Except of course the deficit. But that only matters if you consider the deficit to be a giant problem. A lot of economists don't.
au contrare. Among many, the highly-regarded Repblican economist who have headed the Fed for the past ~20 yrs, Alan Greenspan, routinely spoke against the run-away Federal deficit. it is eroding the vaue of the US dollars against foreign currency, a precursor to the impending recession.
Something I don't understand about these loan defaults??? In most cases, is the home the only collaterol the lender has, or can it go after all assets. The reason I ask is that if the latter is true, there are a lot of very recently broke people! Stupid people, perhaps...but completely wiped out financially. If the the former is true, then why wouldn't everyone buy up as many no-money-down mortgaged to the hilt properties as were available. Value goes up - my gain. Value goes down -- banks loss.
Oh my goodness. I've never seen so many morons trying to act smart about a topic they know so little about. danny317, andymoron and rimrocker are the ones who need the most help. a couple of pointers: the value of a currency does not equal the health of the economy. The stock market or the housing market does not equal the health of the economy. Please educate yourself, spend some time in personal self-reflection, and then post, folks. TIA
America's vulnerable economy Nov 15th 2007 From The Economist print edition Recession in America looks increasingly likely. Can booming emerging markets save the world economy? IN 1929, days after the stockmarket crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the range of probability”. In a survey in March 2001, 95% of American economists said there would not be a recession, even though one had already started. Today, most economists do not forecast a recession in America, but the profession's pitiful forecasting record offers little comfort. Our latest assessment (see article) suggests that the United States may well be heading for recession. Granted, GDP grew by a robust 3.9%, at an annual rate, in the third quarter. Granted also, revisions may well push this figure up. But that was the past. More timely signs suggest that the economy could stall in this quarter. By early next year, output and jobs could be shrinking. The main cause is the imploding housing market. Experts said that house prices could never fall nationwide. But fall they have, by 5% in the past 12 months. Residential investment has collapsed, but a glut of unsold homes means that prices have much further to drop. Americans' spending is likely to be dented much more by a fall in house prices than it was in 2001 by the stockmarket's collapse. With house prices lower and credit conditions tighter as a result of the subprime crisis, households can no longer borrow against capital gains to support their spending. Dearer oil is set to squeeze households further (this week's drop in crude prices notwithstanding). Consumer confidence has already fallen sharply. It cannot be long before consumer spending stumbles, which in turn would hurt companies' profits and investment. The weak dollar will boost exports, but at only 12% of GDP, exports are too small to make up for a weakening of consumer spending, which accounts for 70%. I want to break free Will an American recession drag the rest of the world down with it? The economies of Europe and Japan rebounded strongly in the third quarter, but look likely to slow down. Although both should be able to keep chugging along, neither is likely to set any great pace. Strengthening currencies will hurt exporters in both places. Europe's own housing hotspots are cooling, and some of its banks have been sideswiped by America's subprime ills. The best hope that global growth can stay strong lies instead with emerging economies. A decade ago, the thought that so much depended on these crisis-prone places would have been terrifying. Yet thanks largely to economic reforms, their annual growth rate has surged to around 7%. This year they will contribute half of the globe's GDP growth, measured at market exchange rates, over three times as much as America. In the past, emerging economies have often needed bailing out by the rich world. This time they could be the rescuers. Of course, a recession in America would reduce emerging economies' exports, but they are less vulnerable than they used to be. America's importance as an engine of global growth has been exaggerated. Since 2000 its share of world imports has dropped from 19% to 14%. Its vast current-account deficit has started to shrink, meaning that America is no longer pulling along the rest of the world. Yet growth in emerging economies has quickened, partly thanks to demand at home. In the first half of this year the increase in consumer spending (in actual dollar terms) in China and India added more to global GDP growth than that in America. Most emerging economies are in healthier shape than ever (see article). They are no longer financially dependent on the rest of the world, but have large foreign-exchange reserves—no less than three-quarters of the global total. Though there are some notable exceptions, most of them have small budget deficits (another change from the past), so they can boost spending to offset weaker exports if need be. This does not mean emerging economies will grow fast enough to make up for the whole of a fall in America's output. Most of them will slow a bit next year: for instance, China's growth rate may dip to “only” 10%. So global growth will ease—which, after five years at an average of almost 5%, close to its fastest pace ever, it needs to do. But thanks to the vigour of the new titans, it will stay above its 30-year average of 3.5%. A tale of two prices The rising importance of the world's new giants will not only boost growth. It will also shift relative prices, notably those of oil and the dollar. And the consequences of this will be less comfortable for developed countries, especially America. The oil price has risen mainly because of strong demand in emerging economies, which have accounted for as much as four-fifths of the total increase in oil consumption in the past five years. In past American recessions the oil price usually fell. This time it is likely to hold up. That will not only hurt the finances of Western consumers, but may also make the jobs of their central bankers harder, by combining inflationary pressure with economic slowdown. The enfeebled dollar—lately in sight of $1.50 to the euro—would be weaker still without enormous purchases by central banks in emerging economies. This support is now waning. China and others are putting a smaller share of increases in reserves into the American currency. And Asian and Middle Eastern countries with currencies linked to the dollar are facing rising inflation, but falling American interest rates make it harder to tighten their own monetary policy. They may have to let their currencies rise against the sickly greenback, meaning they will need to buy fewer dollars. More important, as international investors wake up to the relative weakening of America's economic power, they will surely question why they hold the bulk of their wealth in dollars. The dollar's decline already amounts to the biggest default in history, having wiped far more off the value of foreigners' assets than any emerging market has ever done. The vigour of emerging economies is good news for the world economy: for its growth, it has much less need of a strong America. The bad news for America is that this, in turn, may mean that the world also has less need of the dollar.
