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"Stop Digging" article for Financial Sense


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Published Oct.14 on FS : Article Link - 10/14 : Tiny Houses : Search-Rebuilding-etc

=================

 

Rebuilding US wealth, means we must Stop Digging!

Financialisation, Malinvestment & Over-consumption have destroyed wealth

 

"If you want to get out of a hole, the first thing you need to do is to stop digging."

 

diggingupbonesyl5.jpg

 

There is a serious limitation built into traditional measures of economics. We focus on growth in national consumption, rather than growth in actual wealth. When our leaders embrace measures that encourage unbridled consumption and unhealthy growth-for-growth's-sake, they may be doing so, at the expense of the future wealth of their own country.

 

We appear to be headed into a crack-up, bringing enormous economic and financial pain to American, and some other countries too. More understanding, and enlightened leadership from policy makers will be needed to traverse the coming crisis quickly, and get to a stage where America is once again building wealth, rather than taking desperate and misguided efforts which help it to melt away. I fear that day that Americans wake up, and start taking sensible long term measures is still many years away, and may lie on the other side of a long recession, or even a depression. But maybe if enough people see the light of logic sooner, some badly-needed progress can be made BEFORE we suffer all the measure of pain which seems to be headed our way.

 

This article assumes the country will get past the current severe financial crisis, and the American banking system will get back on its feet, and lending money again to corporate America. Then, America will be facing the problem that many jobs have been lost permanently, and they will not becoming back. The new president will be facing the challenge of how to help create new jobs in the right sectors, that will help build real wealth in the long term, and not just the broad spectrum of consumption, which is all that GNP measures. In short, our leaders will need some vision and a plan. They cannot just leave the issue of growth to free markets. Wehave already seen how dangerous that approach can be. The challenge of conceptualising "good growth" is what this article addresses.

 

A core problem for America is an economy which became over financialised, with profits of that sector being the largest single greatest source of profits for the US economy. The trouble is that once this sector becomes too large (and it was over 30% of total US profits in 2006), it is no longer the servant of the economy, helping growth in other sectors. Instead it aims to become the master. When this happens the financial sector becomes parasitic.

 

Financial companies rely upon claiming a commission, or a spread from transactions that they assist. But the sector can easily become blind to the essence of those transactions that they help to foster. Even worse, at times the financial sector can aim to encourage transactions, even loss-making investments, for the sole purpose of extracting their spread. We have been living in such a stage. In the last few years we have seen: speculative excess on steroids, mal-investment and massive over-consumption, All done in the name of a free economy seeking growth. Now we are stuck with a toxic economy, loaded with debt, and highly vulnerable to the two opposing forces.

 

Standing at the gates of our future like Cerberus and Orthus, are twin scorges. They are deleveraging and peak oil. Freedom of choice, has not built the sort of economy that Americans would choose to have when entering a period of stress and volatility. First, this year, we saw rising oil. When oil pushed through $100 on its way to $146, many Americans found they could barely afford to drive to work. Then, as oil prices eased, a second problem hit: massive and rapid deleveraging, as banks called in their loans, and refused to lend money. The credit crunch brought a "cardiac arrest", as Warren Buffet put it. Businesses started laying off people, and the stock market plummetted at it became clear that the US was headed into a recession, and perhaps even a severe and long recession.

 

To cure this lending freeze, global banks are co-operating, to pour massive credit into the system. A great reflation may be on the way, and that could allow the US to get its lenders back in the business of lending money, but if the economic growth gets back on track, the risk of rising oil prices remains. Most people are now focussed on the downside, and are forgetting the recent pain of high oil prices. If I thought this reflation would fail, then I would have written a different article. But the massive global effort to get money back into the banking system before the economy breaks look set to succeed, after a rocky start. Failure is not an option, the weekend huddles and the massing of global politicians confirms this. But lower libor rates, and banks lending again will not be the end of the stress in our fragile economy. We need to focus on the other extreme, while we are working to escape from the risk of a deflationary collapse.

 

The pain the US felt at $150 crude and $4.00 gasoline prices, is nothing compared to what will come if oil hits $400 and gasoline moves up above $10.00- levels that knowledgeable observers like oil insider Matt Simmons find highly plausible. We need not have driven into such a dangerous cul de sac. Better leadership could have taken the country elsewhere towards a different future, and it still can. Unfortunately, we are rapidly running out of time. We must start making the right choices, if we are going to avoid sliding into the a vicious downwards cycle.

