventional oil production in an undulating plateau and more expensive (energy-wise) unconventional oil now being used to meet increasing demand.

 

This one is intended to be more objective and not about any specific issues. I created it a year ago with several useful charts summarizing the major economic issues throughout 2012. When a similar overview became available last week for 2013, I posted that as an update.

 

If you want to rant about spending or debt or oil or whatever else, open your own thread. This really isn't the place for it.

I think what has been presented is incomplete, and more factors (such as oil prices) have to be considered. I think that allows for an objective approach to this issue, not to mention additional points, such as those raised at Zero Hedge and other sites (e.g., unemployment based on monthly layoffs and unemployment benefits still received versus broad indicators)

 

Finally, if one wants to summarize all of the data presented, then how about something like the EFI?

 

http://www.businessinsider.com/the-imf-economic-performance-index-2013-10

Edited December 15, 2013 by ralfy

[iNow]

You seem to accept a priori the assumption that a high debt level is bad, then base your entire argument on that premise. Can you explain why our current debt levels are bad, and what specifically you think will happen as a result of them? What is the logic you are using? What horrendous thing comes next if we stay where we are? I'm curious.

[ralfy]

You seem to accept a priori the assumption that a high debt level is bad, then base your entire argument on that premise. Can you explain why our current debt levels are bad, and what specifically you think will happen as a result of them? What is the logic you are using? What horrendous thing comes next if we stay where we are? I'm curious.

A high debt level is bad because it leads to more financial speculation and consumption of resources, with the first leading to a credit crunch and the second to predicaments like peak oil. This is precisely what happened, as seen in the 2008 crash with "recovery" consisting of bailouts and oil prices tripling.

 

For more details, read my previous messages.