US economy grew at very slow pace during first quarter

The U.S. economy slowed to its lowest growth rate in three years. Consumer spending was at a very low growth pace with lower auto sales which offset a rise in oil drilling and housing investment.

Gross domestic product (GDP) rose just 0.7 percent during the quarter at an annualized rate. In the prior quarter the growth rate was 2.1 percent. A median of various analyst's forecasts was 1.0 percent. The largest part of the economy consumer spending rose by only 0.3 percent the worst performance since 2009.

Michael Feroli, chief U.S. economist for JP Morgan Chase & Co. said: “There’s reason to think that some of the things that were weak in the first quarter should reverse in the second quarter, in particular consumption and inventories. Labor income is starting to pick up and actually keeping consumer spending pretty well supported.” Federal Reserve policy makers will probably still raise interest rates in the coming months as many economists see the weak growth as a blip rather than a sign of stagnation. Since 2000 expansion in the first quarter of each year has been recorded as weaker than the other three quarters. In first quarters average expansion has been only one percent compared to 2.2 percent in the other three quarters.

Analysts estimates of growth are from 2.2 percent to 2.3 percent through 2019 whereas Trump projects a more optimistic three to four percent growth on a sustained basis. The range of individual economist's's forecasts for 2017 were from zero to 2.2 percent. Disposable personal income was rising at a slow one percent rate last quarter the slowest growth since the fourth quarter of 2013. Even though the jobless rate is low and there is hiring an increase in wages is needed to promote consumer spending. Government spending decreased 1.7 percent taking away 0.3 percent from growth. Prices rose 2.3 percent during first quarter eating away at what the consumer dollar buys.

As I write this, the Dow Jones is down slightly, but still at 20,965 not far from the 21,000 mark. S&P 500 was almost flat and Nasdaq was up marginally. As the price of oil rose, the Toronto S&P/TSX added almost one hundred points. After strong growth in January, the Canadian economy was almost flat in February but this was as predicted.

After a fifth straight month of gains, global markets appear to be ending the month sluggishly. This was not helped by Trump's continued complaints about NAFTA and now a free trade pact with South Korea. Saturday marks Trump's 100th day in office.

Kiran Kowshik, an investment strategist at Unicredit, said: "Trump is reaching the 100 day mark with nothing to show for it and these recent comments just coincide with that. They (the U.S. administration) are finding it hard to push through fiscal plans and all this rhetoric is probably related." The mood in Europe was still relatively optimistic as data on output in several countries was positive and many were relieved after it became clear that the right-wing anti-Europe Le Pen would not likely win.

Back in early February, Nouriel Roubini, Dr. Doom, predicted that the stock market honeymoon with Donald Trump would soon be over. It may not be over but it is certainly paused and the market was not impressed by Trump's release of his tax plan which was short of details and regarded by many as unrealistic. It may be an uphill battle to shape the plan so as to pass through congress.

International Monetary Fund lowers global economic growth forecast

- The International Monetary Fund(IMF) reduced its projected global growth number for next year from 4 percent in July to 3.8 percent now. The downgrade resulted from continued economic weakness in the Eurozone and a slowdown in several emerging markets.

The 3.8 percent growth rate is still better than the estimated 3.3 percent growth estimated for this year.The IMF claimed there is a one in three chance that the Eurozone could actually enter a recession. Growth forecasts were reduced for the three largest European economies, Germany, France and Italy. Italy will be entering its third year in recession. Lower growth rates are also predicted for Japan, Russia, and Brazil. Brazil is expected to grow only 1.4 percent next year down from the 2.0 percent predicted in July. However, there are signs of strengthening in the world's largest economy the United States and gains as well in Canada and Mexico.
 After a slow growth rate in the first part of 2014 the IMF upgraded US growth prospects to 2.2 percent for 2014. Job growth numbers have been strong and the unemployment rate has dropped to 5.9 percent. 248,000 jobs were added in September. Canada is predicted to grow by 2.3 per cent this year and 2.4 percent in 2015.
 IMF economic growth forecasts have tended to be overly optimistic. In the last four years they have repeatedly been forced to downgrade their growth forecasts.The IMF Managing Director Christine Lagarde warned that the recovery was "brittle, uneven and beset by risks". The IMF report also suggested that the global economy might never return to the high growth rates prior to the financial crisis. Details of the IMF predictions and graphs can be found at this Guardian article..
 While China's growth is predicted to be 7.4 percent this year, by sometime in 2016 it is expected to be down to 6.5 percent. While many countries would envy such growth rates, they are well down from the over ten percent average yearly growth rate before the financial crisis.
 Russia's growth rate will be hit by sanctions imposed by the US and EU. The ruble's value has plunged as investment dries up and capital flees. The IMF predictions assume that the geopolitical tensions in such places as Iraq and the Ukraine will be less. The report noted that "the projected pickup in growth may again fail to materialize or fall short of expectations" and stress that there were increasing downside risks. The downside risks included high levels of public and private debt in many countries.

