US Economy in trouble

Discussion in 'Politics, Religion, Social Issues' started by Genghis Khan, Nov 9, 2007.

  1. Genghis Khan macrumors 65816

    Genghis Khan

    Joined:
    Jun 3, 2007
    Location:
    Melbourne, Australia
    #1
    This came up in another thread (and forum) and I thought it gave a pretty good view on why the US economy is currently 'fragile'




    the US economy is 'incredibly fragile'

    the housing crisis...i think it's 2 million households that are about to be displaced over the next 2 years...that's alot of houses at one level of the market that will lower prices...and alot of people searching for cheaper housing, pushing prices up in that market...not good

    see http://www.iht.com/articles/ap/2007/10/16/business/NA-FIN-ECO-US-Paulson-Housing.php

    the falling dollar...the US dollar has fallen ALOT recently, even the aussie dollar is trading at 92-ish US cents last time i checked (versus 70 cent average for the last few years)

    national debt...

    see http://today.reuters.com/news/artic...Z_01_N07545790_RTRIDST_0_USA-ECONOMY-DEBT.XML

    so the government is running a deficit of US$160 billion this year (not much for the US economy i'll grant you)...but the private sector is in debt to the tune of US$9 trillion...because the PRESIDENT raised the debt limit (also note how much the president has spent on the war)

    http://en.wikipedia.org/wiki/United_States_public_debt

    $5 trillion US federal debt


    so everyone in the US is in massive debt...



    max respect to economists who are keeping the US economy on it's feet so far



    i'd be interested to know if people think (with some explanation, not just a yes or no) if the US economy will revive to be the dominant global player, or be overtaken by another economy
     
  2. Rodimus Prime macrumors G4

    Rodimus Prime

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    Oct 9, 2006
    #2
    First off as I posted in another thread the President does not control the debt limited. That is the federadal reserve that controls that. The President nor congress have any control over how the federadal reserve does its thing.

    People think the president has some power over the ecomony but reality is they have next to none. The war in Iraq really has little effect on the economy at this point in time.

    As for the debt in the private sectors our banks screwed up and gave out a crap load of loans they shouldn't of and now are paying for it.

    The US may not stay the number 1 player in the world but it will still be one of the most powerful players.

    If the US economy goes down IT WILL take the rest of the world with it. it is to large of a player not to. It is a world wide market. All you have to do is find the 3-4 majors players and having any one of them go down they take everyone else with them. Though out history at times the US goes down they take other with them and the same goes the other way around. The US is the last to go down.

    Btw the housing crisis is going to push prices down not up. People can not afford new homes. It really not going to effect anything but cause the entire housing market to go down. The problems are across the boards which means everything from the most expense to the cheapest will drop in price. Oddly enough really does not bother me because I will be taking advantage of it since I have to find a place to live in 2 months (college grad)

    Sum it up the US will come back to be one of the dominate players. That is not going to change in our lifetime.
     
  3. miloblithe macrumors 68020

    miloblithe

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    Location:
    Washington, DC
    #3
    People need to understand that US debt is comparable to public debt of other countries. It just looks huge when you look at the absolute number of 9 trillion dollars. As a percentage of the economy, however, its in line with other countries. 30 countries have higher debt than the US.

    http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

    Highlights:

    2) Japan 176.2%
    6) Italy 107.8%
    8) Egypt 102.9%
    10) Belgium 90.3%
    12) Israel 89%
    25) Germany 66.8%
    27) Canada 65.4%
    29) France 64.7%
    30) Turkey 64.7%
    31) USA 64.7%
    33) Philippines 61.6%
    44) India 52.8%
    45) Switzerland 51%
    46) Netherlands 50.6%
    48) Brazil 50%
    58) Indonesia 43.8%
    61) UK 42.2%
    63) Spain 39.9%
    70) Taiwan 34.6%
    75) Saudi Arabia 32.5%
    76) South Korea 31.9%
    96) China 22.1%
    98) mexico 20.7%
    112) Russia 8%
    119) Estonia 3.6%

    Heres an interesting set of facts:

    http://www.bea.gov/international/xls/intinv06_t2.xls

    The US net international investent position grew rapidly from 1976 to 1980 (say, werent those the Carter years?) from +164 billion to +360 billion. It has declined almost every year since. When Reagan took over the position declined fro +360 billion to -178 billion, Bush 1 oversaw -178 billion to -431 billion, with one year where the position improved (1989 was -259 billion and 1990 was -245 billion), Clinton oversaw -431 billion to -1.38 trillion. Bush 2 has seen the decline go fro -1.38 trillion to -2.54 trillion as of 2006.

    The US economy doesnt need to revive to be a dominant global player. Currently, it is THE dominant global player, and will remain one of the dominant players for decades to come, even with sharp decline, along with the EU (if we consider the EU as a whole) and China, and the second and third tiers including Japan, India, Russia, Brazil, Russia...
     
