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Thread: Its still the Economy

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    Its still the Economy

    I know everyone likes the evolution/Pledge/war fights. But, its still about the economy. So I'm going to keep posting stuff like this.

    CounterPunch

    Good News! Soon You'll No Longer Need an Expensive College Education to Work in the US
    Watching the Economy Crumble

    By PAUL CRAIG ROBERTS

    The US continues its descent into the Third World, but you would never know it from news reports of the Bureau of Labor Statistics’ July payroll jobs release.

    The media gives a bare bones jobs report that is misleading. The public heard that 207,000 jobs were created in July. If not a reassuring figure, at least it is not a disturbing one. On the surface things look to be pretty much OK. It is when you look into the composition of these jobs that the concern arises.

    Of the new jobs, 26,000 (about 13%) are tax-supported government jobs. That leaves 181,000 private sector jobs. Of these private sector jobs, 177,000, or 98%, are in the domestic service sector.

    Here is the breakdown of the major categories:

    • 30,000 food servers and bar tenders;
    • 28,000 health care and social assistance:
    • 12,000 real estate;
    • 6,000 credit intermediation;
    • 8,000 transit and ground passenger transportation;
    • 50,000 retail trade; and
    • 8,000 wholesale trade.
    (There were 7,000 construction jobs, most of which were filled by Mexicans immigrants.)

    Not a single one of these jobs produces a tradable good or service that can be exported or serve as an import substitute to help reduce the massive and growing US trade deficit. The US economy is employing people to sell things, to move people around, and to serve them fast food and alcoholic beverages. The items may have an American brand name, but they are mainly made off shore. For example, 70% of Wal-Mart’s goods are made in China.

    Where are the jobs for the 65,000 engineers the US graduates each year? Where are the jobs for the physics, chemistry, and math majors? Who needs a university degree to wait tables and serve drinks, to build houses, to work as hospital orderlies, bus drivers, and sales clerks?

    In the 21st century job growth in the US economy has consistently reflected that of a Third World country--low productivity domestic services jobs. This goes on month after month and no one catches on--least of all the economists and the policymakers.

    Economists assume that every high productivity, high paying job that is shipped out of the country is a net gain for America. We are getting things cheaper, they say. Perhaps, for a while, until the dollar goes. What the cheaper goods argument overlooks are the reductions in the productivity and pay of employed Americans and in the manufacturing, technical, and scientific capability of the US economy.

    What is the point of higher education when the job opportunities in the economy do not require it?

    These questions are too difficult for economists, politicians, and newscasters. Instead, we hear that “last month the US economy created 207,000 jobs.”

    Television has an inexhaustible supply of optimistic economists.

    Last weekend CNN had John Rutledge (erroneously billed as the person who drafted President Reagan’s economic program) explaining that the strength of the US economy was “mom and pop businesses.” The college student with whom I was watching the program broke out laughing.

    What mom and pop businesses? Everything that used to be mom and pop businesses has been replaced with chains and discount retailers. Auto parts stores are chains, pharmacies are chains, restaurants are chains. Wal-Mart, Home Depot, and Lowes, have destroyed hardware stores, clothing stores, appliance stores, building supply stores, gardening shops, whatever--you name it.
    Just try starting a small business today. Most gasoline station/convenience stores seem to be the property of immigrant ethnic groups who acquired them with the aid of a taxpayer-financed US government loan.

    Today a mom and pop business is a cleaning service that employs Mexicans, a pool service, a lawn service, or a limo service.

    In recent years the US economy has been kept afloat by low interest rates. The low interest rates have fueled a real estate boom. As housing prices rise, people refinance their mortgages, take equity out of their homes and spend the money, thus keeping the consumer economy going.

    The massive American trade and budget deficits are covered by the willingness of Asian countries, principally Japan and China, to hold US government bonds and to continue to acquire ownership of America’s real assets in exchange for their penetration of US markets.

    This game will not go on forever. When it stops, what is left to drive the US economy?

    Paul Craig Roberts has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions.He can be reached at: paulcraigroberts@yahoo.com
    The widow is gathering nettles for her children's dinner; a perfumed seigneur, delicately lounging in the Oeil de Boeuf, hath an alchemy whereby he will extract the third nettle and call it rent. ~ Carlyle

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  3. #2
    Big Red Machine RedsBaron's Avatar
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    Re: Its still the Economy

    As the closing paragraph noted, Paul Craig Roberts is a former Reagan administration official, not some far left wing socialist or far right isolationist.
    I'm not persuaded that all-out protectionism is the way to go, but I'm not happy about the status quo either.
    "Hey...Dad. Wanna Have A Catch?" Kevin Costner in "Field Of Dreams."