How the failure of subprime mortgages hurts the overall economy

The entire article is at freep.com Consumer debt is obviously increasing at an alarming rate. However, if credit starts to dry up so does consumption and production causing a depression. Already some economists are claiming that there is a depression in the US.


A shaky house of cards

How the failure of subprime mortgages hurts the overall economy
January 6, 2008

By JOHN GALLAGHER

FREE PRESS BUSINESS WRITER

Given the huge piles of consumer and business debt out there, many U.S. residents seem to think easy credit is their birthright. That cozy feeling that a loan is always within reach is getting rudely shaken. An international credit crunch is upon us. The subprime mortgage crisis spawned it, but everything from home-equity loans to business lines of credit may be touched before it's over.

Sectors as disparate as auto-parts suppliers and developers of riverfront condos in Detroit are feeling the pinch of tighter credit, battering an already weak Michigan economy. "The unwinding of debt is all encompassing. It's from the little homeowner out there to the big corporation," said Larry Moss, senior vice president for the Raymond James investment firm in Birmingham.




The credit crunch overlaps with other negative trends, most noticeably the poor housing market and weakening consumer spending. The fear is that tighter credit and weaker spending will reinforce and amplify each other, creating a downward spiral leading to a recession.

"Once you get in that cycle, then it becomes really, really scary," said Amiyatosh Purnanandam, a professor of finance at the Ross School of Business at the University of Michigan who has studied tight-credit periods.

Key to survival

Credit -- the ability to get a loan -- will determine much of the course of economic activity in 2008. Among much else, credit or the lack of it will determine whether several auto suppliers survive a trip to bankruptcy court, whether condominium projects along Detroit's east riverfront get built, and whether millions of consumers take a vacation, buy a car or purchase a house.

For Ray Parker, a Detroit commercial real estate broker, the weakening economy has meant some personal tightening up. Parker recently refinanced his Southfield condominium with a new mortgage. He got a shock when the home appraisal came in $20,000 below what he had paid for his condo because of a real estate market battered by the subprime crisis.

"I'm trying to pay my credit cards off in case things don't get much better in the real estate business. They have not been great," he said.

Easy credit is a distinctly modern phenomenon. In the tight-money era of the 19th Century and early years of the 20th, farmers, tradespeople and ordinary working folks found credit hard to come by. An old joke defined a banker as a man who would lend money only to those wealthy enough not to need it.

After World War II, however, the G.I. Bill helped millions of U.S. families buy houses with government-backed mortgages. Banks eager to grow began to look for new customers and new ways to lend money.

The advent of computers opened new possibilities in mass marketing of credit cards in the 1980s and '90s. Niche marketing -- creating a loan product or line of credit for every conceivable borrower -- became the norm.

Today, it's the rare U.S. adult who doesn't carry at least some debt: a mortgage, a car loan, a student loan, a home-equity line of credit or credit card debt. And the amount of that debt is rising rapidly.

Ten years ago, consumer debt in the United States, excluding home mortgages, totaled $1.24 trillion. Today, Americans have roughly doubled the amount of non-mortgage debt they carry, to $2.5 trillion, or $8,300 for every man, woman and child in the country.

This easy credit helped make consumers the drivers of the U.S. economy, with consumer spending accounting for an estimated 70% of economic activity in the nation.

But at a price: A typical homeowner's debt burden including mortgages and other types of credit now stands at about 18% of disposable income, up from under 14% in 1980, according to the Federal Reserve Board.

For businesses, too, credit is lifeblood. Lines of credit and, for larger corporations, commercial paper, bonds and other forms of borrowing are as essential as any raw materials.

