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Thread: kiss of death for the US economy ?

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    Default kiss of death for the US economy ?

    from breitbart / AP ...

    "Consumer Borrowing Falls in October
    Dec 07 3:06 PM US/Eastern

    By MARTIN CRUTSINGER
    AP Economics Writer

    WASHINGTON

    Consumer borrowing fell in October by the largest amount in 14 years, reflecting a big drop in auto loans.

    The Federal Reserve reported Thursday that borrowing declined at an annual rate of 0.6 percent in October following a revised 2 percent increase in September. It was the biggest drop since a 1 percent plunge in October 1992.

    The weakness last month came from a huge falloff in demand for auto loans and other types of non-revolving credit, which declined at a rate of 3.3 percent in October, following a small 0.4 percent gain in September. "


    It would appear that the US consumer is finally running out of credit !

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    Default Re: kiss of death for the US economy ?

    Yea, I think it is more "running out of credit" than it is paying down credit and being conservative in spending!

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    Default Re: kiss of death for the US economy ?

    I tend to agree, of course. Throughout the last few years I have seen nothing to indicate that most Americans weren't willing to borrow and spend to the limits of their ability to do so (even if it meant borrowing under 'usurious' terms). I also haven't seen any hard numbers to indicate that the American personal savings rate is rising (in fact, just the opposite, with the current savings rate being negative !). Thus I have to take this recent drop in non-revolving credit as being the result of loan officers starting to slam the credit door shut, rather than as a change in American consumer spending habits prompting fewer American consumers to spend money / seek loans.

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    Yekhefah
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    Default Re: kiss of death for the US economy ?

    I see a HUGE crash coming. I know a lot of people who are either filing bankruptcy or just refusing to pay. Most of them would like to pay and get out of debt, but the high interest rates and penalties are such that they figure they might as well not even bother. I can't tell you how many people I've heard say something like, "It'll be clean again in seven years, so fuck it." If this becomes a widespread trend, and I think it's heading that way, then our entire system is going to collapse because it's all built on credit.

    Then again, I'm also of the opinion that we are already living in an economy similar to the Great Depression, but we have so much credit and TV distraction that we don't know or don't care. Even a war didn't bring us out of it.

    Things are going to get uglier and uglier, in my opinion.

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    Default Re: kiss of death for the US economy ?

    Interesting comment Yek. I've had a few people make these comments around me, but not all that many. I wonder if we're just at a slightly earlier stage than in the U.S. at this point?

    The thing I'm hearing ALL THE TIME is people viewing their line of credit / credit cards as a savings account. I wonder if you saw that before you got to the current stage?

    I-kid-you-not, many of my friends make efforts to get larger lines of credit (even if they don't use them) with much the same zeal as people traditionally saved. "I have twenty thousand available on my line of credit" is the new way of saying "I have twenty thousand in my savings account"... people are proud of it, even.

    Not that there's anything with having/using a line of credit, I just find it mind-boggling that people are starting to see it as savings!

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    Default Re: kiss of death for the US economy ?

    I know a lot of people who are either filing bankruptcy or just refusing to pay. Most of them would like to pay and get out of debt, but the high interest rates and penalties are such that they figure they might as well not even bother. I can't tell you how many people I've heard say something like, "It'll be clean again in seven years, so fuck it." If this becomes a widespread trend, and I think it's heading that way, then our entire system is going to collapse because it's all built on credit.
    True, but such people apparently haven't made themselves aware of recent changes in the bankruptcy law which essentially dictates that anybody who is able to earn money will wind up turning every penny they earn above the 'poverty' level to their creditors for the next 5 years, new federal laws overriding state limits on bankruptcy exclusions for houses and cars which may very well force the sale of their fancy house and leave them living in an apartment and driving a very used car etc.

    My concern on this count is that many people, when faced with the choice of working for say $40,000 a year and being forced by the bankruptcy court to turn all but $20,000 over to their creditors as partial payment on bankrupt debts, or simply quitting work and applying for social welfare benefits worth $20,000 a year or more in terms of subsidized housing, subsidized utilities, free health care, free food etc. while paying their creditors nothing, will choose the latter. This really has the potential of creating a permanent 'underclass' of American citizens (as opposed to an already existing 'underclass' of illegal immigrants).

