American Melt Down?

Discussion in 'Business & Economics' started by Michael, Sep 15, 2008.

  1. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I have now looked at second of your links. Yes it is interesting and contains more than one sub link on your subject, For example: and which seems to be identical to your first link.

    There are many, many sublinks at your second link. I will be reading quite a few and did not know of this source to other discussions.

    I can’t quickly find post but someone (superstring01?) gave his suggestion for what would be the next crisis trigger. I replied that I thought it would be the commercial real estate mortgages, but I was thinking of NYC etc., not Dubai. I want to watch Wall Street’s reaction, so will terminate this post.

    217 points down Dow in first minute!
    In less than 10 minutes: "Gold down $26.68 at $1,161.70 per ounce" - I bet this is due to expectation that Dubai (et al?) will sell some of their gold to pay debts. If true, it is as I predicted some months ago, but for England, not Dubai. I.e. Dollar will strengthen but gold may drop if a sovern state needs to dump gold. There is a huge amount of "vault gold" hanging over the market that may come to market to pay debts.
    Last edited by a moderator: Nov 27, 2009
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  3. kmguru Staff Member

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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    It is hard to tell which disaster comes next: Commercial real estate mortgages default sinking many smaller banks local communities depend upon OR
    Credit card defaults sinking the national firms that issue them. Arguments for the later are:

    "... According to Moody’s Investors Service the charge-off index for British credit-card companies was 11.8 percent in September, almost double what it was in the first quarter of last year. In effect, one pound in every 10 owed on British credit cards right now isn’t going to be paid back. Nor is the picture much better in most other developed countries, the U.S. in particular. It is hard to imagine how anyone really thinks that situation is sustainable.

    Huge swathes of the population are living wildly beyond their means, spending money that appears magically from thin air. If you don’t think that is going to blow up one day, then you need to lie down in a dark room until you’ve figured out how to think straight again.

    The problem is always the same -- just as it was for the mortgages that were the root of the original subprime crisis. Too much debt is being loaded onto a flimsy base. Eventually the whole edifice comes crashing down. Dubai has given us a preview of the trouble ahead. The main performance is still to come.

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  7. quadraphonics Bloodthirsty Barbarian Valued Senior Member

    The main thing keeping me out is the requirement to pledge allegiance to the Queen in order to gain citizenship. The cold I can deal with, provided I'm close enough to mountains to ski regularly. But swearing allegiance to a hereditary monarch (and a European one, at that)? No way.
  8. quantum_wave Contemplating the "as yet" unknown Valued Senior Member

    Everywhere you look in the US there are signs that we are generally, as a population, oblivious of the risks. We move forward on huge expenditures, increased taxes, new fees and local taxes and little or no effective mitigation of the risks. Real unemployment is almost twice the official number, stimulus jobs have been grossly overstated, everything is being spun, etc.

    Based on Dubai you must consider a shift of assets into gold bullion and if you have paper gold you better keep your finger on the sell button

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  9. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    As I understand it, quite a few Brits think the monarchy should end with the death of the present queen. It is an expensive institution, is one agrument and others feel as you do.

    Perhaps you should get ready to sneek in when she dies and join the "kill the monarchy too" movement? Given that England is nearly bankrupt, and many fewer Americans can afford to come to England for summer holidays, watch the "beefeaters" etc., with the weaker dollar that movement may succeed. (As a "tourist attraction" I doubt if the queen is paying her cost now.)
    Last edited by a moderator: Dec 2, 2009
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    It is still a "nip & tuck" race, but commercial real estate just took a few steps faster forward:

    "... Office vacancy rates are now at their highest level in 16 years, according to a report published Monday, as elevated unemployment levels across the country continue to temper the demand for space. Roughly 700 million square feet, or 17.2%, of the more than 4 billion of available office space nationwide was unoccupied as of the end of March, according to the real estate research firm Reis. The last time office vacancies were this high was in 1994.

    The number of empty offices has been on the rise since the start of 2008, as soaring unemployment and a wave of business failures have crushed commercial real estate. The trend however, has not just been isolated to those parts of the country that have been particularly hard hit by the recession. In fact, nearly three-quarters of the country's major metropolitan areas experienced an increase in office vacancies in the first quarter of 2010. ..."


    Interesting to note that 17.2% is also the best estimate of the total un & under employment.
    You don't suppose they they could be related, do you? Naw, it is just chance.