"I don't think businesses ever got to the point where credit was thrown at them the way consumers did," said Justin Moran, a Grosse Pointe banking consultant, "but certainly the so called middle market, small business credit, is a growing phenomenon."

That's why the current credit crisis has so jarred the U.S., and global, financial system. In an economy greased by relatively easy credit, the inability to lend or borrow on the usual terms threatens not just consumers, but industry after industry.

A car loan credit crunch?

So people will lose not only their houses but their cars. Again these loans were sold as securities and no doubt the risk is spread all over the globe. If there is a recession in the US more and more debtors will be unable to make payments and this will cause even more problems within the economy. It could be a very bumpy ride in 2008. But Happy New Year everyone anyway!

[Fasten your seatbelts, it's going to be a bumpy night!]

http://www.latimes.com/business/la-fi-autoloans30dec30,0,4315064.story?coll=la-home-center

Los Angeles Times

New cars that are fully loaded — with debt
Americans are rolling over loans, often ending up owing more for the
vehicle than it's worth.

By Ken Bensinger / Los Angeles Times Staff Writer

December 30, 2007

When Jennifer and Bobby Post traded in their 2001 Chevy Suburban last
year for a shiny new Ford F-350 turbo diesel with an extended cab, it
seemed like a great deal. Even though they still owed $9,500 on their
SUV after the trade-in value, they didn't have to put a penny down.

The dealership, near the Posts' home in Victorville, made it easy; it
just added the old debt to the price of the new truck and gave the
couple a seven-year, $44,276 loan.

The Posts were a little worried about taking on such a long
obligation, but they couldn't pass up a monthly payment under $700.
Now they're having regrets.

"I didn't realize how much debt was in it," said Jennifer Post, who
has since moved with her family to Iowa. Now, she'd like to get rid of
the truck but can't, because there's so much debt that she'd literally
have to pay someone to take it off her hands.

"We have no options," she said.

Americans haven't just been taking out risky mortgages for homes in
the last few years; they've also been signing larger automobile loans
for significantly longer terms than they used to.

As a result, people are slipping into a perpetual cycle of automobile
debt that experts think could lead to a new credit crunch extending
from dealerships to driveways and all the way to Wall Street.

Gone are the days of the three-year car loan. The length of the
average automobile loan hit five years, four months in October, up
more than six months from 2002, according to the Federal Reserve. And
nearly 45% of loans written today are for longer than six years. Even
some staid lenders owned by the carmakers, such as Toyota Financial
Services and Ford Credit, are offering seven-year financing. And a few
credit unions, particularly in the West, are tinkering with the
eight-year note.

At the same time, the amount of money drivers owe on their cars is
soaring. In October, the average amount financed hit $30,738, up
$3,500 in just a year and nearly 40% in the last decade, according to
the Fed. More troubling, today's average car owner owes $4,221 more
than the vehicle is worth at the time it's sold -- up from $3,529 in
2002, according to industry analyst Edmunds.

[that's much too much! -- JD]

... It's not just individual consumers who are at financial risk.
Nationwide, an estimated $575 billion in new and used auto loans are
written every year by auto manufacturers, banks, credit unions and
other lenders. About 30% of the loans that are originated by banks,
and 100% of those issued by automaker financiers, are, like mortgages,
repackaged and sold as securities, according to the Consumer Bankers
Assn.

Analysts warn that just as investors didn't comprehend the risk
inherent in some of the more exotic home mortgages in recent years,
they aren't considering how risky these car loans are. If longer loan
terms allow debt on the loans to grow too large, many drivers may
simply default, leading to expensive repossessions.

And even those who keep paying their bills may reach a point, like
Gerhardt, where they simply can't afford another car. That could send
vehicle sales down the drain, a nightmare scenario for an industry
that has already taken a hit this year from slower consumer spending
and higher gas prices.

It could also lead to serious losses among financial institutions that
have invested in car debt. Among securitized auto loans, two-thirds
have terms longer than 60 months, a fact that Standard & Poor's, which
rates auto debt for sale on the secondary market, calls a "credit
concern."

This month, S&P reviewed its ratings on $113.5 billion in auto loan
securities it rated in the last two years out of concerns over growing
losses. It didn't make any downgrades but predicted that "rising
losses will continue into 2008 across all segments of the auto loan
market."

