That Market on Wall Street

[fumie_fumie]

The question that no one is facing up to is, where will this $700,000,000,000 come from?

In the presidential debate, both candidates were asked point blank, what federal programs will you cut to make up the difference? Both candidates, instead of addressing the question, listed all the programs that they won't cut.

What they will cut (read their lips) is taxes to pay for all this. McCain will make permanent the "temporary" Bush tax cuts for the wealthy, and Obama promises to cut taxes by $1000 for the middle class.

So I suppsed the answer to the question, where will the money come from, is, it will come from the same place that the money came from to pay for the Iraq War. That is, the politicians hope that some time in the nebulous future (after they are retried from public office) money will fall from the skies like manna from heaven and pay the debts that we are racking up now.

One thing for sure: it can't come from the U.S. treasury. The amount of money in the U.S. treasury is negative 60 trillion dollars, counting the acknowledged domestic and foreign national debt and unfunded committments to medicare and social security. That's half a million dollars of debt for each for U.S. household.

In fact, there is serious talk among economists that the U.S. should just cancel the national debt. That is, declare bankruptcy, as everyone else must do in extremity if we can't pay our bills.

How did we get in this fix? Here are the percentage increases in the national debt incurred by recent presidents:

Reagan 189%
Bush 56% (in one term)
Clinton 36%
Bush 63%

National debt as a percentage of gross domestic product, in the last year of term in office:

Carter 33%
Reagan 53%
Bush 66%
Clinton 58%
Bush 65% (Right now we owe, to domestic and foreign creditors, 65% of the total value of all goods and services produced in the United States in a year.)

As always very good research

Canada saw its national debts skyrocket in 70's, 80's, mainly because the government-led by different prime ministers including Pierre Trudeau wanted to spend more money on the variety of programs, which had little or no added benefits to Canadians (i.e. ParticipActions, a bunch of TV ads telling people to move their *** and exercise, duh?). Some PMs like Trudeau effectively used those programs to maintain his popularity with the voters and thus got himself re-elected over and over again. The sad truth is the public was completely oblivious to the debts the nation was piling up.

It wasn't until 90's when Brian Mulroney and Joe Clark took power, Canada started repaying international debts and she hasn't repaid all the debts yet. The numbers are staggering, and lessons to be learnt here for future generations. Today, Canada spends 15% of total federal budgets on repaying mostly interests accumulated from the international debts. Now that money could have been spent on national health care systems to ease the doctor/facility shortage, (in my city, it takes 2 to 3 years to get a hip or knee replacement surgery).

The debt incurred today will be a huge burden on the future generations of your country.

Here is more info on the impact of the debts on national soverignity and economy

http://blogs.usask.ca/the_bolt/archive/2008/01/canadas_national_debt_gdp.html

"While I agree that the demand for our natural resources has had a lot to do with the paying down of our national debt, I also think some "sensible" (mostly "conservative") government policies (on behalf of both the Liberals under Chretien and the Conservatives under Harper) have also contributed. Unlike the Trudeau years, Chretien (with Martin backing him up as finance minister) did not profligately spend his way to popularity with the Canadian public, and Harper has continued in the same vein. With a "Bush" at the helm in Canada, we could easily spiral out of control again. Let's hope we can stay on course to continued fiscal responsibility in the years to come - our grandchildren will thank us for it (if they're not too busy peeing it all down the drain :>)"

 

[jennylovskt]

In the future, I think that US has to find a balance on regulation and deregulation. It proved that it would cause a lot problems with deregulation, and I think the total control by the government will indeed to be a barrier for the developement of the economy.

 

[luckyguy]

Wall Street banks in $70bn staff payout

"Wall Street banks in $70bn staff payout. Pay and bonus deals equivalent to 10% of US government bail-out package."

http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking

 

[Joesitz (RIP)]

"Wall Street banks in $70bn staff payout. Pay and bonus deals equivalent to 10% of US government bail-out package."

http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking

Good post! What I would like to know is whether the FBI in the US is really seeking the CEOs that caused this mess while they walked away with millions if not billions. Anyone hear of any reports of the culprits?

 

[Ptichka]

In the future, I think that US has to find a balance on regulation and deregulation. It proved that it would cause a lot problems with deregulation, and I think the total control by the government will indeed to be a barrier for the developement of the economy.

True. But, as far as the prescriptions for the US economy go, I most liked the one from Paul Volcker (Greenspan's predecessor) in a Charlie Rose interview: "We need fewer financial engineers, and more electric engineers, chemical engineers, etc." Amen to that!