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    Last edited by a moderator: Apr 6, 2010
  11. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    "... The New York Times reports that for the first time in history, Social Security will run a deficit in 2010. According to the Congressional Budget Office, it's on track to pay out $29 billion more in benefits than it receives in payroll taxes this year. As the Times tells it, analysts view the first year Social Security pays out more than it takes in as "the first step of a long, slow march to insolvency." That's the point at which the trust fund runs out of money. And when that happens, as Alan Greenspan recently warned, "you have to cut benefits ... because benefits have to equal receipts."

    In other words: Social Security is a dead man walking. ..."


    If you think the tea party folks can make a ruckus, just wait till you see what us old codgers swing our canes can do in the halls of Congress when our SS is cut!

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  12. quadraphonics Bloodthirsty Barbarian Valued Senior Member

    This is Chicken Little scaremongering. Social Security is projected to stabilize in around a generation when the Baby Boomers die off and the demographic balance between workers and retirees reverts to a more usual ratio. This may require mild cuts in benefits, but nothing that would imperil the basic system as such.

    They never have before. That's why we have a trust fund to cover the Boomer's retirement, in the first place.
  13. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    Perhaps, but not normal for the NYTimes to make up facts which can be easily checked. Are you saying they are wrong to assert that Social Security will pay out more than it takes in this year? If not, then they are simply stating a fact, which surprised me, so I quoted it.
    Yes that trust fund has some IOUs from the Federal government. These pieces of paper were stored in a filing cabinet in West Virginia a few years ago, and may still be but they are just pieces of paper. When SS pays out more than it takes in the difference increases the current debt -amount the government needs to borrow.

    I am sure that difference will not make a "noticeable twitch" in the debt clock since it is very tiny compared to the 1.5 (or slightly more) TRILLION the US must borrow this FY. None the less fact (assuming the NYT is correct) that SS is already increasing the US's need to borrow is disturbing. I had thought it true that SS taxes were helping to pay current federal expenses, not that SS is adding to federal expenses already. I thought the SS debt bomb was only ticking, not now starting to explode.
    Not by my projections. I expect that about a generation from now, the US and EU will be coming out of the world's worst ever depression and that SS will not even exist as it could not pay the retires during that depression. That you can call scaremongering, if you like but is my honest opinion.
    Last edited by a moderator: Apr 8, 2010
  14. nirakar ( i ^ i ) Registered Senior Member

    The demographic bulge from the baby boomers does not looks as large as it appeared that that it was going to be twenty five years ago thanks to much higher immigration levels than were expected and thanks to the high birth rates of immigrants.

    My concern now is that if the younger people don't have good paying jobs when people like me born at the end of the baby boom retire then the younger poorly paid and unemployed people can't reasonably be asked to pay me Social Security benefits like my parents receive. I expect the US economy to have already hit bottom and be just beginning to recover when I retire.

    I won't pencil social security into my retirement plans.

    All government spending is government spending and all taxes are taxes. Even whether the taxing and spending is Federal state or local barely matters. It is one pool of money and the separate funds are irrelevant. Social security is not even a promise. They say expect to receive this but we can change our minds.

    My payments to Social Security are spent before they are even received thanks to the debt. My property taxes are also spent before they are received because of local debt.

    In terms of nominal money I fully expect Social Security to pay what they are telling me to expect but I expect a period of hyper inflation sometime prior to or during my retirement and I don't expect Security to remain indexed to inflation. The younger people in a nation that makes less products every year won't be able to pay so much to the old once the foreigners stop their net investment into the USA and start taking their investment income out of the USA.

    What are we going to do if foreign investors decide they prefer owing American farmland to owning government debt securities?
  15. quadraphonics Bloodthirsty Barbarian Valued Senior Member

    The scare-mongering part was the "start of a slow, steady march towards insolvency" stuff, not the observation that we'll begin dipping into the trust fund shortly.

    No, that's completely wrong. The government has already borrowed that money. It is already accounted for in the national debt, and so the scheduled debt repayments already accounted for in the budget. Federal repayment of debt to SS will represent a paying down of the national debt.

    What it does do is drive up the rate the the government must pay to borrow, since the extra demand for Federal debt provided by the SS surplus will disappear. This will increase the national debt, but not by the amount of the SS deficit - that stuff is already accounted for in the national debt, and will be getting paid down in the coming years.

    It is not doing that (and I don't see where the NYTimes said as much).

    Rather, it is reducing the Federal government's ability to borrow, while also paying down part of the debt. You have the situation exactly backwards.