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    Re: Its still the Economy

    Quote Originally Posted by RedsBaron
    As the closing paragraph noted, Paul Craig Roberts is a former Reagan administration official, not some far left wing socialist or far right isolationist.
    Although to be fair, Counterpunch is far left, as I'm sure some on here will be quick to point out.

    I don't think we have to think about protectionism either. For starters, provided health insurance might attract more manufacturing or at least keep it here.
    The widow is gathering nettles for her children's dinner; a perfumed seigneur, delicately lounging in the Oeil de Boeuf, hath an alchemy whereby he will extract the third nettle and call it rent. ~ Carlyle

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    CELEBRATION TIME RBA's Avatar
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    Re: Its still the Economy

    The military is still hiring.

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    Re: Its still the Economy

    Ok, I'm spending too much time at Counterpunch

    Doomsday Approaches
    The End of the Housing Bubble

    By MIKE WHITNEY

    I sold my home three weeks ago anticipating what I believe will be "Economic Armageddon" in the United States. It wasn't an easy thing to do. My wife and I have lived in the same home for 25 years, raised both of our children there, and owned the property outright without any loans or mortgage. The house was paid for in "sweat-equity", that is, by wielding a shovel day-in and day-out in my one-man landscape business. I don't say that for sympathy, but to illustrate that we played by the rules, worked hard, paid our taxes, and took advantage of the American dream of home-ownership.

    All that has changed.

    I sold my home for one reason; George W. Bush. He and his protégé at the Federal Reserve have submerged the country into a morass of "unsustainable" debt, disrupted the nation's economic equilibrium and thrust us towards fiscal disaster. They've also generated a humongous housing bubble through their irresponsible and self-serving manipulation of interest rates.

    The facts are astonishing.

    The current housing bubble "is larger than the global stock market bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stock market bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history." (The Economist)

    The banks have lowered the standards for home loans to such an extent that the traditional loan of 20% down and a fixed interest rate is virtually a thing of the past. Instead, those conservative practices have been replaced with "creative financing" schemes that put the entire housing market at risk.

    Consider this: In 2004 "one-fourth of all home-buyers including 42% of first-time buyers"made no down payment". (New York Times)

    No down payment?

    Sorry, but if a buyer can't come up with at least $5 thousand dollars for a down payment, he shouldn't qualify for a home loan.

    Equally troubling is the fact that "nearly one third of all new mortgages this year call for interest-only payments (in California, its almost half)" (NY Times) This tells us that a large number of new buyers can barely make their payments, but are gambling that their property value will go up enough to justify their investment. This is "equity-roulette"; a shell-game that anticipates that salaries will go up while interest rates stay low.

    Is that a reasonable judgment?

    No, Greenspan has said that he will continue to ratchet up interest rates to head off inflation. This means that an economic slowdown is a near certainty. Remember, "class-warrior" Alan Greenspan lowered the prime rate to a ridiculously low 1% in 2002 to keep the economy humming-along while $300 billion was sluiced into Bush's "preemptive" war in Iraq and while the tax cuts were siphoning the last borrowed farthing out of the public coffers. The Bush tax cuts transferred an average of $400 billion dollars per year into the pockets of America's plutocrats. Now, the country is flat-broke and Greenspan will have to "incrementally" raise rates to stabilize the sagging dollar. This means a sluggish economy for most of us and doomsday for over-extended homeowners.

    Greenspan assumed he could carry out his plan without too much unnecessary carnage. Unfortunately, gluttonous mortgage lenders have lowered long-term loans while the prime rate continues to go up. The banks, it seems, are addicted to the "cash cow" of shaky lending and are providing even riskier loans to new applicants. This has upset the Fed-master's strategy for a "soft landing" and Greenspan has begun feverishly issuing warnings about an inevitable "adjustment" when the market bogs down. The bottom line is that the housing bubble is getting bigger by the day and increasing the potential for catastrophe.

    The current problem is compounded by the dramatic surge of speculation in the housing market. As "The Economist" says, "A study by the National Association of Realtors (NAR) found that 23% of all American houses bought in 2004 were for investment, not owner-occupation. Another 13% were bought as second homes. Investors are prepared to buy houses they will rent out at a loss; just because they think prices will keep rising"the very definition of a financial bubble."

