Global Economic Crisis

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Re: Global Economic Crisis

Postby lbksig » 19 Nov 2009, 07:12

After just 4 months, California leads the way again, in budget shortfalls.
Reporting from Sacramento - Less than four months after California leaders stitched together a patchwork budget, a projected deficit of nearly $21 billion already looms over Sacramento, according to a report to be released today by the chief budget analyst.

The new figure -- the nonpartisan analyst's first projection for the coming budget -- threatens to send Sacramento back into budgetary gridlock and force more across-the-board cuts in state programs.

The grim forecast, described by people who were briefed on the report by Legislative Analyst Mac Taylor, comes courtesy of California's recession-wracked economy, unrealistic budgeting assumptions, spending cuts tied up in the courts and disappearing federal stimulus funds.

"Economic recovery will not take away the very severe budget problems for this year, next year and the year after," said Steve Levy, director of the Center for Continuing Study of the California Economy.


Tax revenues are down, and will be next year, but the legislators keep projecting rosy budgets for next year that aren't going to materialize. If/when they have to make more cuts to K-12 public education, teachers are going to be laid off. Higher education like the UC and CSU system raised tuition 30% this year. They are going to have to raise it again for the Fall 2010 semester and maybe even as early as the Spring 2010 semester.

Even bigger is the CalPERS budget problem. CalPERS is the pension fund for state government workers and it lost 41% of it's balance last year. According to state law, if CalPERS runs out of money to pay pensioners, then it comes out of the general fund. 3.3 Billion came out of the general fund to cover loses by the pension fund this year. This is a pretty widespread problem in other states affecting their budgets, with some state's pension funds being unable to ever make back enough to pay the expected benefits.

The losses were typical of what pension funds suffered around the country. State and local government officials had predicted before the crisis they would have $3.6 trillion in their accounts by now, according to the Center for Retirement Research at Boston College. Today, they are $1.2 trillion short of that mark.

Pension funds were not equally affected. Officials in Arlington County, for instance, say their funding levels remain above 90 percent. And even those that suffered huge losses say they have enough money to payout retirement benefits for years to come. Virginia, for instance, still has nearly $43 billion in its accounts.

But Virginia officials now estimate the funding level of its major pension funds will sink to about 60 percent by 2013.

From there, the deficit will grow even wider, according to Kim Nicholl, the national director of PricewaterhouseCoopers public sector retirement practice. Even if public pension funds were to hit their 8 percent investment targets every year, Nicholl calculated they would have less than half of what they need by 2025. This is because a greater share of the population will be retired and those who are will live longer, thus collecting benefits longer, she said.
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Re: Global Economic Crisis

Postby Jack Burton » 25 Nov 2009, 22:44

MaPoSquid wrote:video: Americans' Standard of Living Permanently Changed
The end of rampant consumerism is ultimately a good thing, he says, but the unraveling of an economy built on debt-fueled spending will be painful for years to come.
[/quote]

Just out of curiosity, does the modern economy have anything else to base on other than the drivers of consumption and debt (to expand capital e.g.)? What are our options?
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Re: Global Economic Crisis

Postby kfed » 20 May 2010, 11:41

Any thoughts or updates 7 months later?

What do you see shaping up?

Consumer spending patterns seem very odd in the US.

I think a lot of trouble still lurks below the surface for the US housing market, which will influence consumer spending.

This past week I looked at a very nice lake house, the owner explained that he had mortgaged "the hell" out of the house, and that he had drained his 401k. Now this fellow is asking a very high price for his house hoping it will pay off some of his debt. Will this guy hold onto the house because he "can't afford to sell it" or will it eventually go into short sale etc?

This fellow stated his house qualifies for a " no down payment " loan, wow I wanted to say great so I can end up just like you, but I held my toungue. So here is this house on a lake 3 acres wooded lot, with over 400 feet of water frontage, 30 minutes from a major metro area/city, which qualifies for a no down payment mortage. Is this not the type of behavior and loans which helped create the bubble?

My point in the above example is that it can take a long time for this type of situation to unwind, therefore we have probably only seen a small amount of what lurks below the surface.

I can cite several tales of older people near retirement that are having to sell "income properties."

All of this influences US consumer spending which impacts many areas.

Excuse my rambling, anyone have any thoughts ?

