"Success is doing ordinary things extraordinarily well."
RE: The overconsumption myth.
12:19 am EDT, May 28, 2011
When George W. Bush signed the bankruptcy bill into law earlier this year, he made clear his vision that whatever troubles face American families, it is their own fault, and his plan is to punish them. America’s middle class deserves better.
Literally every single argument made in favor of that abominable bill was a lie. This article provides a long refutation of the GOP's position that the middle class is plagued by lazy overconsumption and provides some reasonable policy priorities that would actually be useful.
Interesting article in 2005 by Elizabeth Warren. Though, I think the lobbyist might be a large part of the problem:
The bill was written by credit-industry lobbyists, shopped to their friends in Congress, and supported by tens of millions of dollars in lobbying and campaign contributions.
Will it hurt? MacroeconoMic effects of fiscal consolidation
Topic: Markets & Investing
11:15 pm EDT, May 27, 2011
This chapter examines the effects of fiscal consolidation —tax hikes and government spending cuts—on economic activity. Based on a historical analysis of fiscal consolidation in advanced economies, and on simulations of the IMF’s Global Integrated Monetary and Fiscal Model (GIMF), it finds that fiscal consolidation typically reduces output and raises unemployment in the short term. At the same time, interest rate cuts, a fall in the value of the currency, and a rise in net exports usually soften the contractionary impact. Consolidation is more painful when it relies primarily on tax hikes; this occurs largely because central banks typically provide less monetary stimulus during such episodes, particularly when they involve indirect tax hikes that raise inflation. Also, fiscal consolidation is more costly when the perceived risk of sovereign default is low. These findings suggest that budget deficit cuts are likely to be more painful if they occur simultaneously across many countries, and if monetary policy is not in a position to offset them. Over the long term, reducing government debt is likely to raise output, as real interest rates decline and the lighter burden of interest payments permits cuts to distortionary taxes.
In a recent note to clients, the members of the strategy team at Credit Suisse outlined all the reasons they are looking for a period of weakness in the stock market, not unlike the multi-month swoon seen last summer. They point to a big drop in new orders in the service sector, rising jobless claims, falling interest rates on Treasury bonds, a fall in copper prices and underperformance of small stocks as reasons for worry.
The strategy team at Société Générale led by Albert Edwards goes even further, suggesting that our current situation resembles the post-bubble, debt-deflation aftermath suffered by the Japanese in the 1990s. He points to a sharp drop in the growth rate of orders of durable goods (fewer aircraft and defensive goods), a stalling of corporate profits as measured by the government and a downturn in optimism by stock market analysts.
Given all this, and unattractive valuations, Edwards notes that "this is the point in the cycle when investors should be becoming more cautious."
It's not for lack of effort. The Federal Reserve has created more than $2 trillion in new cash to go out and buy assets, including U.S. Treasury debt and mortgage securities, in an effort to get things moving. Short-term interest rates have been near zero since 2008.
The government has spent trillions more on stimulus packages, from then-President George W. Bush's stimulus checks in 2007 to President Barack Obama's $787 billion package to the payroll tax cut approved in December. There was the $700 billion bank bailout. The American International Group (AIG, news) bailout. The automaker bailout. The Bear Stearns dowry to JPMorgan Chase (JPM, news). Cash for Clunkers. Cash for washers. The homebuyer tax credit. The federal takeover of Fannie Mae and Freddie Mac.
Yet through it all the economy has acted like a black hole, sucking in stimulus spending and cheap money and yielding very little in return. Each new effort, which carries ever-greater risk of inciting runaway inflation or a new government debt crisis, falls short. We can't resist the relentless gravitational pull of the Great Recession.
For investors, the advice is simple and echoes the recommendations I've been giving in these pages for months: It's time to get defensive. For most conservative, long-term investors, this means cutting your allocations to equities and bonds and moving into cash.
We're at a funny place. The American establishment has finally come around, in unison, to admitting that America is in crisis, that our debt actually threatens our ability to endure, that if we don't make progress on this, we are going to near our endpoint as a nation. I am struck very recently by the number of leaders in American business, politics and journalism who now get a certain faraway look at the end of an evening or a meal and say, "It's worse than people think, you know." The debt crisis in Europe is not easing but worsening, the U.S. bond markets could bail tomorrow, the culture of Washington will kill any serious attempts at reform . . .
That's one takeaway from this week's Peterson Foundation fiscal summit in Washington. Bill Clinton spoke of "permanent structural deficits" and warned that "arithmetic still matters." We must focus on entitlement spending, he said, "for the same reason Willie Sutton robbed banks: That's where the money is." Virginia's Democratic Sen. Mark Warner: "Congress is Thelma and Louise in that car headed for the cliff." Obama administration economic adviser Gene Sperling—more on him in a minute—called for "serious discussion" of the specifics of a debt-reducing plan. Republicans were on the same page. No one said, "We can grow our way out of this thing," or "The negative effects of chronic debt are exaggerated, let's look at the positive side." They would have been laughed out of the room.
There's also this. The very politicians who are trying to get us out of the mess are the politicians who got us into the mess. Why would anyone trust them? As Alan Simpson admitted, for generations politicians "were told to go to Washington and bring home the bacon. Go get the money!" Now they must change: "You can't bring home the bacon anymore, because the pig is dead."
BOSTON (MarketWatch) — The International Monetary Fund has just dropped a bombshell, and nobody noticed. For the first time, the international organization has set a date for the moment when the “Age of America” will end and the U.S. economy will be overtaken by that of China. According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.
Under PPP, the Chinese economy will expand from $11.2 trillion this year to $19 trillion in 2016. Meanwhile the U.S. economy will rise from $15.2 trillion to $18.8 trillion. That would take America’s share of the world output down to 17.7%, the lowest in modern times. China’s would reach 18%, and is rising.
“There are two systems in collision,” said Ralph Gomory, research professor at NYU’s Stern business school. “They have a state-guided form of capitalism, and we have a much freer former of capitalism.” What we have seen, he said, is “a massive shift in capability from the U.S. to China. What we have done is traded jobs for profit. The jobs have moved to China. The capability erodes in the US and grows in China. That’s very destructive. That is a big reason why the U.S. is becoming more and more polarized between a small, very rich class and an eroding middle class. The people who get the profits are very different from the people who lost the wages.”
In the wake of Abraham Lincoln's assassination, seven men and one woman are arrested and charged with conspiring to kill the President, Vice President, and Secretary of State. The lone woman charged, Mary Surratt (Wright) owns a boarding house where John Wilkes Booth (Toby Kebbell) and others met and planned the simultaneous attacks. Against the ominous back-drop of post-Civil War Washington, newly-minted lawyer, Frederick Aiken (McAvoy), a 28-year-old Union war-hero, reluctantly agrees to defend Surratt before a military tribunal. Aiken realizes his client may be innocent and that she is being used as bait and hostage in order to capture the only conspirator to have escaped a massive manhunt, her own son, John (Johnny Simmons). As the nation turns against her, Surratt is forced to rely on Aiken to uncover the truth and save her life.