    What will happen to these "speculative" buyers when the market "flattens out" or the economy takes a sudden dip?

    And, what will happen to the US economy when the jobs that depend on new home sales vanish overnight?

    "Over the past four years, consumer spending and residential construction have together accounted for 90% of the total growth in GDP. And over two-fifths of all private-sector jobs created since 2001 have been in housing-related sectors, such as construction, real estate and mortgage broking." (The Economist)

    "Two out of every five" private sector jobs are now entirely dependent on an industry that is built on pure quicksand.

    So, why would banks foolishly loan money to people who can't even scrap together a few thousand dollars for a down payment or who can scarcely meet their "interest-only" obligations?

    The reason is simple; because they are not the one's taking the risk. Mortgage loans are acquired by investment banks and chopped up into various securities where they are sold in mutual funds, hedge funds and pension funds etc. To some extent, this takes the lenders off the hook, but it also means that the shock to the system will be much more widespread when the day of reckoning finally arrives. If we encounter a major glitch in the economy the shock-waves will be felt throughout the world. "Investors now hold $4.6 trillion in mortgage backed securities. That's more than the outstanding value of the US Treasuries." (NY Times) Think about it.

    Shaky lending, interest-only loans, no down payments, a US government that is $8 trillion in debt due to Washington's profligate spending, and a "ticking-time bomb" of adjustable-rate mortgages that will reset within three years; the table is set for a disaster of Biblical proportions. If we hit a bump in the economic road ahead (rising gas prices? recession?) the "Land of the free" will be knee-deep in bankruptcies and foreclosures. We'll all be fighting for a soft-spot under the freeway on-ramp.

    The fatuous Greenspan believes that all this can be avoided by regulating the money supply.

    He's dead wrong, and I bet my house on it.

    Note: The current dilemma could have been avoided if Greenspan had incrementally raised rates as the bubble began to appear. Instead he lowered rates to facilitate Bush's war in Iraq. It was purely a political decision that "postponed" the economic pain of the conflict and allowed the Bush administration to shift the cost of the war onto future generations.

    Consider, also, how Greenspan paved the way for the budget-busting tax cuts (which he enthusiastically approved) and how they have increased America's debt by $3 trillion. This is real money that American workers will eventually have to pay back in the form of taxes and a higher cost of living. This "class loyalty" is strikingly at odds with his philosophy as a young man when he said, "Deficit spending is simply a scheme for the confiscation of wealth."

    So it is; and the $3 trillion dollars that evaporated on Greenspan's watch was in fact stolen from the American people while the Fed-chief concealed the crime behind the smokescreen of low-interest rates. In the final analysis, Greenspan will be seen as a greater traitor than Bush.

    Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com
    The widow is gathering nettles for her children's dinner; a perfumed seigneur, delicately lounging in the Oeil de Boeuf, hath an alchemy whereby he will extract the third nettle and call it rent. ~ Carlyle

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    Big Red Machine RedsBaron's Avatar
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    Re: Its still the Economy

    I'm generally a conservative, I'm a Republican, I voted for Bush--so I'm hardly a target of Counterpunch, which Rojo has characterized as "far left." I could also do without the inflamed rhetoric--"a greater traitor than Bush." I don't regard Greenspan or Bush, or Bill or Hillary Clinton for that matter, to be "traitors." I'm also not planning to sell my house.
    All that said, the last article Rojo posted was interesting, and I've had some anecdotal evidence recently to support the idea that there is a housing bubble:
    1. Last month a friend of mine, who had bought a condo in Florida last year to avoid WV winters while he recovered from cancer treatment, told me that he was buying more condos with the objective of "flipping" them. He agrees to buy a new condo at a set price with the expectation that by the time condo is actually built he can sell it to someone else for a big profit. He said this is all the rage down in Florida.
    2. A few days ago a business publication ( I can't recall which one) I read was touting investing virtually everything in real estate as a "can't miss" investment.
    3. Yesterday a lawyer friend reported he had just purchased three beach homes in The Outer Banks as an investment.
    4. My mortage company sends me a letter almost every week telling me how to get the cash out of the equity in my home by taking a loan equal to the equity.
    "Hey...Dad. Wanna Have A Catch?" Kevin Costner in "Field Of Dreams."

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    Re: Its still the Economy

    I can attest (anecodtally, of course) that the market for professionals is almost bone dry.