 

How we got here - Unrestrained growth and a Housing Boom

 

The following chart appeared in the New Your Times a few weeks ago, in an article entitled, "As Safe as Tiny Houses." To me, it spoke volumes about the mess which is the US economy:

 

ushomefloorspaceme0.png

 

Over the 24 year period of 1982 to 2006, the average new single family home rose in size from 1,500 sf to 2,250 sf - that's an increase of 50%. Now at first look this may seem to be a good thing. Americans have more space to carry out the drama of their day-to-day lives. What's wrong with that? Isn't that a sign of increasing wealth? To some it may have seemed to be a good thing, and to a few it may even still seem that this chart shows that Americans are making progress. But let's think of this in a different way. Homes which are 50% larger in space, by necessity have a larger footprint. They need larger lots, there will be more space from one driveway to another, and they will cost more to heat in the winter and more to cool in the summer.

 

So the chart is also depicting suburban sprawl, and a rising dependence on cheap energy. The chart tells us that Americans will need to drive further to reach their McMansions, exposing them more heavily to rising gasoline prices, and they will also face higher heating and cooling bills, even before a rise in energy prices is factored in. In short, they are in a weak postion to face a continuing rise in Oil prices. Now some are seeking to counteract a part of that vulnerability to oil prices, by getting Americans into smaller cars, or by convincing them to buy expensive hybrid vehicles. That change may help to some degree, but such small changes do not address the structural problem of the American "living arrangement." Too many Americans live in big homes scattered around the sprawling suburbs. Something like 50% of Americans are stuck in homes in the suburbs. They were complacent about the resulting oil dependency when prices were cheap, but now that they have seen them leap to moderately high, with the potential for becoming very high, many are beginning to worry about these long commutes by automobile. And so they should.

 

At Ground Zero of the Subprime Crisis, there's a "Stranded Suburb"

 

Let's consider Stockton, California, which has been called the "ground zero" of the subprime crisis. Something like one-quarter of the homes there are in foreclosure. How did this come about, why is Stockton so much worse than other parts of California? Well there are not many high paying jobs in Stockton. It is mainly a residential community. So those who live in large homes there, cannot afford to do so if they work at the local Walmart or McDonalds. They are likely commuting long distances to jobs located in major cities nearby- cities like San Francisco, San Diego, or San Jose. Each of these cities is about 80 miles away. So many Stockton residents are facing commutes of perhaps one to one and a half hours each way. This may have seemed sensible when gasoline prices were near $1.00 or even $2.00 per gallon. But at $4.00 per gallon it can be economic suicide, especially for someone who stretched to get into an expensive new home, taking a subprime loan whose lower payments are about to reset after the first 2-3 years. Now they are facing expensive interest rates resets, at a time when their home values are plummetting. And they are stuck in a financial vise-grip made much worse by higher oil prices, and compounded commuting costs.

 

I blame Alan Greenspan, and Fed policy makers, who sought to escape the recession that was emerging from a popping of the dotcom bubble in 2001, by creating another one in housing. Greenspan's Fed took interest rates down to 1.25% in 2003, and this touched off a huge wave of speculation in housing. Unfortunately, this came at a time when Basle 2 banking regulations made it expensive for banks to use their balance sheets to hold housing loans, while making it easy for them to bag risk-free profits by securitising mortgage loans and passing them on the unwary investors.

 

The Wall Street greed machine found the temptation too great. These investors in mortgage securities did not truly know how to assess the credit risk. As the underlying mortgage collateral got sliced and diced, it became more and more complex. And so they came to rely on the risk models of the rating agencies. Only those agencies had never before tracked the default of such complex securities through a severe cyclical downturn. They only had ten years of bull market data to look at. So they established appropriate legal disclaimers (to minimize their own risk of being sued) and began to slap triple A ratings on the securities, collecting huge fees from the investment banks. The banks loved it, and the economy grew, with the financial sector's share of profits growing and the easy money stimulating a building boom, adding more growth concentrated in the building sector. Many of the new homes were built more cheaply, and more affordably, on cheap virgin land, miles away from the working places of the home buyers. I now call these places, the Stocktons, the "stranded suburbs" of America. You cannot get to work without a car, andthat means you area hostage to oil prices. In the future, many of these homes will wind up abandoned, oras firewood, if oil prices continue their ascent towards my $400 target by 2012-2015.