S&P has found that delinquencies of more than 60 days on car loans
issued this year to borrowers with the best credit are up 20% compared
to those issued last year, while delinquencies on loans issued this
year to subprime borrowers increased by 16%. Delinquency rates on car
loans are still far lower than on mortgages, but there is growing
concern in the financial services industry. Indeed, Tom Webb, chief
economist of used-auto analyst Manheim Consulting, said he expects the
tally for 2007 repossessions to be up by 10%.

Mark Pregmon, executive vice president for consumer lending at
SunTrust Bank, is among the concerned. "Any time you extend the
maturity of the loan, you take on more risk. The question is whether
there's enough assessment of that extra risk," he said. "Obviously,
it's a problem. It's a house of cards."

In the 1970s and '80s, car loans hovered between 36 and 48 months, and
drivers typically kept their cars longer than the life of the loan. A
number of factors changed that.

One key was interest rates, which fell from a high of 17.8% in the
early 1980s to lower than 5% today, according to the Federal Reserve.
Another was affordability. According to an index tracked by Comerica
Bank, cars have steadily gotten more affordable -- as compared to
median family income -- since the late 1990s.

With cheap money at hand for more-affordable cars, the temptation to
keep buying became huge. Today, according to Pregmon, financed cars
are typically turned over in 24 to 36 months.

At the same time they were extending loan maturities, lenders,
competing with one another, began offering more money and requiring
smaller down payments.

Today, most lenders offer financing on 100% or even 125% of the
sticker price, and some offer the most credit-worthy buyers loans for
twice the value of the vehicle they're purchasing. Last year, the
average amount financed for new cars reached 99%, according to the
Consumer Bankers Assn., up from 95% in 2005.

Lenders are beginning to brace themselves; many have said they intend
to tighten standards and require larger down payments.

Despite warnings from S&P, the Consumer Bankers Assn., Lehman Bros.
and others, there is little sign that the automobile industry is
willing -- or, with consumers demanding low payments, even able -- to
reduce the lengths of the loans they issue.

"For banks, it's a matter of meeting consumer demand: no money down
and extend the term," said SunTrust's Pregmon. "But as a lender,
you've got a moral obligation as well. Are we putting the clients in
loans they can't afford?"

ken.bensinger@latimes.com

Reckoning: The Economic Consequences of Mr. Bush

This is just a small sample of a much longer article in Vanity Fair. Stiglitz' article points out a host of economic problems that the Bush administration will leave for the next administration. No doubt some of the problems are partly due to circumstances beyond the administration's control but many others are a result of Bush sanctioned policies.

Reckoning
The Economic Consequences of Mr. Bush
The next president will have to deal with yet another crippling legacy of George W. Bush: the economy. A Nobel laureate, Joseph E. Stiglitz, sees a generation-long struggle to recoup.
by Joseph E. Stiglitz December 2007 The American economy can take a lot of abuse, but no economy is invincible. Illustration by Edward Sorel.
When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.

I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington; a swelling cascade of mortgage defaults; a record near-$850 billion trade deficit; oil prices that are higher than they have ever been; and a dollar so weak that for an American to buy a cup of coffee in London or Paris—or even the Yukon—becomes a venture in high finance.

And it gets worse. After almost seven years of this president, the United States is less prepared than ever to face the future. We have not been educating enough engineers and scientists, people with the skills we will need to compete with China and India. We have not been investing in the kinds of basic research that made us the technological powerhouse of the late 20th century. And although the president now understands—or so he says—that we must begin to wean ourselves from oil and coal, we have on his watch become more deeply dependent on both.

Up to now, the conventional wisdom has been that Herbert Hoover, whose policies aggravated the Great Depression, is the odds-on claimant for the mantle “worst president” when it comes to stewardship of the American economy. Once Franklin Roosevelt assumed office and reversed Hoover’s policies, the country began to recover. The economic effects of Bush’s presidency are more insidious than those of Hoover, harder to reverse, and likely to be longer-lasting. There is no threat of America’s being displaced from its position as the world’s richest economy. But our grandchildren will still be living with, and struggling with, the economic consequences of Mr. Bush.

Remember the Surplus?
The world was a very different place, economically speaking, when George W. Bush took office, in January 2001. During the Roaring 90s, many had believed that the Internet would transform everything. Productivity gains, which had averaged about 1.5 percent a year from the early 1970s through the early 90s, now approached 3 percent. During Bill Clinton’s second term, gains in manufacturing productivity sometimes even surpassed 6 percent. The Federal Reserve chairman, Alan Greenspan, spoke of a New Economy marked by continued productivity gains as the Internet buried the old ways of doing business. Others went so far as to predict an end to the business cycle. Greenspan worried aloud about how he’d ever be able to manage monetary policy once the nation’s debt was fully paid off.