    The summer legal market (where a good number of law students build job contacts in the 2nd year summer) is almost completely dry, and the law market in general is extremely slow. I've heard about a lot of recent graduates that are having an incredibly difficult time finding any kind of employment -- one kid I know has just been waiting tables for over a year, already having passed the bar and just looking for somewhere to work.
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    Re: Its still the Economy

    Quote Originally Posted by RedsBaron
    1. Last month a friend of mine, who had bought a condo in Florida last year to avoid WV winters while he recovered from cancer treatment, told me that he was buying more condos with the objective of "flipping" them. He agrees to buy a new condo at a set price with the expectation that by the time condo is actually built he can sell it to someone else for a big profit. He said this is all the rage down in Florida.
    2. A few days ago a business publication ( I can't recall which one) I read was touting investing virtually everything in real estate as a "can't miss" investment.
    3. Yesterday a lawyer friend reported he had just purchased three beach homes in The Outer Banks as an investment.
    4. My mortage company sends me a letter almost every week telling me how to get the cash out of the equity in my home by taking a loan equal to the equity.
    Sometimes anectdotal evidence is the best kind. "Flipping" has become the day-trading of the oughts. And some day, and that day is fast arriving, there will be no greater fools to buy these "investments".

    After reading that article, I wonder if perhaps the selling of mortgages on a secondary market shouldn't be prohibited. If a bank doesn't want to stick out the life of the loan maybe it shouldn't make it.
    The widow is gathering nettles for her children's dinner; a perfumed seigneur, delicately lounging in the Oeil de Boeuf, hath an alchemy whereby he will extract the third nettle and call it rent. ~ Carlyle

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    Re: Its still the Economy

    Just want to see if my signature line works.
    Madness is like gravity....all it needs is a little push.

    Why so serious?

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    Re: Its still the Economy

    Quote Originally Posted by Rojo
    Sometimes anectdotal evidence is the best kind. "Flipping" has become the day-trading of the oughts. And some day, and that day is fast arriving, there will be no greater fools to buy these "investments".

    After reading that article, I wonder if perhaps the selling of mortgages on a secondary market shouldn't be prohibited. If a bank doesn't want to stick out the life of the loan maybe it shouldn't make it.
    I just can't believe that the consumers are so willing to take a 100% interest mortgage. We had to take a HELOC to buy our place but I thought only coming up with 10% was even a bad move because or interest rate on the HELOC went from 3 to 8.25% these days. Lucky for us we paid it off while it was at 6% but it just seemed like such a bad system for the buyer.
    Climbing down from the bridge, but keeping the torch lit until Dusty's fate is settled

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    Re: Its still the Economy

    Quote Originally Posted by LincolnparkRed
    I just can't believe that the consumers are so willing to take a 100% interest mortgage.
    But it works fine as long as the price of the home goes up 30%. Problem is that its only going up because the buyer is expecting it to go up further. Its the Amway theory of real estate.
    The widow is gathering nettles for her children's dinner; a perfumed seigneur, delicately lounging in the Oeil de Boeuf, hath an alchemy whereby he will extract the third nettle and call it rent. ~ Carlyle

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    Pre-tty, pre-tty good!! MWM's Avatar
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    Re: Its still the Economy

    Well, I've believed for quite some time that the housing bubble will burst, and burst badly at some point in many of the major cities in the country. We're looking at moving to Minneapolis next summer and housing there has gotten pretty ridiculous in the last 5-7 years. Prior to that, the Twin cities area was one of the more affordable places to live, then they experienced a masive boom and it's impossible to get into a decent home for less than $250k. Already some homes are starting to decline in some of the higher end areas. I wish it would decline rapidly over the next 9 months, bottom out, then start to appreciate again.

    As for the other doom and gloom stuff about outsourcing, I don't buy it. There's definitely merit to the arguments, but there's plenty of credible writings out there taking the other side of the issue that I tend to believe a little more. If I get some time tonight, I'll try to dig one up.

    As for the market for professionals drying up, I know that's definitely not true at all. It might be for a few select professions (such as attorneys or high tech techies), but not across the board. There's been a growing trend towards the over-saturation of lawyers and too many law students to fill the demand. It's been heading in this direction for some time now and the number of law schools will have to correct itself to come to qequilibrium. It's a natural part of supply and demand.