  4. Genghis Khan thread starter macrumors 65816

    Genghis Khan

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    Melbourne, Australia
    #4
    hmm...interesting points

    i must admit now that my understanding of economics is limited as i cannot see how a country can remain economically stable with such a negatively geared economy

    just a point...the US didn't come to economic dominance through gradual accumulation of wealth...WWI financially destroyed all of the nations wealthier than the US...WWII just consolidated that position

    the point being that big wars have the power to financially ruin a country (ala the 'war on terror')...so we may well see the US superpower collapse in our lifetimes



    @miloblithe
    i agree that private debt on its own is managable (although not preferable), and many other countries survive (even thrive?) with great amounts of private debt...but the US has a huge amount of public debt as well, (which I doubt any of the countries on the list mentioned have)

    this combination of massive public and private debt is what makes the US position particularly unstable IMHO



    only time will tell i guess....
     
  5. miloblithe macrumors 68020

    miloblithe

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    #5
    Prior to WWI, there was one country, if one could call it that, that had a higher GDP than the US: the British Empire. WWI and WWII certainly catapulted the US to economic dominance, to the point where in 1945 the US accounted for over half the worlds GDP. But they are hardly the only reason. Look at 1913 below:

    http://en.wikipedia.org/wiki/List_of_countries_by_past_GDP_(PPP)#1913

    And look at this list of per-capita GDP in 1900.

    http://www.nationmaster.com/graph/eco_gdp_per_cap_in_190-economy-gdp-per-capita-1900

    By comparison to any other country by the late 19th century, the US was a world class economy, and a dominant economy well before WWI.

    As to the distinction between public debt (the governments debt) and private debt, the list I pointed out above is public debt. Once again, US government debt is not really out of the ordinary. Also, US private debt is comparable to a lot of countries as well. I read somewhere recently that the average Brit has more personal debt than a US citizen.

    Remember, debt in and of itself is not something to avoid. Think about an entrepreneur who has a great idea and wants to start a business. Shell borrow x amount of money to get the business started. Shes in debt. Is that a problem? Well, if the business works well, no, shell make back her money and more. If the business fails, however, that debts a real problem. Or lets say a bank owns a house. I buy the house from the bank with 10% down and borrow $500,000. Ive just added $500,000 to the privately held debt of the US. Is that a bad thing? Well, if I can actually pay it off and the house is worth it to me, sounds like thats good. On the other hand, if I cant pay it off, weve got a problem.

    Of course, national level debt is more complicated, but the same principle applies. Some things are worth going into debt for, others are not. People disagree on what those things might be, of course.
     
  6. Desertrat macrumors newbie

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    Terlingua, Texas
    #6
    "max respect to economists who are keeping the US economy on it's feet so far."

    'Scuse me. Economists don't do diddly in creating/maintaining an economy. They attempt to analyze and forecast. Their track record, generally, sucks. If you'll recall the multi-billion dollar debacle of loss at Long Term Capital Management? Several of the directors of the fund were Nobel Laureates in Economics.

    Sure, they can analyze and make recommendations. It's the current recommendation for the lowering of the Fed rate that's driving costs up and the dollar down. That's a serious hickey for all our billfolds.

    Re debt: Nothing wrong with mortgage debt, if the payments are in the vicinity of rent for an equivalent house. Investment debt, whether for an individual entrepreneur or a corporation, is taken on in order to create or maintain profitability.

    Then there's what I call "frou-frou" debt. Bling. The credit card thing, where people have accumulated an average debt of around $9,000 per family. The instant gratification spending pattern.

    Insta-cash savings are at an all-time low: Savings accounts, CDs and suchlike. If a 401k is seen as an alternative and a forty-year-old withdraws, e.g., $10,000 from his 401k and doesn't soon replace it, he'll be down by some $85,000 in his retirement.

    milo, the US has traditionally been seen as a safe haven for investment. This was particularly true during the Cold War. While our economic policies 1965-1980 were inflationary, we still were a safer place to invest than in countries facing the threat of Communism or weren't yet profitable places to invest. During Carter, it appeared that the USSR might indeed achieve the goal of getting to a warm-water port--which scared a lot of money into the U.S.

    Right now, with commodity prices in a bull market, all manner of costs are climbing rapidly. The economic costs of the subprime mess are a strongly negative influence on the economy. As we already see, shoppers are pulling in their horns for Christmas buying.

    The latest gloom/doom numbers I've seen on this subprime mess claim a potential for writedown of up to $400 billion. That's a lot of money that will not be available for investment capital.

    We grew to be a world power because we were innovative and made things to sell to others. We're still innovative, but we no longer are an industrial society; few smokestacks left. Unless we figure out how to shift the Current Accounts from Deficit to Surplus, odds are the dollar's decline will continue. Our economic standing in the world will also decline. This isn't short-term, of course--but twenty or thirty years from now?

    The cold-blooded, amoral "smart money" is moving to China and India. Soros' commentaries are quite educational.

    'Rat
     
  7. Rodimus Prime macrumors G4

    Rodimus Prime

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    Oct 9, 2006
    #7

    The entire argument on the war fails the argument WWI and WWII ruined the land of the other powerful counties. Even with the war on territory it not going to ruin the countries because it is not being fought on US soil. Look at counties that fall apart in WWI and WWII. They war was fought in their Land. The US still put tons of resources and money into fighting it.