 

[fiercemao]

Dow is down over 500 pts today

If Obama gets elected and the democratic party gains super majority, well, expect Dow under 7,000, massive tax hikes, government entitlement & spending programs and of course even larger deficit. Super inflation, high unemployment rates and deep recession are on the horizon. Super Jimmy Carter is in the making if history is of any guidance.

I find it's extremely amusing that voters are so brainwashed to believe that ANY democratic president is good for economy. Well, there were only two democratic presidents in the past 30 years, one was a success, the other one was an abject failure.

The cable TV talking heads want to make history, as they have nothing to worry about in their own life, how about the sheep? Change we can believe in indeed!

I'm not a fan of both candidates. It will be interesting to see how 'The One' will save us if he makes 'history'...

 

[Mathman]

^ Sadly, I think you are right. We are in for a rocky road no matter who wins this election.

Over the past 28 years the United States has spent itself into oblivion. Having "wasted our substance in riotous living," now we have to pay the piper.

 

[Joesitz (RIP)]

Fiercemao - What started the National Debt rolling higher and higher was Reagan - hardly a Democrat. He cut taxes by closing down hospitals ignoring the mentally ill people inside. But that was just one of the things he did to improve the life of businesses and its wealthy owners. Clinton brought the National Debt down and with the money saved Bush was in position to invade Iraq. The National Debt flew off the chart.

I'm not opposed to higher tax rates if it brings improvement to the life of the people.. I'm against it if it is used for drilling for off shore oil. which you know as well as I do, will not bring down the price of gasoline to the people. And many other things which the Republicans enjoy spending it on rather than the commoners.

 

[fiercemao]

Fiercemao - What started the National Debt rolling higher and higher was Reagan - hardly a Democrat. He cut taxes by closing down hospitals ignoring the mentally ill people inside. But that was just one of the things he did to improve the life of businesses and its wealthy owners. Clinton brought the National Debt down and with the money saved Bush was in position to invade Iraq. The National Debt flew off the chart.

I'm not opposed to higher tax rates if it brings improvement to the life of the people.. I'm against it if it is used for drilling for off shore oil. which you know as well as I do, will not bring down the price of gasoline to the people. And many other things which the Republicans enjoy spending it on rather than the commoners.

It's interesting that you simply skipped Jimmy Carter and his glorious days.

I'm sure you won't oppose to higher taxes since most elite liberals do seem to have money to spend as evidenced by Obama's mind-boggling haul of $150 million in one month. Don't tell me he's been supported by the little guys...

Regarding off-shore drilling, what the hell are you talking about? Of course it will bring down the prices of oil, any increases in supply, or the expectation of supply increase will bring down the prices of any commodity. This is just simple supply-demand equation.

I love how ultra liberals are continuing their crazy and misguided crusade against global warming. I mean, think about it, if fossil fuels are truly the #1 evil and will bring down the planet in short order as our famous Al Gore claimed, how the hell prohibitting America from producing oil but on the other hand letting Saudi Arab reap the benefit will help Al's noble cause? The rest of the world will continue to drill for oil as the demand is still there, am I right? Unless of our King Obama issues a fatwa to the rest of the world. Since the 'warming' is so 'global', how the earth can America's single-handed surrender on producing oil stop the 'warming' anyway?

The more I think about this global warming stuff, the more I feel Al Gore is one of the biggest fraud in history. I'm pleasantly surprised that his anti-global-warming jihad has already produced a causualty in Canada. The liberal party has been dealt with a crushing defeat by running Al Gore's daydreamer of 'green tax'. Well, even a more liberal Canadian eletorate does not seem to warm up to Al's fantasy and rejected it handily.

 

[Ptichka]

Fierecemao, it's interesting that for me the biggest attraction of McCain presidency would be his energy policy. In contrast to Obama, he opposes ethanol subsidies because they make zero economic sense (we could, though, import ethanol from Brazil) and supports relying more on nuclear energy. In other words, he wants to kill two birds with one stone - decrease America's reliance on the "bad guys" and rely on cleaner energy. Also, if we ignore the McCain of the campaign trail and just look at the McCain the Senator, we see that he would have never (before the campaign) endorsed either the summer gas tax holiday or offshore drilling. I truly believe that a McCain presidency would be better for the environment (and consequently the economy), and that's a big deal for me.

Though I am now completely on the fence as to whom I plan to vote for...