 

We chose to let our addiction to oil grow

 

It didn't need to be this way: Europe raised taxes on Oil years ago, so gasoline is already in the range of $6 to $10 per gallon in some European countries. They use more public transport, which is far better developed, than in America, and drive smaller cars shorter distances. Their homes tend to be smaller and cheaper to heat. The result? Europeans use about one-third as much oil as Americans. In Hong Kong, where I live, we see an even greater extreme. People live ontop of each others, in high rises, typically within a short walk of mass transit links. In this living arrangement, many people can get to work without cars. In fact, many people do not own cars at all.

 

These examples need to be kept in mind as our leaders formulate the measures to try to get America (and the world) out of the deleveraging spiral. We cannot afford to go back into a pattern where money is pumped into the system, and it merely winds up temporarily propping up past mal-investments, or worse yet, creating more malinvestments, new types of "stranded" investments. If we are to spend injected money, it must be spent well.

 

It Matters how the Money is spent and invested

 

A basic banking concept, is to lend money only to finance projects which will generate cash flow to repay the loan. Lending purely against assets is very dangerous since the asset values will fall dramatically, it they are not generating sufficient cash flow. That is the problem with America's housing boom of 2000 to 2006, it added little to America's productivity and earnings power. This is why the debt became toxic, the loans had little chance of being paid back when they were made, except through sale of the underlying housing asset, and the values did not hold up.

 

If the money had been spent on toll bridges between large cities, or in building mass transit systems, which could get people off crowded highways, and using less foreign oil, there would have be a revenue stream to repay the debt, and the lenders would be getting their money on time.

 

The Bush Adnministration's initial idea of handing out tax rebates, and telling people to "go and spend them at Walmarts" was another example of a completely wrong policy. This added to debt, benefitted foreign countries who sell goods to Walmart, and added exactly nothing to productive capacity.

 

To rebuild US savings, people must spend less. If they spent 7 years worth of income in only 6 years, then Americans must spend 6 years of income in 7 years. That means a dramatic slowdown in spending, and for a long time. Investment in businesses that feed America consumption and borrowing habits will not be the place to be. If sound jobs are to be created, they will have to be in other sectors.

 

Eric Janszen at iTulip has spoken about his "Ka-Poom" concept - where America first faces a deflationary collapse, and then to avoid it, moves into a reflationary high-drive. That may well be where we are now, on the virge of a new round of investments, to try to pull the economy out of a recession. Janszen believes this will involve creating another boom in infrastructure spending. And I do think this is possible. However, it is essential that leaders, and the new president in particular, pay attention to America's exaggerated suburban living arrangement with its huge vulnerability to high oil prices.

 

Investing for the Future - a Future of Lower Oil Usage

 

Investments that are made are made with the twin objective of creating sound jobs, and of reducing America's consumption of imported oil will be the best ones.

 

Following is just a partial list of the types of investments and policy actions that should be encouraged:

 

+ Nuclear power plants, to expand electricity generation

 

+ Mass transit systems, especially where the increase in land values this will bring can be monetised or taxed and used to pay for the investments (this is what is done by Hong Kong's MTR). New lines can be built on top of existing highways, with the increase in land values from the mass transit line tapped to help pay for the system.

 

+ Changes in zoning laws, to allow mixed use property development along New Urbanist principles. This will cut down on driving distances and create communities permitting ease of walking rather than than the exitinmg system that wants to cater to "happy cars" left sitting in parking lots, as people walk huge distances from car to store. These could be much better designed and linked in with new mass transit,so many shoppers arrive without automobiles.

 

How will we pay for it? Part of the answer may be staring us in the face. The drop in oil may in fact create an opportunity, America could wake up, and understand that its long romance with the automobile has now become very destructive, and is now like an affair with a high spending lover, who keeps emptying out our wallets, and is doing little of value in return. To create the right incentives to downsize oil use, we should begin to tax gasoline at a higher rate, and also put a higher tax on gas-guzzling automobiles. The money so raised can be recycled back into projects (such as those above) that will reduce dependence on foreign oil.