    What history as showed us is war fought in one own soils is what completely destroys the economy of the county
     
  8. Desertrat macrumors newbie

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    Terlingua, Texas
    #8
    Bringing the cost of the Iraq war into a discussion of national economics commonly combines the non-war cost of our military structure with the incremental cost of the action there. The incremental cost, although obviously not trivial, is still a much smaller number than is commonly thrown about as "the cost of the war".
     
  9. Genghis Khan thread starter macrumors 65816

    Genghis Khan

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    #9
    The Real point of this thread...

    ummm...yes it is...any chance to go into debt should be carefully examined, and you cannot go wrong by choosing not to go into debt

    by economists, i meant those with an economy degree who manage the money of the big companies and the government

    umm...not quite...'war' is destruction...war is a battle of attrition...so both sides destroy eachothers (and sometimes their own) stuff until one side runs out

    so money that could've been going into producing stuff and making your country wealthier is being destroyed in a war...and since the US president has declared a 'war on terror', there's no end to how long this could last




    now that we've discussed this point at some length, i can introduce the main point of this all

    freedom

    now, as has been previously stated, US private debt is US$9 billion (and the following points count for all the other countries with huge private debt)

    how can the people of a country be said they're being properly looked after by their government (which is meant to be run for the people, ALL the people) if they are in massive debt (which is bad, and a symptom of a financially irresponsible society)

    at this point you start to get into moral grounds et al...

    when people are in debt, they're not really free...they HAVE to go to work to pay the debt off, they HAVE to spend their time at work like slaves to pay off previous purchases...IMHO, that's not freedom


    in general, it worries me that governments these days are preoccupied with appeasing big business rather than the people of the nation in general (if they were trying to look after people, the housing crisis in the US wouldn't be happening atm)
     
  10. Rodimus Prime macrumors G4

    Rodimus Prime

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    #10
    Like others have pointed out the money spent on the "war" is really not as bad as it sounds for the economy. It some money but not a huge part of the bugdet over all.

    The debt load of the public is for the most part fine. Debt while it can suck is general ok as long as there is cash flow. The biggest probelm is the credit card debt people are carrying. A mortgage debt on a house is really not that bad. From what I noticed is the amount people have to pay for their mortgage is quite off less than what they would have to pay in rent for the same size place so that not really that bad of a think to have to deal with. It just paying rent. Car loans are a common thing people carry again not that bad of things. These loans are general low rate loans.

    As for bussiness again depends on the loan. A lot of them are like mortages. Huge loans but like paying rent. Now I know constuction companies quite off will take out loans on a project but that is because they do not have the cash on hand to cover the cost of a project so they need a loan to cover the cost until it is completed at which time they are paid back which means the loan is paid off. Debt is not a bad thing. If used wisely it allows one to make more money. Problem comes is when people go into debt and have no way to pay it off.

    I expect myself personally in the next few years to go into debt for a new car. Mostly because I will not have the liquid cash on hand to buy it new. Even if I did have it on hand I would still take a loan on out it because it would deplete my saving to much. I personally do not like having my savings low. It makes me feel unsafe because that means I do not have emergency funds on hand. But hey this is me. I watch my parents struggle to get themselves out of debt and they pressed on me do not allow myself to get trapped under a heavy credit card debt load.
     
  11. Big-TDI-Guy macrumors 68030

    Big-TDI-Guy

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    Jan 11, 2007
    #11
    I'm not that smart of an individual - but even I could see the bad ingredients mixing together before this housing/mortgage crisis came to boil.

    At what point are the civilians responsible for their OWN actions? I saw many who could not afford these homes - knowing full well they couldn't - take the plunge anyhow. God only knows what they were thinking - and I'm sure a good many did not know. But since when is ignorance to be used as a valid excuse for poor decision making? For the government to intervene and tell someone they can't purchase this home, because they won't be able to afford it? That in itself seems unethical.

    I guess if you're free to make choices, even bad ones - you should be free to deal with the consequences.
     
  12. Rodimus Prime macrumors G4

    Rodimus Prime

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    #12
    I do not think the goverment should step in but there is no denying the fact the banks royal screwed up and are heavily to blame for the current problems.
    They where giving loans to people who did not have the credit rating to be able to handle it nor the ablitlity to handle it. Top it off they would try to convince people to take loans they could not afford.
    While the individual person is to blame for the loan. The problem as a whole I think sits on the leaders giving out loans to people who could not afford to cover them. It is their fault they are intouble. They are the one responsible to cover the rears and keep there business afloat and yet they gave out way to many risky loans being greedy.


    The House/mortgage crisis I blame on the banks and the lenders being greedy and giving out poor loans. It is their job to tell people that they can not afford a home and yet they failed to do it. No it may not be the governments job but it is the banks job. Hell the bank and the lenders are supposed to make themselves money and yet they pretty clearly failed at that.
     

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