 

[fiercemao]

Fierecemao, it's interesting that for me the biggest attraction of McCain presidency would be his energy policy. In contrast to Obama, he opposes ethanol subsidies because they make zero economic sense (we could, though, import ethanol from Brazil) and supports relying more on nuclear energy. In other words, he wants to kill two birds with one stone - decrease America's reliance on the "bad guys" and rely on cleaner energy. Also, if we ignore the McCain of the campaign trail and just look at the McCain the Senator, we see that he would have never (before the campaign) endorsed either the summer gas tax holiday or offshore drilling. I truly believe that a McCain presidency would be better for the environment (and consequently the economy), and that's a big deal for me.

Though I am now completely on the fence as to whom I plan to vote for...

I'm for all, fossil fuels, nuclear, clean coal, wind etc, you name it, whatever can bring a country to energy independence in an economicviable & environmentally friendly way, I'm all for it.

The ethanol subsidies scheme is just another sham created by the government. It's a disaster, and makes no economic sense without government's massive subsidies.

Government is usually the problem, not the solution. The entire democratic party is drifting to the far left. All they want is more government control, massive spending, high taxes to support their goal of a state favors affirmative actions & welfare.

 

[Mathman]

Dow is down over 500 pts today

You must be very young and have no money if you are cheering a big drop in the stock market.

But to retired people who have lost their life savings, their company pensions and their 401K's, it's not so funny.

It's interesting that you simply skipped Jimmy Carter and his glorious days.

Well, let's check the numbers. Here is the National Debt as a percentage of gross domestic product.

http://forums.palmettofootballtalk..../5251061507/inlineimg/Y/National-Debt-GDP.gif

The cost of war

Way over on the left is the debt for World War II. As you can see, it was off the chart. However, we were able to get a handle on it, for two reasons.

(1) Unlike the wars of the last half of the twentieth century, the American people were unanimously in favor of World War II, or at least thought that it was necessary. Therefore they were willing to pay for the war through personal sacrifice.

(2) We owed the debt almost entirely to ourselves, through the issuance of long term war bonds which were redeemed by the government during boom times in the 1950s and 60's.

Then we had the Viet Nam War. No one was willing to foot the bill this time (we certainly weren't willing to sacrifice anything for it.) So when the bills came due after the Johnson and Nixon administrations, they were paid for by inflation (paying back debts incurred in the past with cheaper money in the present.) This was the dilemma that the Ford and Carter administrations wrestled with, without much success.

When Reagan became president, he cured the economic doldrums that he inherited from Carter, but he did so by borrowing from the future. The twelve years of Reagan-first Bush saw the national debt spiral out of control. But nobody cared because for the moment we had lots of money.

George Bush II thought he could fund the Iraq War in the same way, by borrowing more and more from the future. Unfortunately, the future is now. We have to pony up the cash for the Reagan debt.

If I loan you a million dollars, you are going to live pretty well for a few years. Alas, sooner or later you will have spent all the money and you still have to pay the million back.

That is the situation that the next President will face, whoever he is.

I laugh/cry when I hear the candidates talk about all the wonderful things they are going to do for us. Take McCain's and Obama's so-called health insurance plans. Trust me, McCain is not going to give us each $2500 dollars because he doesn't have $2500 (OK, maybe Mrs. McCain does.) Obama is not going to do all that malarkey he is talking about either -- no more than Hilary Clinton did when she was supposedly in charge of that project.

The amount of money that the next president will have available to spend on health care is the total amount of money in the U.S. treasury -- a negative 10 trillion dollars.

 

[Mathman]

The entire democratic party is drifting to the far left. All they want is more government control, massive spending, high taxes to support their goal of a state favors affirmative actions & welfare...

I think you have been taken in by political slogans and rallying cries.

Check out the actual numbers. You will see who is really in favor of big goivernment, high spending levels, and government handouts. I think it will open your eyes. :yes: :yes:

 

[Joesitz (RIP)]

What's wrong with the Left? Without it there would be no democracy.

 

[luckyguy]

Nouriel Roubini

Economist Nouriel Roubini, who predicted much of the financial catastrophe that has unfolded worldwide over the last year, now says governments may have to temporarily close markets as a way to try to halt another massive wave of selling.
"Systemic risk has become bigger and bigger," Roubini said at the Hedge 2008 conference. "Don't be surprised if policymakers need to close down markets for a week or two in coming days", he said.

from http://latimesblogs.latimes.com/money_co/2008/10/economist-nouri.html

I am sure it will be happen. What do you think of "Dr. Doom"?

 

[gio]

2008 will certainly be remembered as the year of great financial turmoil. Many institutions who were apparently untouchable fell prey.