    I'm also of the opinion that we are already living in an economy similar to the Great Depression, but we have so much credit and TV distraction that we don't know or don't care.
    In some aspects, I agree completely. Like the roaring 20's, shortsighted Americans in the 00's have had access to too much easy credit and have shown little moderation in overusing it, Americans have begun to take for granted that the prices of everything from stock shares to houses would keep rising forever and therefore make them 'rich by coincidence', Americans have taken for granted that there would always be 'good paying' jobs available etc.

    Like you, I suspect that despite the media downplay that momentum is really building for a major recession (I'll hold off on the D word). I'm also very concerned that Americans have also taken for granted that, no matter how bad things get, the US federal gov't and their state gov'ts will 'take care of them', which will quickly lead to an extremely rude awakening when they discover that state and local gov'ts can go bankrupt too !

    Not that there's anything with having/using a line of credit, I just find it mind-boggling that people are starting to see it as savings!
    the 'tin foil hat' crowd would tell you that this stems from an American education system that deliberately avoids teaching economics / finance. This many Americans equate someone else's money available for spending with their own money available for spending. This misrepresentation is of course compounded by former legal protection for borrowers who had spent so much of other people's money that when they couldn't pay it back they were able to nearly completely avoiding any 'serious negative consequences' befalling them.

    That same deliberate lack of teaching economics / finance in the American education system also allows a host of other misrepresentations to persist ... i.e. that the US economy / US dollar are somehow independent of global finance / global economies, that the US gov't really is able to 'fix' things if only the right laws were passed re minimum wage, subsidies for the poor, tariffs / quotas against cheap foreign imports, wage / price controls can be enacted (again) etc.
    Last edited by Melonie; 12-08-2006 at 01:07 PM.

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    Default Re: kiss of death for the US economy ?

    How long are you going to ring the death bell, I've been here well over a year now and it hasn't stopped...

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    Yekhefah
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    Default Re: kiss of death for the US economy ?

    Quote Originally Posted by Melonie
    My concern on this count is that many people, when faced with the choice of working for say $40,000 a year and being forced by the bankruptcy court to turn all but $20,000 over to their creditors as partial payment on bankrupt debts, or simply quitting work and applying for social welfare benefits worth $20,000 a year or more in terms of subsidized housing, subsidized utilities, free health care, free food etc. while paying their creditors nothing, will choose the latter.
    Yes, exactly! It's frightening.

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    Default Re: kiss of death for the US economy ?

    Are you kidding me? There is shit going down all over the place!

    Thousands and thousands of people are being thrown out of work. Companies are closing the doors on plants and buildings. Even the so called "service" companies like Enron and research and development arms of industry (who aren't subjected to Mel's favorite economic boogie man of environmental standards love ya Mel!) who did nothing but by and sell intangibles are going out of business or moving over seas.

    Just about the only people doing well these days with any feeling of security are the ultra wealthy playing the dice in the DOW. (And I have said in the age of globalism the DOW and other indices of international companies has NOTHING to do with a measure of the economy for the average worker. In the 60's when the DOW went up or so, one could count on new jobs in new plants etc. These days it means new jobs in China.)

    The media is literally owned by large corporations who want a certain message to go out. When I see perfume ads and "lets talk about you new (viacom) movie on our (viacom) 'news' morning show" - it's like come on. How many times I have watched CNN or Fox and all of a sudden it dawns on me "Dude, your watching a commercial!" even though it was an "interview" or "what's hot."

    Luckily the internet is showing its self as an avenue for "people on the ground" with video cameras, as well as "armchair strategists" bloggers, and now we are seeing through google video more full length documentaries about things one would never see in general circulation.

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    Default Re: kiss of death for the US economy ?

    They won't go on welfare.

    They will simply join the underground economy of thrift shops, self-made wares, etc. I was seeing an interview with someone about the underground economy he studied in major cities. Cash only business neighbors charged each other and didn't bother with licenses or taxes, artists produced dances and raves that moved from building to building, carpenters making chairs or people refurbishing furniture and selling it - turns out there is billions of dollars of business done (albeit in quarters and dimes) outside of the usual financial structures.