 

The next few years will not be easy. America has become too dependent on foreign oil and on foreign capital. It has not helped that much of the foreign capital borrowed through complex financing arrangements, like mortgage-backed bonds, was wasted on building energy inefficient homes in the stranded suburbs. We must get both financing and spending right in the future. Dismantling an over-large investment banking industry is a good thing, fewer toxic financings will be done, and a smaller banking industry can once again become a servant to the larger economy, rather than its master. We certainly need more enlightened political leadership, some intelligent forward planning, and good policy, rather than unregulated and out-of-control markets. If American is going to spend tax payer money to create jobs, it had better do it in a way that will make the economy more productive (to provide a return on funds invested), and also less dependent on foreign oil.

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Eric Janszen at iTulip has spoken about his "Ka-Poom" concept - where America first faces a deflationary collapse, and then to avoid it, moves into a reflationary high-drive. That may well be where we are now, on the virge of a new round of investments, to try to pull the economy out of a recession. Janszen believes this will involve creating another boom in infrastructure spending. And I do think this is possible. However, it is essential that leaders, and the new president in particular, pay attention to America's exaggerated suburban living arrangement with its huge vulnerability to high oil prices. Investments that are made are made with the twin objective of creating sound jobs, and of reducing America's consumption of imported oil will be the best ones.

 

(Eric Janszen is the founder and president of iTulip, Inc. He formerly served as managing director of the venture firm Osborn Capital, CEO of AutoCell, Inc)

 

October 11, 2008, iTulip

Central bank intervention and inflation: One thing leads to another

 

A popular misconception holds that central bank interventions in banking crises and financial markets panics in the form of liquidity injections are in and of themselves inflationary. Not so. These policies indicate a path decided, a choice in an economic policy fork in the road – a trap, if you will. We first identified the Federal Reserve’s “inflationary decision making process” back in 1999.

 

Sadly it is neither difficult to discern nor complicated to explain. It is a well worn path taken by a government that find itself backed into a corner after a series of bad bad decisions, unable to finance expenses, lacking the will to reduce them, abandoned by allies due to economic or other troubles at home, the printing press its last defense of political obligation

 

/see: http://www.itulip.com/forums/showthread.ph...53865#post53865

 

After making comparisons with Zimbabwe, he makes this stark statement:

 

" One lesson always holds true: a leader, as Galbraith said, is one who confronts directly the fundamental anxiety of his nation in his time. Ours have for many years been papered over with the temporary benefits of financial engineering. As those dissolve into the night, they leave behind liabilities and expectations to be met by the same leaders with the remaining machinery of low finance, the type that prints money."

 

Here's a "justification" for Zim's actions by a banking official of that country:

 

" Here in Zimbabwe we had our near-bank failures a few years ago and we responded by providing the affected Banks with the Troubled Bank Fund (TBF) for which we were heavily criticized even by some multi-lateral institutions who today are silent when the Central Banks of UK and USA are going the same way and doing the same thing under very similar circumstances thereby continuing the unfortunate hypocrisy that what’s good for goose is not good for the gander.

. . .

Our economy is and has been in trouble for over ten years and our extraordinary interventions by whatever name have helped to keep the wheels of this economy moving... Of course, in the short-term such interventions are without doubt inflationary but in the medium to long-term they trigger and propel economic growth and development that everyone craves for."

 

And here's the strongest indigtment of Zimbabwe's policies, the unemployment rate

zimbabweunemployment2000-2008.gif

 

and with this scary implosion, oil imports have fallen

zimbabweoilimports2000-2008.gif

...but what a way to achieve that !

 

Janzcen thinks the US can do better, and his infrastructure boom idea, may be a better way, albeit loaded with danger.

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WHAT IS KA-POOM ? In EJ's own words:

 

The "Ka" in Ka-Poom refers to a period of disinflation while the "Poom" refers to a period of rapid inflation.

 

Ka-Poom assumes that the Fed is not kidding when it says it will fight deflation as seriously next time around as the last time it encountered the threat. During the previous "Ka" disinflation, the US economy experienced actual deflation, albeit very brief; CPI averaged -3.3% for the single month of October 2001... / ...Had the plane not been moving fast enough, because the Fed had not aggressively cut interest rates and fueled the system with enough money, it would have stayed on the ground as happened in Japan in the early 1990s. It took the BoJ and policy makers nearly 15 years to get their economic airplane back in the air.

