Posted on 01/18/2003 8:48:10 AM PST by shrinkermd
Edited on 04/22/2004 11:47:55 PM PDT by Jim Robinson. [history]
BUBBLES HAVE LONG BEEN part of the financial firmament. The tulipmania in 17th-century Holland and the notorious South Sea Company stock bubble a century later in England are lowlights of economic lore.
History is replete with numerous other examples of financial manias followed almost ineluctably by huge price busts, down to our own era. Japan is still paying the price of deflation and economic narcolepsy a decade after bubbles in its stock and real-estate markets popped. Debt collapses in Asia and South America punctuated much of the 'Nineties. The bursting of the U.S. tech-stock bubble in early 2000 led to the vanishing of more than $5 trillion in wealth, at least on paper.Now, many worry that a U.S. housing bubble, lofted by four-decade lows in mortgage rates, could explode, eviscerating consumer spending and economic growth.
(Excerpt) Read more at online.wsj.com ...
INTERVIEW WITH DR. KURT RICHEBACHER
Richard W.
You're entitled to your own opinion, but not your own facts. Our trade deficit is not 4.5% of GDP. It is not even a third of that, making your "three times higher" statement nonsense as well.
GDP data is here. GDP is running at about $10 trillion per quarter.
Trade deficit data is here. The trade deficit is running about $38 billion a month.
Annualize both and we get (38B * 12) / ($10000B * 4) = 1.14% of GDP.
We don't have low income housing projects here. The residents always cry NIMBY and fight it tooth and nail. There may be a few in Nassau, but not on eastern Long Island. We have a few section 8 housing areas, but that's it. And Long Island and NYC now have historically low crime rates, as well. The poor either have to live in their parents' houses, in which case they can't collect welfare due to asset limitations, get a job, or move out.
If you can afford the ridiculously high property taxes and other higher costs here, it's a very good place to live.
And the tax rates are not assessed directly to home values. So, for example, if you buy an older home, the taxes are much lower than for new construction. If you will only accept a house with lower taxes, they will stay lower, as increases are implemented by percentage of tax already paid. Lower taxes are also a good selling feature for a given home.
First things first, can the hyperbole, I too, am a first generation American.
My post was directed to the illegal side of the equation, seeing as how they outnumber legal aliens by at least ten to one.
The mindset that legal immigration will keep the nation afloat, bypasses my feeble mind. For every one legal immigrant who comes over and reaches middle class status, there are at least a hundred illegals who pour in and never even attain poverty class.
Applaud the one and give him a ribbon, but ignore the hundred at your own peril.
You're off by a factor of 4. GDP for the full year is about $10 trillion. Your source is annualized, quarterly numbers.
The trade deficit for all of 2001 was about $410 billion.
The current proportion of 4.5% is about right.
Many have never been to school at all ---it's not really their fault because it's the way things are in Mexico, but it'll take a lot of taxpayer money to correct the problems and get them caught up. Some will work hard and climb into middle class quickly but many will just become generations of welfare class people never able to get out of the housing projects, we see both kinds here but more and more it's the permanent welfare types coming over because they've learned that single motherhood will get them more handouts so they seem to be choosing that route.
But overall, I think the following is key: "Fortunately, however, the federal budget stringency of the past decade and spirited economic growth in the late 'Nineties has driven total U.S. governmental debt down to under 50% of total GDP, versus 70% in the early 'Fifties and 65% in the mid-'Nineties. The U.S. has a long way to go before governmental debt proves damaging by "crowding out" private credit demand and boosting interest rates. Other developed nations have far higher government debt-to-GDP figures; Japan's is about 150% yet its 10-year government bond yields less than 1%."
So some deficit spending can safely help the Fed at this point. Let's go to Mars!
I agree with you that the US current account deficit is a huge problem with a painful solution. Just to set the facts straight, I believe that other countries have run current account deficits in excess of 4.5% in the past, during the Asia Crisis in the late 90s for example (note that the countries running these deficits all ran into big time problems). There is a belief that economies get into serious trouble when the current account deficit hits 5%.
The US is a unique case because it is so large. At the current rate, we need to attract over a billion new foreign dollars every day. If we do not, the dollar falls. The important point is that foreigners do not have to sell their US assets to make the dollar fall, they only have to stop investing new dollars (i.e., funding the trade deficit). As the dollar continues to fall, foreigners take it on the chin and eventually they will begin to sell their vast holdings of US securities, which puts downward pressure on US markets and additional downward pressure on the dollar. Foreign central banks, where the US dollar makes up a majority of their reserves, will also begin to diversify out of US dollars. It is a self-reinforcing spiral. At some point, the Fed will have to raise interest rates and then our debt-laden economy will implode. Where will people turn if they lose faith in the dollar (it's value is based on faith after all)? I believe gold will play a role, and it doesn't need to play that large a role for its price to explode. That's the way it looked to me 3 years ago and I have seen nothing since to change my opinion.
Q How does the trade deficit squeeze profits? A By directing current income and spending away from domestic producers to foreign producers. The trade deficit implements a direct transfer of profits from the United States to foreign countries. Considering the deficits monstrous size, it massacres U.S. profits.
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These are good points you've raised, but I was referring to economic principles in general and not just the U.S. situation in particular.
Consider this micro-example of a tiny "economy" and how it could grow . . .
Imagine an "economy" that consists of three players: 1) a farmer who grow wheat, 2) a general store owner who buys the farmers wheat to sell to the outside world and who buys other products from the outside world and sells them to the farmer, and 3) someone who owns a freight shipping company that provides the store owner with access to the outside markets.
This economy can only grow by increasing the local population or increasing the productivity of one or more of the three players involved. This can be illustrated as follows:
1. The economy will grow if another farmer moves into the area (population) or if the one farmer increases his crop yield through automation (productivity).
2. The economy will also grow if another storekeeper with different product lines opens shop (population) or if the existing storekeeper increases his storage capacity to handle more grain (productivity).
3. The economy will also grow if a second freight carrier with access to new markets gets involved (population) or if the one carrier improves productivity by using newer, more efficient equipment.
No matter how you look at it, these are the only ways the economy will grow. If a squatter sets up camp on the farmer's field and survives by pilfering goods from the storekeeper, then there is no growth involved even though the population has increased. If a government bureaucrat comes along and orders the farmer to give 10% of his crop to the squatter (welfare case), then there is no growth.
But even if the farmer hires manual labor to work in his fields, there will be no real "growth" unless the cost of the labor is less than the additional yield that he can get from having the extra help in his fields. This, I think, goes along with what you were saying about the unskilled immigrants.
And good jobs might seem like the answer to a bad economy, but the jobs have to come from somewhere. A shrinking job base is often a symptom of something fundamentally wrong with the economy, not the other way around.
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