    If the place is going bankrupt - there won't be any welfare anyhow. Plus, anyone who was on welfare will tell you there is a lot of work needed to do to stay on welfare!

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    Default Re: kiss of death for the US economy ?

    How long are you going to ring the death bell, I've been here well over a year now and it hasn't stopped...
    ... as Deo points out, this view is entirely dependent on where you are sitting !!! People who do have investments in the form of 'paper assets' i.e. shares of DOW company stocks have been able to take advantage of the increased profitability of DOW companies (which stem from ever larger offshore operations), while people who formerly worked for those DOW companies in the USA are in a world of hurt. As Deo also pointed out, there is no longer any real world correlation between 'paper asset' values and the real state of the American economy ! The 'rich get richer' while the former American DOW company employees get poorer.

    The not so obvious point to the original story is that, as an increasing number of former American DOW (and other) company employees have been laid off / outsourced over the past couple of years, they have turned to spending borrowed money in order to maintain their previous lifestyles. On the surface, this tended to 'gloss over' the true state of the American economy for a while at least, as laid off / outsourced American workers with lower paying 'replacement' jobs continued to make mortgage payments and car payments based on ever longer term loans (thus smaller monthly payments but more accumulated long term debt), and continued to spend money at the mall via the depletion of their savings, liquidation of other assets (i.e 401k), and ever-rising credit card balances. Thus from a cursory examination it would appear that all was well, for a while at least, because spending and borrowing levels of US consumers had not declined. But this (false) impression was only possible because practically nobody was looking at negative savings rates, rising credit card balances, rising bankruptcy rates etc. at the same time and putting 2 and 2 together.

    However, once the American consumer has reached the end of their 'credit rope', as the AP story indicates, it will no longer be possible for them to maintain the 'financial fiction' of their former lives. Once deprived of further credit, and already financed for the longest possible term on their house and car, with savings accounts empty, with other assets liquidated, and with credit cards maxxed out, any future shortfalls between actual 'replacement job' income and desired spending levels can only be resolved in three ways. #1 discretionary spending must be cut back to sustainable levels (i.e. no new car / major appliance / major toy / vacation / lap dances this year or next year or any year), #2 unsustainable financial arrangements have to be thrown overboard (i.e. sell the big house, sell the luxury SUV etc.), and/or #3 file bankruptcy papers.

    As to the 'underground economy', this is the essence of small town life - always has been, always will be. However not everything needed can be traded on a barter basis, and the IRS is doing everything it possibly can to 'eavesdrop' on cash transations thus forcing more and more cash businesses 'above ground'.

    As to the boogeyman of environmental standards, please understand that from the point of view of personal opinion I wish that equal standards were applied and enforced everywhere in the world. Some of the nasty environmental [email protected]!t I have seen personally being perpetrated by industries in Mexico and Asia is truly disgusting. For example, I now understand how Mexican stone-washed jeans can be sold for under $20 a pair ... because the dark blue wash water full of dyes and acids and detergents is simply dumped into plastic tarp lined olympic swimming pool sized 'lagoons' behind the Mexican jeans plant instead of being chemically treated as would be required in America ! As the 'lagoons' fill up, the Mexican jean plant simply buys more cheap adjacent property and builds more new 'lagoons'. In 10 years, when all of the adjacent property is full of these 'lagoons', they'll probably simply close up the Mexican jean plant, open a new jean plant in Guatemala, and start all over again - leaving the Mexicans to deal with the long term effects of the dyes, acids and detergents they left behind ! Undoubtedly the same sort of situation is now occurring in China vs Mexico, with the next new location being Vietnam vs Guatemala.

    However the fact remains that international corporations are able to get away with simply dumping their s#!t in these countries, versus having to spend major bucks to treat / properly dispose of that same s#@t if generated in America. Unless and until American / European consumers start caring more about the environmental practices of the companies who are producing low cost Mexican and Asian made products, instead of caring most about the price of those imported products vs more expensive American / Western European products which carry a high embedded environmental compliance cost that the Mexican and Asian made products do not, the trend isn't going to change.
    ~
    ~
    Last edited by Melonie; 12-09-2006 at 04:59 AM.