    SS only ever helped pay federal expenses in the sense that it provided extra demand for federal debt - made it easier to borrow to pay expenses. Now it will go back to paying for itself, and the Federal government will pay back the money it borrowed from SS.

    Yep, that's scaremongering.
  16. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    I do not know if this FY expected deficits in the Social Security system (paying out more than taken in by the SS tax) is in the the budget or not, but am sure the government does not borrow the entire budget total of any FY in advance. The government borrows nearly weekly now and in large amounts to pay bills coming due in the near future (less than a month, I think.) Thus, I think your are in error to say that the SS's 2010 deficit money HAS ALREADY BEEN borrowed.

    I also think, but am not sure, that the future obligations under SS are NOT included in current statements of the US debt. For example, the "debt clock" does not include the deficit that SS will run in 2010 in the second half of 2010 AND CERTAINLY NOT FOR 2011 OR LATER. Perhaps it does include the SS deficit (it there was one) for the first quarter of 2010 now.

    Here is another increase of the Federal debt, that I doubt was even in the budget, much less already funded by borrowing in advance:

    "... A total of 33 states and the Virgin Islands have depleted their funds and borrowed more than $38.7 billion to provide a safety net, according to a report released Thursday by the National Employment Law Project. Four others are at the brink of insolvency. Debt-challenged California has borrowed the most, totaling more than $8.4 billion, followed by Michigan and New York, which have loans worth more than $3 billion. Nine other states have borrowed at least $1 billion from the federal government. ..." {Billy T notes: ~10 of the 33 are not too bad off and will borrow in the tax free bond market, especially after GWB's tax relief for the wealthy ends.}

    Last edited by a moderator: Apr 9, 2010
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    The melting continues - here is part of why:

    "... Since the start of the Great Recession in December 2007, the U.S. economy has shed 8.4 million jobs and failed to create another 2.7 million required by an ever-larger pool of potential workers. That leaves us more than 11 million jobs behind. (The number is worse if you include everyone working part-time who’d rather it be full-time, those working full-time at fewer hours, and people who are overqualified for the jobs they’re in.)

    This means even if we enjoy a vigorous recovery that produces, say, 300,000 net new jobs a month, we could be looking at five to eight years before catching up to where we were before the recession began.

    {Billy T insert: 33 states have already run out of funds for unemployment benefits and must borrow to pay them.* What will 5+ more years do? Furthermore, that optimistic "even if " condition is not very likely to be the case, IMHO, as interest rates rise. Yesterday if became official that for four months now, China has let mature or sold, more US treasury paper than it bought - The "bond vigilantes" will be closing in on the treasury soon.}

    Given how many Americans are unemployed or underemployed, it’s hard to see where we get sufficient demand to support a vigorous recovery. Outlays from the federal stimulus have already passed their peak, and the Federal Reserve won’t keep interest rates near zero for very long.

    Although consumers are beginning to come out of their holes, it will be many years before they can return to their pre-recession levels of spending. Most households rely on two wage earners, of whom at least one is now likely to be unemployed, underemployed or in danger of losing a job. And even households whose incomes have returned are likely to be residing in houses whose values haven’t—which means they can’t turn their homes into cash machines as they did before the recession.

    While consumers have been shedding their debts like mad—often simply by defaulting on loans—their remaining burdens are still heavy. At the end of last year, debt averaged $43,874 per American, or about 122% of annual disposable income. Most analysts believe a sustainable debt load is around 100% of disposable income, assuming a normal level of employment and normal access to credit—neither of which we are likely to have for some time. ..."
    {And also assuming single-digit, consumer-loan, interest rates, at least from the selling store, which is not likely to be the case, IMHO, soon. I think credit cards are already double digit, but never use them so do not know.}

    Non-blue quote from:

    * Read a few of these articles about the condition of our States:

    1. “Nightmare scenarios haunt states“, Stateline, 14 December 2009
    2. “Illinois enters a state of insolvency“, Crain’s Communications, 18 January 2010
    3. “State of the States 2010: How the Recession Might Change States“, Pew Center on the States, 11 February 2010
    4. Speech by New Jersey Governor Chris Christie: New Jersey is in a state of financial crisis, 11 February 2010
    5. “The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform“, Pew Center on the States, 18 February 2010
    6. “The Municipal Market“, Rick Bookstaber (Senior Policy Adviser at the SEC), his blog, 4 April 2010 — A warning from someone who knows.