mental midgets are those who actally claim that the value of currency does not affect the economy the housing market does not affect the economy get a clue !
http://today.reuters.com/news/artic...19Z_01_L17711479_RTRIDST_0_GREENSPAN-EURO.XML Greenspan: Euro could replace dollar as top currency
a case of the kettle calling the pot black if only you have the mental capacity to comprehend this. as the US dollar continues to weaken, it becomes less attractive for lenders, such as China, to lend money to the US. in fact, China has been buying obligations from the EU and lessening its lending to the US. The US needs the cashflow to finance its day-to-day operation, principally the Iraq War. To mitigate this, there is pressure on the US to raise the interest rate to strengthen its currency, making it more attractive to buyers of Government obligations. i assume that you have the basic understanding of the effect of rising interest rate on the economy if only you have the mental capacity to comprehend this. the stock market is one of the lagging economic indicators. if only you would bother to read your history book on the Stock Market Crash of 1929 and the Great Depression. As for the housing market, consider what is happening with CountryWide and CitiCorp, whose t*** got caught in the sub-prime lending wringer leading to massive layoffs. i assume that you have the basic understanding of massive lay-offs on the economy
I really cannot speak as to the rest of the article, but as a bankruptcy attorney, I can tell you that the above is unabashed crap. I represent debtors in consumer bankruptcy matters, and have done so exclusively since February 2003. I have seen no such bump in my practice, and neither have my comrades at arms. There has been a small bump. In 2006, the last case I filed bore case number 37377. Every year, the first case that is filed bears case number 30001. Corporate cases are included. This year, the most recent case I filed bore case number 37520. You are lookning likely at a final case tally that is 400 over 2006 levels. That is far from a 60% increase. Even if there had been such an increase, that too is misleading. So many people who were considering filing hurried up and did so prior to the law change in October 2005, that filings were down dramatically until the latter part of 2006. The pipeline, if you will, was dry. Everybody had filed. Bankruptcy attorneys were working like CPAs at tax time in the weeks leading up to October 17, 2005. With an abnormally low number of filers still needing to file, of course numbers were down. Now that there is a new client base that needs to file, numbers will look more normal, although filings are still down well below pre-Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) levels. Let's look at how consumers got the shaft with BAPCPA. The biggest hurdle BAPCPA added is the means test of section 707(b). Debtors now must provide counsel with every paycheck stub they received in the 6 months prior to filing the case. If the debtor over the last 6 months is below MFI as defined by the census, the means test has no effect. The debtor can file Chapter 7 with no fear of difficulty. If the debtor is over MFI, you deduct IRS standard expenses. In addition, you deduct the actual mortgage and car payments for the debtor. If the net figure is negative, feel free to file Chapter 7. If it is a positive number, the presumption of abuse arises, and Chapter 13 is a safe harbor to pay back a percentage of the debt. Acording to the National Association of Consumer Bankruptcy Attorneys (NACBA), 84% of the people who seek to file Chapter 7 have no impediment to filing posed by the means test. The only people who have a means test problem are those who can likely afford to pay something, even if it is a small amount monthly. In Chapter 13 cases, the bulk of my practice, unsecured creditors are getting smaller amounts now than they ever did pre-BAPCPA. Their lobbyists have sought additional changes to reverse this, but they do not have the political capital to get it done. Yes, BAPCPA made things harded in terms of additional paperwork, etc. However, the fear associated with it is largely much ado about nothing.