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    Default Re: kiss of death for the US economy ?

    Death? No. Change? Most certianly.

    Maybe, just maybe, the message is getting through that credit card debt is a bad idea, and folks are just wising up? I did. I don't see why others haven't come to the same conclusion I have.

    My Hubby wanted to take out a home equity loan about a year ago. I talked him out of it, and am very glad that I did. We don't need another mortgage on our house. What we needed was to pay off some credit card debt, and save incase of emergencies. It has totally worked. When you need quick cash for an unforseen expense (like auto repair), the money is there and we can relax about the cost.

    People are also learing that company loyality is one sided. So people are learning to cover their butts by having a back-up plan. More and more people are starting their own businesses. How many people do you know who haven't at least tried some kind of business venture, be it an eBay selling business to a real bricks and mortar store? I don't know anyone who hasn't at least given it a go at some point.


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    Default Re: kiss of death for the US economy ?

    Well history dose repeats it self, and to me it seems like a lot American. Just is not simply aware of whats going on, not only is we he having a drop in a lot of things. The american produce is going bad. Have anybody been paying attention to the way the food is getting. I went to Jewels today and the fruits and veggies. They look like crap, and food prices are steady rising. The signs of american going into depression are starting to show very clear. Before the depression hit. The food was getting bad and the prices of food was going up! Like it is now, than we have to look at the facts melione provided.


    I just can not see, how we cant prevent this when we have more technology than the 1920's. We have more better ways of communication yet we are not using it to prevent things like the next depression. I feel american wont come back as quick as the last depression. This might go as far as we becoming divided. Our nation might fall. We are almost there when it comes to the blue(D) and the red(R).
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    Default Re: kiss of death for the US economy ?

    My Hubby wanted to take out a home equity loan about a year ago. I talked him out of it, and am very glad that I did. We don't need another mortgage on our house. What we needed was to pay off some credit card debt, and save incase of emergencies. It has totally worked.
    Arguably, it totally worked because you and/or hubby had the option to increase your incomes via making an extra effort, and also because there were expense items in your budget that could be reduced/eliminated without a lifestyle / standard of living reduction i.e. a smaller house or a cheaper car. Your results are highly commendable - BUT - frankly most Americans are not in a position to be able to do what you did.

    More and more people are starting their own businesses. How many people do you know who haven't at least tried some kind of business venture, be it an eBay selling business to a real bricks and mortar store? I don't know anyone who hasn't at least given it a go at some point
    True, but extremely few of these new businesses actually 'produce' anything new of added value. By added value, I'm talking about businesses that start with one commodity and increase the value of that commodity, from combining baking ingredients into say cookies or restaurant meals, to putting old parts into cars to extend their lives and increase their resale values. Such value added businesses actually 'create' the money they are earning.

    But instead these new businesses typically (re)sell existing things in direct competition with some other business that is also attempting to (re)sell existing things to the same customer base. Thus while the new (re)selling business may indeed earn some money, that happens at the expense of some other business earning less money - in exactly the same way that a club booking an extra dancer or two reduces the average incomes of the other dancers in the absence of new club customers. While this is good for the new business operator, it doesn't help the economy in general and it actually hurts competing (re)sellers.

    I just can not see, how we cant prevent this when we have more technology than the 1920's. We have more better ways of communication yet we are not using it to prevent things like the next depression. I feel american wont come back as quick as the last depression. This might go as far as we becoming divided. Our nation might fall. We are almost there when it comes to the blue(D) and the red(R).
    the 'tin foil hat' crowd will tell you that technology costs big money (at least in America where the consequences of applying that technology carry a hefty energy / environmental price tag), that going lower-tech in Asia without the hefty energy / environmental price tag is able to undersell going higher-tech in America, and that because of that fact private investment capital is going to go to Asia instead of to America where they can achieve a much faster/higher return on their investment. Improved communication only helps if you have a positive message to communicate. In the present case, the message is that the gov't 'mandated' costs of doing business in America, the labor costs, the tax rates etc. instantly put American businesses at a competitive disadvantage. The red versus blue debate is essentially about politico-economic policy differences between setting future American 'mandated' costs, future labor costs, future tax rates etc. somewhere between 'much higher than Asia' and 'much, MUCH higher than Asia'.