    Go to this link to get click-on links to the above:

    Or just to this link, but after noticing its title and skimming it, you may not need to go to any to get the point.

    PS - I still like my recovery plan: Hide the facts and sell California to China, before the "Big One" hits.
    Last edited by a moderator: Apr 16, 2010
  18. zanket Human Valued Senior Member

    I'm hoping the final collapse is underway. Previous levels of spending were decimating the environment.
  19. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    "... Centre for Economic Policy Research's 15April study {28 experts}, edited by trade economist Simon Evenett ... concludes that a yuan revaluation of only five percent would eliminate China's trade surplus with the world. But it would only cut the US trade deficit with China by 61 billion US dollars, according to the study.
    A 10% revaluation of the yuan would improve the US deficit by 111.5 billion US dollars -- not enough to eliminate the US shortfall with China.

    Because so many US exporters buy parts and components from China, the revaluation would raise their costs, resulting in a hit to US exports that would cost 424,000 US jobs, it said.

    If the US imposed a 10 percent tariff across the board on Chinese imports and China responded in kind with a similar 10 percent duty on US exports, 947,000 US jobs would be lost.

    "Recent US proposals remind me of the adage: 'Be careful what you wish for', {you might get it}" Evenett said.

    From: but the study, is published on the economic policy website, If you want to read the original's details.

    Billy T notes: Either 10% hike would also raise Joe American's cost of living; It is the right wing of US politics that is most vocal in demanding the Yuan appreciate 10% or more. Not the first time their stupidity has hurt the US.
  20. kmguru Staff Member

    Just a thought...

    Assuming that USA economy is at least 3 times bigger than China, and China exporting $1.2 Trillion of goods while we are exporting $1 Trillion worth in 2009; it seems we should be exporting about $3 Trillion of goods or close to it.

    That means we have a short fall of production and hence jobs worth $2 Trillion from production. That is more than full employment and manufacturing jobs! That can easily pay for all the budget deficits that everyone is harping about.

    Question is, why no one talks about this?
  21. quadraphonics Bloodthirsty Barbarian Valued Senior Member

    You misunderstand. The upcoming shortfall in SS was seen coming many, many years in advance. Fortunately, SS has been taking in more than it has been paying out for much longer than that - something on the order of decades. So it's been storing up unspent income for a long time, which is budgeted to cover the predictable shortfall that will occur between when the boomers retire and when the boomers die. The federal budget doesn't have much of anything to do with this, directly.

    Where the federal budget comes into the picture is that the extra unspent money wasn't left lying around all these decades - it was instead invested in Federal treasuries. I.e., the Federal government borrowed the extra money from SS, many years ago. The money to pay for the 2010 shortfall in SS income was accrued many years ago - probably in the 1980's, or even earlier, and loaned to the federal government at that time. That stuff has been on the books ever since, including the planned repayment of the treasury securities to SS. In short, all of the extra income SS has been earning over the past decades was expressed as part of the Federal Debt, which will now be reduced as SS eats up its historical surplus to cover the boomer retirement.

    They absolutely are, for exactly the same reasons listed above. A huge chunk of the current national debt is money that the Federal Government owes to Social Security - it is projected that it will take until sometime between 2041 and 2050 for SS to exhaust its existing investments in Treasury securities. Which is to say that all of the money required to cover the shortfall for the next 30-40 years has already been collected, and is currently on the books in the form of debts that the federal government owes to Social Security.

    And, indeed, it should not. We've already collected the money for that, many many years ago, and loaned it to the Federal government, thereby including it in the existing national debt. Even if the Federal government borrows 100% of the money needed to repay its debts to Social Security, that still leaves the national debt unaffected - it just changes who it's owed to, not how much is owed (to first order - difference in interest rates will make some marginal difference there).

    I don't see how the Federal government loaning money to states amounts to an increase in the Federal debt. The federal debt increases when the feds borrow money, not when they loan it out.
  22. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

    That is so highly distorted; it is flat out false, IMHO. SS has NOT been “storing up unspent income for a long time” – Every cent that SS has ever collected has been transfer to the US treasury (in exchange for Treasury PROMISSES to pay back later) The treasury has already spent every cent of it (and then some) – why the US has huge and growing debt. Pay SS checks has been a Treasury job, not an SS job as SS has no money, only promisses.

    It is now true that the US government budgets for the very predictable SS costs, even when there is a SS short fall (SS payments greater than SS tax income) the US government budget for it and is currently paying it (with borrowed or freshly printed money, of course).