    But demand for professionals in other areas is plenty strong. There's more opportunities right now for people in business schools than there have been in a long time. There are more high good jobs than students to fill them. Head hunters are calling right and left with very good opportunities. Most people are having multiple offers to choose from. It's a great time to be in the business professional world, so I don't agree with the argument that the market is dry. That's been the exact opposite of my experience.
    Grape works as a soda. Sort of as a gum. I wonder why it doesn't work as a pie. Grape pie? There's no grape pie. - Larry David

  14. #13
    Titanic Struggles Caveat Emperor's Avatar
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    Re: Its still the Economy

    Quote Originally Posted by MWM
    As for the market for professionals drying up, I know that's definitely not true at all. It might be for a few select professions (such as attorneys or high tech techies), but not across the board. There's been a growing trend towards the over-saturation of lawyers and too many law students to fill the demand. It's been heading in this direction for some time now and the number of law schools will have to correct itself to come to qequilibrium. It's a natural part of supply and demand.
    Law school admissions rates are not held to any standards like they are in some other fields. Thus, there has ALWAYS been more lawyers graduating than there were jobs to be filled. In the stronger economic years of the mid-late 90s, though, you had fewer people entering the legal marke to begin with because it was so lucrative to head off to a job immediately after college. The heavy economic expansion also led to more jobs being created at firms and coproations for lawyers, which isn't the case now. And, making the situation even nicer, there were many lawyers in the 90s who eschewed the traditional legal market alltogether, in favor of high-paying jobs in the corporate world and a booming tech sector that everyone wanted to be a part of.

    Now, with the market for jobs that a traditional 4-year grad can hold being tight, more people are choosing to return to get a professional degree instead of heading to the workplace, creating a squeeze at the front end (more people for less seats in school) and at the back-end (more people for less jobs). Thus, those places which are offering jobs in the legal field can afford to be more selective.

    But demand for professionals in other areas is plenty strong. There's more opportunities right now for people in business schools than there have been in a long time. There are more high good jobs than students to fill them. Head hunters are calling right and left with very good opportunities. Most people are having multiple offers to choose from. It's a great time to be in the business professional world, so I don't agree with the argument that the market is dry. That's been the exact opposite of my experience.
    I have no experience with this, but everythign I've heard from people who graduated business is that this is a great time to have a degree with heavy background in finance, but good luck even getting a nibble if your concentration is more towards the marketing end of the spectrum.
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    Re: Its still the Economy

    My goal has always been to keep the annual return on investment in my home higher than it would be if I invested elsewhere. Through sweat equity and smart buying, we have always done that, to the point that we have about 60% equity in our property. Not bad for a one income family on public servant's wages. We joke about being like an old couple, but honestly I think what we are doing is solid, smart investing.

    At some point, I will probably buy an investment property (Bloomington IN has a pretty solid market because of the university), but I'm just not capable of jumping onto the real estate bandwagon- we are just way too risk averse for that. My grandmother used to love to remind me that in german the words for debt and guilt were the same. That about describes us to a tee.

    About the articles: So what if immigrants are getting loans? They come to this country and work their butts off to make it; what's wrong with that?
    Unfortunately, we have to accept the fact that we can't insulate ourselves from the global competitors out there. Anyway, I don't believe protectionism is the answer. Rather, I think that organizing is the answer. As long as our government looks the other way while foreign companies undercut our economy by manufacturing with near slave labor, in horrible conditions, then our workforce will continue to lose. Force those companies to treat their workers with some respect and watch the price of their products rise. As it is, I have little confidence that this administration will do that, though.
    Next Reds manager, second shooter. --Confirmed on Redszone.

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    Pre-tty, pre-tty good!! MWM's Avatar
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    Re: Its still the Economy

    Quote Originally Posted by Caveat Emperor
    I have no experience with this, but everythign I've heard from people who graduated business is that this is a great time to have a degree with heavy background in finance, but good luck even getting a nibble if your concentration is more towards the marketing end of the spectrum.
    I'm not trying to be a contrarian here, CE, but in my experience it's the marketing people getting the most opportunities, even moreso than finance. And I'm not suggesting my experience is representative of the overall picture, but my comments about head hunters above were mostly referring to marketing. In my program, even if you're not one of the more highly sought after candidates, if you're doing marketing you're going to have several offers to choose from.

    My focus has been in marketing and I've had quite a few companies contact me directly without me even showing interest. I jus finished an internship with a company known to be one of the best marketing companies in the world, and the people I work with are getting a couple of calls a week from headhunters with jobs-a-plenty.

    Again, what you're saying is completely different from my experience. I'm sure the truth lies somewhere in the middle.
    Grape works as a soda. Sort of as a gum. I wonder why it doesn't work as a pie. Grape pie? There's no grape pie. - Larry David


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