This tremendous confidence took the Dow Jones index higher and higher. The rich did well, but so did the not-so-rich and even the downright poor. The Clinton years were not an economic Nirvana; as chairman of the president’s Council of Economic Advisers during part of this time, I’m all too aware of mistakes and lost opportunities. The global-trade agreements we pushed through were often unfair to developing countries. We should have invested more in infrastructure, tightened regulation of the securities markets, and taken additional steps to promote energy conservation. We fell short because of politics and lack of money—and also, frankly, because special interests sometimes shaped the agenda more than they should have. But these boom years were the first time since Jimmy Carter that the deficit was under control. And they were the first time since the 1970s that incomes at the bottom grew faster than those at the top—a benchmark worth celebrating.

By the time George W. Bush was sworn in, parts of this bright picture had begun to dim. The tech boom was over. The nasdaq fell 15 percent in the single month of April 2000, and no one knew for sure what effect the collapse of the Internet bubble would have on the real economy. It was a moment ripe for Keynesian economics, a time to prime the pump by spending more money on education, technology, and infrastructure—all of which America desperately needed, and still does, but which the Clinton administration had postponed in its relentless drive to eliminate the deficit. Bill Clinton had left President Bush in an ideal position to pursue such policies. Remember the presidential debates in 2000 between Al Gore and George Bush, and how the two men argued over how to spend America’s anticipated $2.2 trillion budget surplus? The country could well have afforded to ramp up domestic investment in key areas. In fact, doing so would have staved off recession in the short run while spurring growth in the long run.

But the Bush administration had its own ideas. The first major economic initiative pursued by the president was a massive tax cut for the rich, enacted in June of 2001. Those with incomes over a million got a tax cut of $18,000—more than 30 times larger than the cut received by the average American. The inequities were compounded by a second tax cut, in 2003, this one skewed even more heavily toward the rich. Together these tax cuts, when fully implemented and if made permanent, mean that in 2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.

Economic Forecast for California and US

While not all that optimistic this forecast shows a slowing down rather than any disastrous slump in the US economy.


UCLA Anderson Forecast: U.S. Economy Not In A Recession, "But It Is
Certainly Close"; In California, Slumping Housing Market Will Finally
Impact Job Growth

LOS ANGELES--(BUSINESS WIRE)--In its second quarterly report of 2007,
the UCLA Anderson Forecast continues to believe that the national
economy is not in a recession, though the group's economists now say
the economy is "certainly close" to recessionary conditions. The
Forecast asserts that real growth in 2007 will be 1.8%, "roughly on
par with the near-recessionary environment of 2002," when real GDP
advanced at 1.6%.

[it seems like a "growth recession," in which the growth rate of the
economy -- but not the economy itself -- falls. This can cause an
actual recession if it causes a sudden slump in business fixed
investment spending (via the accelerator effect) or in consumption
spending (as debt service payments rise relative to income).]

However, by mid-2008, growth will return to around 3% as the
contractionary forces coming from housing abate and improvement in net
exports and investment propel the economy forward. The Forecast calls
for " … the housing induced sluggishness in the U.S. economy to last
into early 2008. For 2007, real GDP growth is expected to be less than
2%." In California, weakness in the real estate sector will finally
spill over into the job market as the combination of job losses in
construction and real estate finance pull overall payroll job growth
in California to less than 1% for the next five quarters. Unemployment
will rise to 5.5% and broad measures of real output (Gross State
Product and Personal Income) will grow at a less-than-average rate of
just-below 3%.

The National Forecast

In his national report, UCLA Anderson Forecast Senior Economist David
Shulman notes that if the current (and continuing) forecast is close
to the mark, then the period from second quarter 2006 through first
quarter 2008 will mark an historically anomalous long period of below
trend growth. But he remains consistent with the story the Forecast
has been telling for some time, that a recession is not imminent for
the U.S. economy.