    Also, the 'tin foil hat' crowd will tell you that America was able to 'climb out of' the last depression via the institution of widespread gov't borrowing and spending for social programs and increased public sector employment. In other words the gov't borrowed / printed new money, and used that borrowed / newly printed money to create jobs building roads and bridges and dams as well as to finance social program benefit spending. This worked because prior to the last depression, America was running a positive trade balance with the rest of the world, and also because prior to the last depression the percentage of Americans employed by the public sector (i.e. gov't agency workers, teachers, gov't contractors) was relatively small to start with where today it is already at a 17% level. Like the (re)selling businesses in the prior example, public sector employees do not 'create' any added value to finance their paychecks, but instead rely on increased taxes on the remaining 83% of Americans to fund their salaries. In essence, America can't use vastly increased public spending and vastly increased public sector employment as a 'stimulus' for a second time because it never STOPPED using it after the last depression !!! Thus, exactly like drug addicts, America has come to 'depend' on that 'stimulus' in order to get through the day, and risks shock if that 'stimulus' is suddenly cut off as well as risks death if that 'stimulus' dosage is increased any higher.

    Lastly the 'tin foil hat' crowd would tell you that what REALLY ended the last American depression was the physical destruction of factory capacity in 'competing' countries as a result of World War 2, as well as the physical elimination of many millions of (previously) unemployed people as a result of World War 2, as well as the de-facto US dollar 'stranglehold' on world trade and world oil supplies that occurred as a result of World War 2 (both of which effectively ended in the 1970's).

    If the truth were told, this approach WOULD work again - but it's doubtful that with today's communication capabilities that Americans could ever be convinced to support such action in the same way as Roosevelt was able to do in 1940-41. From an 'official' standpoint, 65 years later the history books still paint a 'gov't approved' picture of what happened during those years and why. However, if things get bad enough in a future American depression, 'desparate' people tend to agree with things that benefit their own personal situations (at the expense of others) much more readily than 'comfortable' people.
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    Last edited by Melonie; 12-09-2006 at 05:25 PM.

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    Default Re: kiss of death for the US economy ?

    Quote Originally Posted by Melonie View Post

    If the truth were told, this approach WOULD work again - but it's doubtful that with today's communication capabilities that Americans could ever be convinced to support such action in the same way as Roosevelt was able to do in 1940-41. From an 'official' standpoint, 65 years later the history books still paint a 'gov't approved' picture of what happened during those years and why. However, if things get bad enough in a future American depression, 'desparate' people tend to agree with things that benefit their own personal situations (at the expense of others) much more readily than 'comfortable' people.
    ~
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    Given more people died on 9-11 than in Pearl Harbor it makes one wonder just how much punishment this generation is willing to take before they take action.

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    Default Re: kiss of death for the US economy ?

    ^^^ well, the 'tin foil hat' crowd would tell you that both the 9-11 attack and the Pearl Harbor attack were A. no surprise to the powers that be, B. violent responses to previous US policies / pressures / actions, and C. preventable but deliberately allowed to occur in order to focus / form / steer US public opinion ...

    versus


    The same 'tin foil hat' crowd would tell you that the difference in after-the-fact public opinion between the two events was almost entirely attributable to a difference in the policies of 'mainstream' media in reporting an analyzing the two events.

    I'll leave it to someone else to throw in the Gulf of Tonkin incident, 'Remember the Maine' etc. And if anyone is interested, summarizes the principle and points out examples that go all the way back to ancient Rome in 70BC !!!

    In an effort to circle the discussion back to the original topic, I would also point out that the actual living conditions of the 'victims' in all of these scenarios i.e the number of people who were actually cold, hungry and directly oppressed, appears to directly factor into their willingness to support violent 'retaliation'. Thus as long as most Americans remain 'fat, dumb and happy' and remain personally unaffected by the latest 'threat / attack', their support for violent 'retaliation' is going to be lukewarm at best. However, as the US standard of living for the 'have-nots' continues to decline, that lukewarm support may heat up !
    !
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    Last edited by Melonie; 12-09-2006 at 09:58 PM.

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