    You seem confident that this US growing debt will not greatly devalue the dollar (and under current law, greatly increase the payments SS must make as they are indexed to inflation by the CPI). If that is the case, those fixed value Treasury PROMISSES will not be able to cover much of the SS’s cost when inflation and the growing number of long-living baby boomers want to collect their much larger total SS payments. The federal government has EVERYTHING to do with SS payments and does budget for them.

    SS HAS NO MONEY –all it collected was given to the Federal government AND SPENT ALREADY! There is no "unspent money".
    “Storing up unspent income” is a gross lie!
    When dollar is much less valuable covering SS’s inflation boosted obligation will be impossible. The benefits will be reduced and/or the CPI for SS will be fudged to reduce the total SS payments required. Surely the retirement age will be increased at least once again, before the SS system ultimate collapses. “Budgeting” does NOT solve these fundamental problems.

    To illustrate “budget failure,” I’ll use my budget plans. They include a budget item for buying all of Fort Knox’s gold when half of the last year of baby boomers retire.
    If the US can “budget” for payments it cannot make then, why can’t I?
    Nonsense! You mention the tiny effect of interest rate but ignore a huge difference: If US borrows 1 trillion from China for 10 years and the dollar weakens – that is tough luck for China. The printing presses will pay that 1 trillion dollars with ease.
    If 10 years from now, due to CPI indexing, the payments SS must make in nominal dollars are 15 times what the Treasury’s FIX value PROMISSES to SS have accumulated for that 10th year, then at that time the treasury must borrow 14 times what is currently budget for payment n that 10th year, etc.

    Again: SS payments are index for inflation. Debt to China is not.
    (1) If the states pay it back (don’t hold your breath) then the loans to states will not increase the debt. (2) Likewise, if the government stops all borrowing and only prints money the debt will not increase (independent of how the funds were spent – on new tanks or loans to states). In fact the debt will probably be reduced (paid down with the freshly printed dollars to reduce the interest payments). The only treasury issue for which this is not true I know of is TIPS. They are like SS obligations. I.e. indexed debt that grows in nominal dollars as the dollar weakens. (3) Of course, assuming the Treasury can find lenders at rates it can accept, it will borrow and we both agree that increases the debt. Currently the Federal short fall (expenditures less income, which is mainly taxes) is being paid by a combination of (2) & (3) but seems already to be shifting ever more borrowing (Option 3, but bond vigilantes will put an end to that soon, forcing a shift back to (2) “pay with printing press dollars.”

    It all ends, as I forecast many years ago while GWB as POTUS with accelerating drop in dollar value culminating in a “run on the dollar” quickly followed by world’s worst depression in US & EU.
    Last edited by a moderator: Apr 20, 2010
  23. quadraphonics Bloodthirsty Barbarian Valued Senior Member

    Yes: that's what a "loan" is.

    Are you next going to tell me that China doesn't have any foreign exchange reserves because all of them have been transferred to the US treasury in exchange for PROMISES to pay back later?

    Right - a portion of that accounted debt represents obligations to repay loans from Social Security. The money that the treasury will need to pay out to cover the shortfall in SS is already factored into the national debt: it consists of treasury securities. It will take decades for this to run out, and it's only at that time that we'll have to contend with how to pay for the shoftfall.

    By that criterion, nobody has any money at all, only promises. You're being absurd - and don't seem to know what you're talking about.

    It's not currently a concern, anyway. Inflation has been near-zero for some time now, the dollar looks to keep gaining on the Euro, etc.

    And anyway, Social Security isn't going to contribute to increased debt any more - now that they aren't taking in more than they spend, they won't be making loans to the Treasury. Instead, they'll be collecting on their existing loans from the Treasury, thereby decreasing the national debt.

    You're acting like an idiot. This is elementary accounting stuff, and your inability to keep it straight is pretty laughable, especially for someone that pretends to expertise on this subject.

    And fuck you for calling me a liar. You're a senile crank who couldn't account his way through the check at Denny's.

    It's not the Treasury that would have to borrow, it's the Social Security administration. Probably the loans would come from the Treasury, not into it.

    But that stuff is decades away. There's ample time to adjust retirement ages and benefits or raise taxes to even things out before then (and who knows what the economy and demographics will do over those time scales).

    Moreover the driver of your apocalypse scenario - gigantic dollar inflation - is highly unlikely to come to pass, so I'm unconcerned.

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