 

...As for household bankruptcy and bank insolvency, the difference between healthy and unhealthy deflation is that the latter is associated with a dysfunctional banking system and the former is not. Whether the deflation egg makes the banking system dysfunction chicken or the other way around is endlessly debated by economics historians. As far as the Fed's concerned, rather than try to get the economy out of the egg-chicken deflation cycle, best to keep one from starting in the first place. As a matter of policy, the Fed clearly believes that deflation cannot be healthy and can lead to banking system dysfunction, which can lead to further deflation, and so on, so don't let the process start in the first place.

 

USkapoom1.png

 

KaPoom2006Q.gif

 

/see: http://www.itulip.com/forums/showthread.php?t=428

 

== == ==

 

Is there an Alternative ??

 

The Next Big U.S. Bubble: Janszen on CNBC

http://hk.youtube.com/watch?v=kqOOnbMMemE

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Regarding the restructuring of America and attempting to reduce its oil dependency, some noteworthy points which need to be considered include:

 

- Are the people in charge being lobbied with these ideas, or is it just contained within "unheard" groups of individuals?

 

- Wars are fought over oil, and the Bush Administration also has a vested interest in oil, as well as the big oil companies. Even with a presidential change, how easily do you think this line of thought would be accepted by the politicians?

 

- At the moment, the politicians are openly admitting to the population the drastic measures they are resorting to in order to rescue the economy, and how the tax-payers will be footing this bill with the persuasion that things could seriously deteriorate if they didn't try this. However, these are all re-active measures. Trying to persuade the people to consider lifestyle changes and restructuring on this scale would be a pro-active measure, and the masses tend to be less interested in change until it becomes a necessity.

 

- If public announcements of these intended changes were to be made while oil is cheap, wouldn't this quickly cause the oil-producing countries to cut output (to facilitate price rises) to try and protect their economies from the threat of alternatives to demand for their oil? Which could be quite easy considering that they supply a product that everyone needs! While this might help the masses accept the reasons for restructuring, it would certainly result in sprialling costs in actually implementing the changes, and the associated problems during the transition period.

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- At the moment, the politicians are openly admitting to the population the drastic measures they are resorting to in order to rescue the economy, and how the tax-payers will be footing this bill with the persuasion that things could seriously deteriorate if they didn't try this. However, these are all re-active measures. Trying to persuade the people to consider lifestyle changes and restructuring on this scale would be a pro-active measure, and the masses tend to be less interested in change until it becomes a necessity.

 

Yes.

It requires real leadership, which we havent seen for a long time, and so sorely need now

Often hard times will call up a good leader. Obama has some potential to be such a man

==

 

Here's a relevant and well written paragraph from Peter Schiff:

"The sad reality is that we borrowed and spent our way into this crisis, and we are not going to borrow and spend our way out of it. Legitimate credit can only be supplied if there are genuine savings to finance it. Savings can't be magically concocted into existence by a printing press, but can only be created by consumers who spend less than they earn. Efforts to fool the market will not work and will ultimately lead to a monetary disaster and runaway inflation."

 

/more: http://www.howestreet.com/articles/index.php?article_id=7707

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I added this (in italics):

 

This article assumes the country will get past the current crisis, and the American banking system will get back on its feet, and lending money again to corporate America. Then, America will be facing the problem that many jobs have been lost permanently, and they will not becoming back. So long as they were in the unproductive sectors of the economy, that is not a bad thing in the long term. The new president will be facing the challenge of how to help create jobs in the right sectors, that will help build wealth in the long term. This is the challenge that this article addresses.

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Over the 24 year period of 1982 to 2006, the average new single family home rose in size from 1,500 sf to 2,250 sf - that's an increase of 50%. Now at first look this may seem to be a good thing. Americans have more space to carry out the drama of their day-to-day lives. What's wrong with that? Isn't that a sign of increasing wealth?

 

ushomefloorspaceme0.png

 

--

DOWN-SIZING will be a huge theme in America's future

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Excellent forward thinking article. I'm in complete agreement. The focus now, needs to be a planned economy to mitigate the risks of the energy crisis and the ever worsening savings crisis. It's a sad irony that the well meaning environmentalists who scared the public about nuclear power have had a negative impact. I hope that the electorates and politicians of the developed world can put aside ideals, fears and short term gain to make the transition as smooth as possible.

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AGREED.

I am a little surprised that the candidates have not discussed nuclear power more.

Perhaps they feel it is "too hot to handle", and the winner will talk about the need for it after the election.

That is my hope, at least

 

... forward thinking article.

 

As I was writing it, in the midst of the fears late last week, I look straight past those fears.