Shulman's report titled simply, "Turbulence," speculates on potential,
economy-spurring actions by the Federal Reserve, concluding that there
will be no monetary policy help in the form of rate cuts until the
fourth quarter of 2007, as it continues to follow an informal policy
of inflation targeting that dates back to the mid-90s. He believes
that recovery in the housing market will resemble an "L" as opposed to
a "V," with the imploded sub-prime mortgage market representing a
"second leg down in housing activity." The Forecast believes that
weakness in the housing sector will finally spill into consumption
spending, noting that retail sales stalled in April and that auto
sales have been weak.

With housing and consumption both "down," the strength of the national
economy lies in the rest of the world. "The global economy is
booming," Shulman writes. "Indeed, it is the strength of the global
economy that is powering the stock market to new highs (and) it is no
accident that the Wall Street rally is being led by the giant global
corporations who are benefiting most from the worldwide expansion."

The California Forecast

In the California report, UCLA Anderson Forecast Economist Ryan
Ratcliff concedes that 2007 has been a bit of a conundrum for those
tracking the state's economy. Falling sales, weak prices and rising
foreclosures have ruled the housing market while both national and
state measures of construction activity suggest that real estate has
been a drag on growth for close to a year. But the wider California
economy is mostly unfazed: job growth has only slowed slightly, for
example, and there has been only a slight up tick in unemployment.

The question, simply put, is this: If the job growth of the early part
of the decade was fueled by real estate (read: construction and the
mortgage industry), why hasn't the decline in the real estate sector
translated into slower job growth and greater unemployment? Ratcliff
believes that the answer lies in the timing and that it is in the
final two quarters of 2007 and the beginning of 2008, that the job
losses will manifest. He writes that mid-2008 will look better than
the intervening period and that job growth will return to normal
levels later that year.

About UCLA Anderson Forecast

UCLA Anderson Forecast is one of the most widely watched and
often-cited economic outlooks for California and the nation and was
unique in predicting both the seriousness of the early-1990s downturn
in California and the strength of the state's rebound since 1993. More
recently, the Forecast was credited as the first major U.S. economic
forecasting group to declare the recession of 2001. Visit UCLA
Anderson Forecast on the Web at http://uclaforecast.com.

Contacts
UCLA Anderson School of Management
Hilary Rehder, (818) 689-5551

It's Official : The Crash of the US Economy has begun!

The big crash has been announced regularly it seems for several years now. One of these times the announcement will probably be right! I have been wondering how the economy keeps going so well. I just wonder how huge defence and war on terror expenditures can keep up as well as people buying homes that cost more and more with mortgages that must require astronomical payments each month.
The decline in the US dollar must help fuel inflation since many consumer goods are now imported and the US dollar will be purchasing less. However US export companies should profit from the decline.


It's Official: The Crash of the U.S. Economy has begun

Saturday, 16 June 2007
by Richard C. Cook

Richard C. Cook is the author of "Challenger Revealed: An
Insider's Account of How the Reagan Administration Caused the Greatest
Tragedy of the Space Age." A retired federal analyst, his career
included work with the U.S. Civil Service Commission, the Food and
Drug Administration, the Carter White House, and NASA, followed by
twenty-one years with the U.S. Treasury Department. He is now a
Washington, D.C.-based writer and consultant. His book "We Hold These
Truths: The Hope of Monetary Reform," will be published later this
year. His website is at www.richardccook.com.


It's official. Mark your calendars. The crash of the U.S. economy has
begun. It was announced the morning of Wednesday, June 13, 2007, by
economic writers Steven Pearlstein and Robert Samuelson in the pages
of the Washington Post, one of the foremost house organs of the U.S.
monetary elite.

Pearlstein's column was titled, "The Takeover Boom, About to Go Bust"
and concerned the extraordinary amount of debt vs. operating profits
of companies currently subject to leveraged buyouts.

In language remarkably alarmist for the usually ultra-bland pages of
the Post, Pearlstein wrote, "It is impossible to predict when the
magic moment will be reached and everyone finally realizes that the
prices being paid for these companies, and the debt taken on to
support the acquisitions, are unsustainable. When that happens, it
won't be pretty. Across the board, stock prices and company valuations
will fall. Banks will announce painful write-offs, some hedge funds
will close their doors, and private-equity funds will report
disappointing returns. Some companies will be forced into bankruptcy
or restructuring."