Or examples from other regions?
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Re: Global Economic Crisis

Postby sulavaca » 20 May 2010, 13:47

I was watching a video recently which was displaying most of the known facts regarding the U.S. and its budget deficit. I thought the way in which the editor put the situation was quite easy to understand for most people instead of simply going about numbers which people can't comprehend. The U.S. needs around seven hundred new companies all as successful as Apple in order to gain enough tax revenue to balance the budget for next year alone, and that doesn't include spending in areas such as health care, the military and pensions.
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Re: Global Economic Crisis

Postby headhonchoII » 24 May 2010, 12:13

I think it comes down to spreading the wealth and jobs. If there not enough jobs being created or salaries are under pressure then that just kills the economy. Where are the jobs?
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Re: Global Economic Crisis

Postby lbksig » 24 May 2010, 13:56

headhonchoII wrote:I think it comes down to spreading the wealth and jobs. If there not enough jobs being created or salaries are under pressure then that just kills the economy. Where are the jobs?


(US centric for a second)
Some are lost forever because productivity went up. Some are lost temporarily because they aren't needed now but may be needed in the future (real estate and construction are examples). Some are lost but could come back when the economy eventually recovers (retail jobs).

Demand is down so businesses aren't hiring. Demand is down because the economy was humming along thanks to a negative savings rate for so long which was unsustainable. Eventually someone will stop lending you money and there will be a correction. That time came and now consumers have cut back to pay down debt and rebuild savings. When we see sustainable spending levels that have around a 5% savings rate, consumer confidence will have risen to the point that businesses will look to expanding their workforce. Real estate and construction will take a long time to recover because there is a glut of properties on many markets right now.

That's all assuming that tax rates stay the same. That's where we can get away from US centric and look more worldwide. Higher tax rates encourage businesses to take actions to avoid them. They'll move jurisdictions, they'll hire temporary employees instead of full time employees, work their currently employees more rather than hiring new ones, not expand so they can stay beneath the line where higher taxes kick in, etc.

The debt situation in many countries is a serious hindrance to the economic crisis abating. Tax revenue is down in many locales because of the Recession. With lower revenue, but the same spending, the difference is made up in debt. If the government can't borrow the difference, they are left with a decision to raise taxes or fire workers. Governments don't like to fire employees, especially when they are unionized. They would rather raise taxes, but that reduces the available funds for businesses to use for hiring new workers, expanding, buying more product to sell, etc. Spreading the wealth through taxes will lead to fewer jobs than if you had low taxes and small government.
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Obama's offering a payroll tax cut, but only for small business. Ok, fair's fair. We pay taxes, but only for small government. - Fred Thompson
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Re: Global Economic Crisis

Postby cfimages » 24 May 2010, 14:03

lbksig wrote: Spreading the wealth through taxes will lead to fewer jobs than if you had low taxes and small government.


So why does the US, with it's relatively low taxes, have an unemployment rate that's about the same as the EU, where taxes are generally much higher?
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Re: Global Economic Crisis

Postby headhonchoII » 24 May 2010, 14:14

I didn't mean taxes, although that is certainly part of it, I meant the disparity between middle and upper management level and more general operative workers. The jobs only get offshored due to general tariff agreements and lower operating costs in non-regulated, fixed low currency regimes. It doesn't actually have to be that way....
the way many US corporations still make big profits worldwide but shipped the jobs out of the US and use the yuan/dollar spread to keep reaping in revenues from sales back into US. It is not 'black-white' rather it is something that should be adjusted according to the reality..if the system is not working to your advantage why not change tariffs a bit to rebalance? If the economy would benefit by putting money into more peoples hand why not do that? As I know from my personal business experience the western countries are now offshoring high level jobs to China, this is mainly because of the low yuan ,non-tariff trade agreement and lack of environmental and labour law, not 'productivity' improvement.


The management level make money from bonuses, the shareholders and hedge funds make money, but the lower level don't. That's disparity and that's whats killing the economy. It's a fact that people on lower salaries spend more of their income per month, the money goes through the economy more efficiently. The US is still the worlds biggest market, I don't know why they are killing their own golden egg.

I agree with the savings bit and that people need time to get themselves back in shape also and learn to be more prudent.
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Re: Global Economic Crisis

Postby lbksig » 25 May 2010, 01:20

cfimages wrote:
lbksig wrote: Spreading the wealth through taxes will lead to fewer jobs than if you had low taxes and small government.