It may have seemed a little too hopeful when I posted it on Sunday, but after the 10% rally yesterday,

maybe people can see there is the need for such a perspective when you are in the midst of a crisis.

 

It is interesting that the European support program has been hailed by people like George Soros,

as a better programme than the US bailout bill. Perhaps that is because they had a little more time to

think about it, and could learn from the criticisms heaped on the US bill.

 

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It's UP!

http://www.financialsense.com/fsu/editorials/2008/1014.html

 

Financial Sense University Editorials

10/14 Era Changeover by Brian Bloom

10/14 Is it time to play the silver to gold ratio again? by Peter Degraaf

10/14 Rebuilding US wealth, means we must Stop Digging! by Michael Hampton

10/14 A Coming New Currency! by David Vaughn

10/13 How We Called the Stock Market Crash of 2008 To the Day by Bob McHugh, Ph.D.

10/13 Last Man Standing by Captain Hook

 

 

Let's see if the article stirs any interest ... and welcome to any new visitors from FS

 

MISH's TAKE

========

 

Here's Mish Shedlock's take on the current crisis from his own FS article:

 

"The world is heading for a global recession and a sure bet is that it will be blamed on a subprime crisis in the US. The reality is the greatest liquidity experiment in history is now crashing to earth.

 

The root cause of this crisis is fractional reserve lending, and micromanagement of interest rates by the Fed in particular and Central Banks in general. The Fed started the party by slashing interest rates to 1%, but Central Banks everywhere drank the same punch to varying degrees.

 

The Greenspan Fed lowering interest rates to 1% fueled the initial boom, but like an addict on heroin, the same dose a second time will not have the same effect. The Fed, the ECB, etc. could have slashed rates to 0% today and it would not have mattered one bit.

 

The reason is simple: There is no reason for banks to go on a lending spree with consumers tossing in the towel, unemployment rising, and rampant overcapacity everywhere one looks with the exception of the energy sector.

 

Consumers are tapped out, not just in the US, but in nearly every country on the planet. We had our party, and a fine party it was. However, the party is over and the bill is now past due. The price is a global recession. That price must be paid no matter what Central Banks do."

 

/see: http://www.financialsense.com/Market/shedlock/2008/1009.html

 

& THIS:

 

The US has been on a consumption binge of epic proportions all on the misguided belief that real estate prices would keep on rising forever, at a clip of 8% or more a year. No one ever bothered to do the math as to how anyone could possibly afford to pay the projected prices. Real wages were shrinking but somehow everyone could get rich selling houses to each other.

 

The "Housing Prices Always Go Up" dream has finally crashed on the rocks of reality. However, while the party was still going on, consumers were willing to go deeper and deeper in debt, buying new kitchens, taking expensive vacations, buying boats, buying SUVs "needed" to haul all the junk around they were buying, etc. And as long as home prices kept rising, everyone ignored the debt side of the balance sheet.

 

Now, the party has ended, and asset prices are crashing but the debt still remains. Consumers are now very concerned (finally), about the debt side of the balance sheet. It is going to take an amazing shift from consumption to savings to pay down that debt. And a secular shift from consumption to saving is now underway. "Cool To Be Frugal" is actually an understatement.

 

/see: http://globaleconomicanalysis.blogspot.com...-frugality.html

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The US has been on a consumption binge of epic proportions all on the misguided belief that real estate prices would keep on rising forever, at a clip of 8% or more a year.

 

Kind of reminds me of pyramid sales which are banned in the UK for the simple reason that once you have sold through a certain number of tiers of the population you have run out of people!

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Interesting article, first chance I got to read it.

 

It makes me think that something along the lines of the Pickens Plan would be a good idea for the US to push its resources into - at least the return would be real and would tackle an under resourced area.

 

I like cars but I recognise their failings. I have to laugh at the high occupancy lanes in the US where a car with 2 people qualifies as a "carpool" or "high occupancy" !

 

 

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I like cars but I recognise their failings. I have to laugh at the high occupancy lanes in the US where a car with 2 people qualifies as a "carpool" or "high occupancy" !

 

When I mention my ideas to most Americans, their reaction is: "the addiction to car usage is an

ingrained part of American culture. You will never get people to change.'

 

My response is:

It is a sad fact, that if they do not change, they will impoverish themselves. They need to wake up.