Further, "Falling stock prices will cause companies to reduce their
hiring and capital spending while governments will be forced to raise
taxes or reduce services, as revenue from capital gains taxes
declines. And the combination of reduced wealth and higher interest
rates will finally cause consumers to pull back on their debt-financed
consumption. It happened after the junk-bond and savings-and-loan
collapses of the late 1980s. It happened after the tech and telecom
bust of the late '90s. And it will happen this time."

Samuelson's column, "The End of Cheap Credit," left the door slightly
ajar in case the collapse is not quite so severe. He wrote of rising
interest rates, "As the price of money increases, borrowing and the
economy might weaken. The deep slump in housing could worsen. We could
also discover that the long period of cheap credit has left a nasty
residue."

Other writers with less prestigious platforms than the Post have been
talking about an approaching financial bust for a couple of years.
Among them has been economist Michael Hudson, author of an article on
the housing bubble titled, "The New Road to Serdom" in the May 2006
issue of Harper's. Hudson has been speaking in interviews of a "break
in the chain" of debt payments leading to a "long, slow economic
crash," with "asset deflation," "mass defaults on mortgages," and a
"huge asset grab" by the rich who are able to protect their cash
through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the
equity fund that includes the Bush family and other high-profile
investors with insider government connections. A January 2007
memorandum to company managers from founding partner William E.
Conway, Jr., recently appeared which stated that, when the current
"liquidity environment"—i.e., cheap credit—ends, "the buying
opportunity will be a once in a lifetime chance."

The fact that the crash is now being announced by the Post shows that
it is a done deal. The Bilderbergers, or whomever it is that the Post
reports to, have decided. It lets everyone know loud and clear that
it's time to batten down the hatches, run for cover, lay in two years
of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets
are loaded with debt, such as tens of millions of mortgagees, millions
of young people with student loans that can never be written off due
to the "reformed" 2005 bankruptcy law, or vast numbers of workers with
401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000-2002 except maybe on a much
larger scale. Then it was "only" the tenth worse bear market in
history, but over a trillion dollars in wealth simply vanished. What
makes today's instance seem particularly unfair is that the preceding
recovery that is now ending—the "jobless" one—was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis,
though they, like Conway of the Carlyle Group, point to the end of
cheap credit. But interest rates are set by people who run central
banks and financial institutions. They may be influenced by "the
market," but the market is controlled by people with money who want to
maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to
follow the pattern set during the long reign of Fed Chairman Alan
Greenspan in responding to shaky economic trends with lengthy
infusions of credit as he did during the dot.com bubble of the 1990s
and the housing bubble of 2001-2005.

This time around, Greenspan's successor, Ben Bernanke, is sitting
tight. With the economy teetering on the brink, the Fed is allowing
rates to remain steady. The Fed claims their policy is due to the
danger of rising "core inflation." But this cannot be true. The
biggest consumer item, houses and real estate, is tanking. Officially,
unemployment is low, but mainly due to low-paying service jobs.
Commodities have edged up, including food and gasoline, but that's no
reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it's simple. The difference
today is that China and other large investors from abroad, including
Middle Eastern oil magnates, are telling the U.S. that if interest
rates come down, thereby devaluing their already-sliding dollar
portfolios further, they will no longer support with their investments
the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our
manufacturing to China and other cheap-labor markets over the last
generation. "Dollar hegemony" is backfiring. In fact China is using
its American dollars to replace the International Monetary Fund as a
lender to developing nations in Africa and elsewhere. As an additional
insult, China now may be dictating a new generation of economic
decline for the American people who are forced to buy their products
at Wal-Mart by maxing out what is left of our available credit card
debt.

About a year ago, a former Reagan Treasury official, now a well-known
cable TV commentator, said that China had become "America's bank" and
commented approvingly that "it's cheaper to print money than make cars
anymore." Ha ha.

It is truly staggering that none of the "mainstream" political
candidates from either party has attacked this subject on the campaign
trail. All are heavily funded by the financier elite who will profit
no matter how bad the U.S. economy suffers. Every candidate except Ron
Paul and Dennis Kucinich treats the Federal Reserve like the fifth
graven image on Mount Rushmore. And even the so-called progressives
are silent. The weekend before the Perlstein/ Samuelson articles came
out, there was a huge progressive conference in Washington, D.C.,
called "Taming the Corporate Giant." Not a single session was devoted
to financial issues.