It was an unbelievable and unthinkable scenario just in 2007.

To make it brief
-All 5 major investment banks practically disappeared. Goldman Sachs (1st) and Morgan Stanley (2nd) became commercial banks, Merrill Lynch (3rd) was acquired by Bank of America, Lehman Brothers (4th) went in Chapter11, meanwhile Bear Sterns (5th) was bought by JP Morgan Chase.
-Of the 5 major commercial banks, the biggest of the bunch Citigroup was saved by the government and the 5th one Wachovia was acquired by the 4th one Wells Fargo, who remains independent together with 2dn Bank of America and 3rd JP Morgan Chase. But the ranking has certainly changed with Citigroup being no more the major commercial bank.
-The biggest savings and loan Washington Mutual went bankrupt, together with 3nd one IndyMac. The second one Sovereign Bancorp was acquired by Banco de Santander, a Spanish bank.
-What about other financial services. In the mortgage industry, the biggest one Fannie Mae and Freddie Mac were nationalized, Countrywide went in the hands of Bank of America, while American Home Mortgage and New Century Financial failed already in 2007. American Express became a commercial bank.
-The biggest insurance company American International Group was nationalized, LandAmerica went in Chapter11.
-The three Detroit pearls - automakers General Motors, Ford and Chrysler seek government help, if not they'll go bankrupt. Circuit City (electronics retailer), Pilgrims Pride Corporation (biggest chicken production), Tribune (owner of LA Times and Chicago Tribune) failed.
-Iceland, Hungary and Ukraine received IMF help amid strong currency devaluations. Iceland had to nationalize all three of its major banks (Landsbanki, Kauphting and Glitnir). Belgium, Netherlands and Luxembourg saved Belgium biggest banks Fortis and Dexia. Netherlands had to help its biggest bank ING Groep. Great Britain nationalized banks Royal Bank of Scotland, Northern Rock and Bradford & Bingley. Halifax Bank of Scotland merged with Lloyds, if not would go bankrupt. Japanese automaker Honda is in trouble and so on and so forth.

It's really incredible...

 

[Mathman]

Now throw in the imminent collapse of the American automotive industry (we just won't make cars here any more). Congress apparently has two options. Let the Detroit automakers go bankrupt now (losing 2,000,000 jobs), or give them $15 billion dollars and let them go bankrupt in February.

BTW, the month of November saw the biggest loss of jobs ih the U.S. in any month since the Nixon administration in 1973.

 

[jennylovskt]

Will it be a better idea for the long run and for the bigger picture to let the US auto industry go bankrupt, then reassemble themselves for a more competitive environment? (It will be really painful for a short period, of course.) I am just wondering because first, the US auto industry is not as competitive as some others, such as Japanese. Second, the union has been a drag in many occassions.

 

[Ptichka]

Yes, I would let them go bankrupt. Not Chapter 7, of course, just Chapter 11. Otherwise, it will just be more of the same. Also, of the 3 car makers in question, Ford is in the best shape, and should I think be rewarded (besides, it's not actually asking for a bailout, but rather for easy access to preferred credit); as the "best performer" it could even receive government cash if needed. GM and Chrysler, though, need the restructuring that Ch. 11 would bring.

 

[Mathman]

The danger is that if the auto manufactures are pecieved by the public as being "bankrupt" (whatever form), then no one will buy cars from them. They will not be able to continue in business while reorganizing, and they will never be able to emerge from bankruptcy.

By the way, the latest development is that the bailout package recently approved by the House will be killed in the Senate by lame duck senators who (a) made a substantial committment in terms of tax breaks, etc., to foreign auto manufacturers to locate in their states, and (b) have just been defeated for reelection in part because of massive financial support for their opponents by the UAW and other unions.

What is really killing the U.S. auto industry is legacy costs. General Motors employs about 250,000 workers directly. These workers have to support retirement benefits, including especially health care costs, for about 750,000 retirees.

I suppose if GM went bankrupt they could just cut all those folks loose and start afresh. The government (if it had the money) could open poor houses to accommodate them, I suppose.

As for Chrysler, it is already kaput, and has been for a couple of years now. In May of 2007 Daimler (= Mercedes Benz) sold Chrysler to "Cerberus Capital Management," a private equity investment company whose business it is to buy up distressed corporations and liquidate their assets (it is not clear to me what they are waiting for.)

The strangest part of the whole debate, to me, is the insistance of Congress in having management oversight of the auto companies. Do we really think that the federal governemnt knows anything about making cars?