 

A three-line summary of the whole article:

"American borrowed a trillion dollars from foreigners, and invested it in McMansions in the suburbs,

and SUVS. This only served to increase our addiction to imported oil, and left the foreign lenders

holding toxic debt. We can and must do better."

 

When you hear something like that coming from the mouth of an American President, you will know

that something better is on the way.

 

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What worries me and this is a longer term thing is the geo political pressures that will result if the US politicians bottle it for too long and/or if the US middle classes resist to a high extent.

 

Couple that with the fact that China and India have large growing middle classes who will be competing for the same resources.

 

We could end up with a clear resource war - either in proxy or one that is clear and serious enough for the World to see it for what it is.

 

I note that Tim Wood on FSN has predicted a Kondratieff Winter and can these co-incide with major wars?

 

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I note that Tim Wood on FSN has predicted a Kondratieff Winter and can these co-incide with major wars?

 

Yes.

And they tend to be a means of a populace venting its anger and frustration.

 

But it need not happen. Bush was an "assasination cycle" President. No attempts.

So it can be done- beating the historical record

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Authors@Google: Paul Krugman

 

"In "The Conscience of a Liberal", Paul Krugman, today's most widely read economist, studies the past eighty years of American history, from the reforms that tamed the harsh inequality of the Gilded Age to the unraveling of that achievement and the reemergence of immense economic and political inequality since the 1970s. Seeking to understand both what happened to middle-class America and what it will take to achieve a "new New Deal," Krugman has created a work that weaves together a nuanced account of three generations of history with sharp political, social, and economic analysis. "

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REAL JOBS NEEDED - says Mike Stathis

 

"The best way to help Americans keep their homes is to create real jobs and increase wages. America needs a permanent economic solution. That means it needs a viable energy strategy, a restructuring of free trade and the free market system, and universal healthcare. Without these things, the bailout funds (that will have to be borrowed from foreigners) will just add more pain to the debt with false hopes and more profiteering by insiders. It’s a theme that will continue to repeat over and over until Washington is forced to start serving the people, as mandated by the United States Constitution."

 

/more: http://www.financialsense.com/fsu/editoria.../2008/1009.html

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If the money had been spent on toll bridges between large cities, or in building mass transit systems, which could get people off crowded highways, and using less foreign oil, there would have be a revenue stream to repay the debt, and the lenders would be getting their money on time.

 

Just finished reading your excellent article Dr. While I very much admire the constructive suggestions it has for the future, the paragraph which lept out at me was the above. I visited Conneticut about 5 years ago and was stunned at how some of my distant relatives (on very modest incomes) could afford such large houses which were easily 20 miles or so from the local town. I remember thinking at the time how impressive this lifestyle was and how different it was to the UK. Despite the UK's obvious and manifold problems, we do at least for the most part have relatively decent and functioning public transport and one can already see that many people here are not scared to make the switch, as evidenced by the increased revenues of companies such as Stagecoach.

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Excellent forward thinking article. I'm in complete agreement. The focus now, needs to be a planned economy to mitigate the risks of the energy crisis and the ever worsening savings crisis. It's a sad irony that the well meaning environmentalists who scared the public about nuclear power have had a negative impact. I hope that the electorates and politicians of the developed world can put aside ideals, fears and short term gain to make the transition as smooth as possible.

 

But but but but.... when did a centrally planned economy ever work? :mellow:

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But but but but.... when did a centrally planned economy ever work? :mellow:

!!!!

Who is talking about a "centrally planned economy" - that's a very different matter

 

I am talking about intelligent planning, and some enlightened tax policy.

The programme would need to be thought through by better minds than mine,

but some tax policy might include:

 

+ Taxes on new construction of single family homes more than xx minutes walk from

public transport

 

+ Mandatory purchase of land along anew mass transit line, with development rights

granted to help pay for the construction

 

+ Taxes on rental income- using Harrison's system

 

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But but but but.... when did a centrally planned economy ever work? :mellow:

 

I don't think we can go as far as a centrally planned economy, but I hope that it's become apparent now, that pure capitalism doesn't work. Though 'The Greenspan put' didn't help, it is far from the only place to lay blame for the current crisis, the system has rewarded short termism and the boom bust cycle has reached catasrophic proportions, even though so many saw the problems with the system. To expect the markets to guide us through the next crises is nothing more than stubborn ideology. We know the problems that we're facing and can expect governments to sucessfully plan for them, they have control over the banks and would be foolish not to plan the allocation of money. In fact they now need to, since the governments have removed the risk from lending. Investment in infrastructure is the obvious place. I think most people agree that the markets have introduced enormous instability, that inflation will become, if it's not already out of control and that they have led us into recession, whereas planning can alleviate all of these problems.