What is likely to happen? I'd suggest four possible scenarios:

1.
Acceptance by the U.S. population of diminished prosperity and a
declining role in the world. Grin and bear it. Live with your parents
into your 40s instead of your 30s. Work two or three part-time jobs on
the side, if you can find them. Die young if you lose your health
care. Declare bankruptcy if you can, or just walk away from your debts
until they bring back debtor's prison like they've done in Dubai.
Meanwhile, China buys more and more U.S. properties, homes, and
businesses, as economists close to the Federal Reserve have suggested.
If you're an enterprising illegal immigrant, have fun continuing to
jack up the underground economy, avoid business licenses and taxes,
and rent out group houses to your friends.
2.
Times of economic crisis produce international tension and
politicians tend to go to war rather than face the economic music. The
classic example is the worldwide depression of the 1930s leading to
World War II. Conditions in the coming years could be as bad as they
were then. We could have a really big war if the U.S. decides once and
for all to haul off and let China, or whomever, have it in the chops.
If they don't want our dollars or our debt any more, how about a few
nukes?
3.
Maybe we'll finally have a revolution either from the right or
the center involving martial law, suspension of the Bill of Rights,
etc., combined with some kind of military or forced-labor
dictatorship. We're halfway there anyway. Forget about a revolution
from the left. They wouldn't want to make anyone mad at them for being
too radical.
4.
Could there ever be a real try at reform, maybe even an attempt
just to get back to the New Deal? Since the causes of the crisis are
monetary, so would be the solutions. The first step would be for the
Federal Reserve System to be abolished as a bank of issue and a
transformation of the nation's credit system into a genuine public
utility by the federal government. This way we could rebuild our
manufacturing and public infrastructure and develop an income
assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers
who know how to do it if anyone gave them half a chance.

UN warns US about debt and decline of US dollar

There are continual warnings about this debt but it does not seem to have any effect on stock markets. They are doing fine. The US dollar is certainly declining against the Canadian dollar. Our dollar will soon be at par. The result is even a great decline in manufacturing which has lost 250,000 jobs over the last while. For the US the declining dollar should help export industries and make the US more competitive. However, the cost of imported goods for US consumers will go up so it could be inflationary as well.


US debt could trigger dollar collapse, UN warns
Submitted by Desha Priya on Thu, 2007-05-31 16:47.Global | Americas | United States | News
The United States dollar is facing imminent collapse in the face of an unsustainable debt, the United Nations warned today.

United States debt, which had now deepened to well over $3 trillion, might turn out to be unsustainable in the rest of 2007 or next, putting further downward pressure on the United States dollar, Rob Vos, the Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs (DESA), told correspondents at a Headquarters press conference.

He pointed out that since its peak in 2002, the dollar had depreciated vis-à-vis the major currencies by some 35 per cent and by 25 per cent against a broader range of other currencies.

Vos made these comments at the launch of the 2007 World Economic Situation and Prospects report midyear update.

With that increased debt the risk of a sharp depreciation of the dollar continued, he warned. If countries willing to invest in United States dollar assets expected further depreciation, they might be less willing to hold dollar assets, triggering a much sharper fall in the United States dollar. The risk of disorderly adjustment and the steep fall of the dollar existed. The policy challenge was how to prevent a hard landing of the United States dollar and forge a benign adjustment of the global imbalance.

In terms of the United States housing sector, he noted that a recession in the housing sector had continued in 2007, with a slowdown in activity and a large number of unsold homes. While house prices had not fallen, that might happen in the months and years to come if the recession continued as expected. A decline in prices would affect the domestic market, particularly household consumption in the United States, resulting in the risk of a serious recession in its economy, slowing growth from 2.1 per cent to 0.5 per cent in 2007 and 2008. That would then significantly slow the world economy and transmit the recession into the rest of the world.

The United States deficit had increased to $860 billion at the end of 2006, and was expected to fall to $800 billion in 2007. That deficit was basically being financed by surpluses in the developing and oil exporting countries, as well as some major developed countries, in particular Japan and Germany. The European Union,at large, was projected to continue to have a slight deficit on its current account.

Continuing, he said the current tendency in macroeconomic policy was not all in the right direction, particularly in the surplus countries where there had been a tightening of monetary and fiscal policies, particularly in Germany and Japan, making it more difficult for the United States to lower its external deficits by export growth. The United States would also need to adopt some contractionary policies to slow down its deficit, he recommended