Take your own advice, bud. While none of these factors equal the health of the economy overall, together they are very significant. A declining dollar means that your money is now worth less than is was before. Your buying power is decreasing. It also means that we are in a trade imbalance. Fewer American products are being shipped overseas. This will result in reduced jobs in manufacturing sectors. Fewer jobs = not a good thing. Were the stock market to take a dive, it would result in people losing a ton of cash. This is not good for confidence in the economy. When confidence dips, people hold on to their money rather than spend it, thus furthering the problem. Also, when companies see their stock dipping, they tend to lay off employees more readily. Fewer jobs = less money in the economy = not a good thing. Very similar things can be said about the housing market. Confidence in the economy, people losing money when they go to sell a house, more foreclosures...etc etc etc. None of these things are indicative of a healthy economy. Sheesh.
I don’t normally want to get in the way of a bigtexxx tongue lashing, but actually the opposite is true. Imagine an American producer produces widgets at $1/each. Then imagine you are a European with €100 budget who wants to buy widgets. If the dollar is weak like now, and $2 = €1 then the European buyer of widgets can buy 200 widgets. If the dollar is strong, and $1 = €2, then for the European will be able to buy only 50 widgets with his money. In the situation where the dollar is weak, the buying power of one Euro is increased and so imported American products become more attractive, which will increase demand. Increased demand = more manufacturing jobs. It does hurt producers who rely on imported stuff to manufacture their products, and it really hurts the consumer, who's imported goods now costs twice as much.
Actually, the trade imbalance is the reason for the weaker dollar. The continued trade imbalance will result in fewer manufacturing jobs, because we continue to have fewer products shipped overseas. We just can't seem to stop buying foreign products though.
What can a president do about home mortgages and rising oil prices? I was an econ major a very long time ago so I forgot mostly everything. Can some expert here explain to me what a president can do to lower oil prices? I know that building more refineries or increasing production is completely out of the question in today's political climate so that most of our oil is imported right? How can the president set the price? Likewise - I'm not to clear what a president can do about mortgage defaults, etc. I thought monetary policy was the domain of the central bank.
Why? Aren't most of the wheelbarrows made overseas? D&D. Attempt Civility! Impeach Bush for Creating Idiots.
Declining dollar -> stronger Euro -> euro can buy more US goods. Declining dollar -> Euro becomes more expensive -> Euro-stuff becomes more expensive.
Current price of oil does not reflect a ‘real price’. Much of the oil price is the uncertainty factor. The uncertainty factor caused by the war in Iraq, a potential military strike on Iran, and general discord with Venezuela means that people are worried about the security of the oil supply. Don’t fight with everybody and don’t invade and threaten OPEC members. Problem partially fixed. Everybody knew that subprime mortgages were going to be an issue and that when rates went up lots of people would default. It wasn't some problem that appeared out of nowhere. It would have not been that difficult to at least affect the issue by providing some leadership and legislation. We do legally prevent, for instance, predatory loan practices. Legally give subprime lendees some sort of limited security against default and foreclosure, and people issuing those loans would disappear from the face of the earth.
This is the theory. Unfortunately, the reality hasn't really fit that. Here is a mini-article from a few years ago: http://www.forexblog.org/2005/05/declining_dolla.html Economic theory suggests a nation experiencing a trade imbalance will witness an adjustment in its currency, which will ultimately correct the imbalance. Empirical evidence has shown that this 'correction' usually occurs 18 months after the currency begins to depreciate. In this case, the astronomical $650 Billion US current account deficit should have declined 18 months after the USD began to depreciate. However, the USD began a downward trend several years ago, and the US trade deficit has shown no signs of narrowing. Analysts have tried to explain this phenomenon by arguing the US is an economic anomaly. First, a significant portion of US trade takes place between US companies located in different nations. This type of trade is based on microeconomic factors, and is not conditional on exchange rates. Second, American consumers represent the largest market in the world. Thus, foreign businesses have reacted to a declining USD by lowering their prices proportionately, so as to mitigate changes in the exchange rate and preserve market share. The Wall Street Journal reports: Importers are hesitant to raise prices to offset a falling dollar, because that would likely cut into market share. That, in turn, short-circuits of of the main ways a falling currency is supposed to curb imports.
Not really what you're looking for, but Bush policies have resulted in increased oil prices by increasing uncertainty in the Middle East. Two ways he could have "reduced" prices would have been not invading Iraq and lowering the rhetoric on Iran. That said, those policies shouldn't be based on manipulating the price of oil - it's just a side effect.