 

The counter argument seems to come from the likes of Ron Paul following the Austrian School of Economics, but it's pretty clear to me, at least, that any country that tries this at the moment, will suffer such a deep depression that there'll be no funds, even available through the markets, to adapt infrastructure to deal with the energy crisis.

 

It's a shock to many who support the free markets, but planned economies in the developed world are here and they haven't happened by choice, but from the collapse of the market economies.

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I don't think we can go as far as a centrally planned economy, but I hope that it's become apparent now, that pure capitalism doesn't work. Though 'The Greenspan put' didn't help, it is far from the only place to lay blame for the current crisis, the system has rewarded short termism and the boom bust cycle has reached catasrophic proportions, even though so many saw the problems with the system. To expect the markets to guide us through the next crises is nothing more than stubborn ideology.

 

EXACTLY.

To paraphrase what George Soros said in his latest book:

Markets do sometimes tend towards equilibrium, but they also sometimes (often?) move to extremes

of boom and bust, and intelligent government regulation (and planning!) have a role to play in limiting

the excesses.

== == ==

 

PICKED UP BY...

 

christian world view network

National & International News / Wednesday, 15th

 

British Government Minister Warns of Terror Threat NEW!

U.S. could guarantee nearly $2 trillion for banks NEW!

Rebuilding US wealth, means we must Stop Digging! NEW!

Losers in the Casino of Paper Money NEW!

How Paulson nationalized biggest banks in the U.S. NEW!

/see: http://www.christianworldviewnetwork.com/

 

2/

Dollar collapse .com

Breaking News / The Economy

10/15 Compelling banks to lend at bazooka point – Mish

10/15 Lehman's hedge fund clients face margin calls on frozen assets – Bloomberg

10/15 J.P. Morgan profit falls 84% – MarketWatch

10/15 Bank of Japan to offer unlimited dollars to banks – Bloomberg

/see: http://www.dollarcollapse.com/

10/14 Stop digging – Financial Sense

10/14 Roubini sees worst recession in 40 year, rally's end – RGE Monitor

 

== ==

 

DISCUSSION - triggered by the article

---------------

 

Clanc 2 points 1 day ago* [+] (6 children)

 

What I cannot understand is why some 'entrepreneur' type, or the local government has not started up a high speed bus service from these 'stranded suburbs' into the cities.

 

In fact why aren't the cities with their established local buses companies not already picking up these fares?

 

Or even get their head around organizing car pooling. Where has that USA 'can do' spirit gone?

 

 

ominous 6 points 22 hours ago[+] (0 children)

 

Low-density suburbs make buses less effective. Compare the population densities of Chicago (12,603/square mile) with Houston (3,333/square mile) or Phoenix (2,749/square mile). Those are numbers for the cities as a whole -- their low-density suburbs will be more sparse.

 

Population density has several effects on the viability of public transit.

 

With lower density, you serve fewer passengers per stop. In turn, that reduces your number of passengers-per-stop-per-hour.

With low-revenue routes, operators will run fewer buses. That increases average wait times and makes the routes even less appealing (this reduces ridership further, forming a negative feedback loop).

Many low-density U.S. cities often lack a useful city center. Shopping, work, and entertainment destinations are spread all over the city, so you need good connectivity from everywhere to everywhere. This increases typical trip distance, which has many negative effects.

I would like to see more public transit available in the U.S., but it faces some real problems right now.

 

Decades of car-centric development have created some very transit-hostile environments. Low-density developments with tortuous road layouts are pedestrian-unfriendly and transit-unfriendly, and there's no straightforward way to fix them.

 

dunskwerk 2 points 23 hours ago* [+] (3 children)

 

actually, some cities do have such services. Houston comes to mind. The real trick is making the bus service appear nice and classy, so the suburb people are willing to take it.

 

 

jgrindal 1 point 17 hours ago[+] (0 children)

 

Houston does a miserable job with their busses. The Park-N-Ride ones are OK, but all of the normal busses are noisy, uncomfortable and could all use a new set of shocks.

 

/more: http://www.reddit.com/r/Economics/comments...gging/?sort=new

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