So why does the US, with it's relatively low taxes, have an unemployment rate that's about the same as the EU, where taxes are generally much higher?


What time frame are you using for your reference? Pre-Recession? Currently? It's an important question because it wouldn't be accurate to cherry pick the worst unemployment for the US (Jan 2010) for comparison with the best unemployment for the EU (March 2008).

Pre-Recession US had an official unemployment low (not seasonally adjusted) of 3.6% in October 2000. That went up to a high of 6.5% in June 2003 before dropping to a low of 4.1% in October 2006. In October of 2007 it started it's climb to the high of 10.6% in Jan 2010. Bureau of Labor Statistics

For the EU I have only been able to find seasonally adjusted numbers. In October of 2000, EU-15 had a reported unemployment of 7.8%. In June 2003 it was 8.1%. In October 2006 it was 7.7% and in January 2010 the EU unemployment rate was 9.9%.

Some regions in the US are affected worse than others, with Detroit and the rust belt being an example of that. You can see the same in the EU with regions like Spain having a 17.4% unemployment rate. Still, until March 2007 the US had about half the level of unemployment that the EU did. The US rate increased but was still a point and a half below the EU. Sometime around March 2009 they reached parity and the US exceeded the EU. Economy of the European Union.
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Obama's offering a payroll tax cut, but only for small business. Ok, fair's fair. We pay taxes, but only for small government. - Fred Thompson
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Re: Global Economic Crisis

Postby lbksig » 25 May 2010, 06:10

headhonchoII wrote:I didn't mean taxes, although that is certainly part of it, I meant the disparity between middle and upper management level and more general operative workers. The jobs only get offshored due to general tariff agreements and lower operating costs in non-regulated, fixed low currency regimes. It doesn't actually have to be that way....
the way many US corporations still make big profits worldwide but shipped the jobs out of the US and use the yuan/dollar spread to keep reaping in revenues from sales back into US. It is not 'black-white' rather it is something that should be adjusted according to the reality..if the system is not working to your advantage why not change tariffs a bit to rebalance? If the economy would benefit by putting money into more peoples hand why not do that? As I know from my personal business experience the western countries are now offshoring high level jobs to China, this is mainly because of the low yuan ,non-tariff trade agreement and lack of environmental and labour law, not 'productivity' improvement.


I don't think your trading partners would appreciate you rebalancing the tariff agreements whenever you feel you could get a better deal out of it by doing so. That defeats the point of lowering tariffs and applying them equally, barring certain provisions which allow for tariff hikes under the GATT and WTO. It also means that other countries could, and would, renegotiate the tariffs on goods they import from say the EU or the US in retribution. They'd probably renegotiate it pretty harshly, a 80 - 100% tariff. That would eviscerate most profit margins and would hurt US businesses that export.

The management level make money from bonuses, the shareholders and hedge funds make money, but the lower level don't. That's disparity and that's whats killing the economy. It's a fact that people on lower salaries spend more of their income per month, the money goes through the economy more efficiently. The US is still the worlds biggest market, I don't know why they are killing their own golden egg.

I agree with the savings bit and that people need time to get themselves back in shape also and learn to be more prudent.


Why do you think that spending more income per month on necessities is more efficient than investing money? I can't imagine that the rich have taken their money out of the system, put it in a tower and are swimming around in it like Scrooge McDuck. It's in a bank account, a money market account or an investment account and they are doing something with it. It's being traded for equity shares in a company, being traded for bond shares to fund a government or a bank is paying them miserly interest on it (and the bank is loaning it out for higher returns).

I don't see how the disparity is killing the economy. To me the specter of higher taxes (now and in the future) to pay back debt incurred in expanding welfare services is what will kill the economy. Higher tax rates discourage business growth, discourage investing, reduce the percentage of non-governmental employees in the workforce and a host of other negatives that won't raise the revenue the state wants. Lowering taxes, reducing expenditures and streamlining regulations will lead to the growth we need to be able to pay off that debt time bomb when Social Security runs out.
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Obama's offering a payroll tax cut, but only for small business. Ok, fair's fair. We pay taxes, but only for small government. - Fred Thompson
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