Ya Think?

Just another Liberal Political weblog

Impending Economic Slowdown – Are you prepared?

Many Economists are predicting this slowdown.  At this point the concern is more recession than inflation.  Another article from the AP:

Halloween brings more US data to spook markets

By John AuthersTue Oct 31, 1:25 PM ET

Here we go again. On Tuesday, disappointing data from the US spooked world markets, appropriately enough on Halloween. Once more, the betting is that the US economy is set for a sharp downturn. Graphs of the dollar against the main alternative currencies, and of Treasury bond yields, all show the trajectory of a jet heading for a hard landing.

Following last week’s drab gross domestic product figures for the third quarter, yesterday brought an outright drop in consumer confidence. Analysts had expected the continuing fall in gasoline prices to fuel an increase in confidence, so this was negative. Add the survey of Chicago purchasing managers, which showed its weakest reading since August of last year, and everything was set for a run on the dollar.

Events elsewhere are compounding the dollar’s problems. The Bank of England seems certain to tighten rates at its next opportunity, and a December tightening from the European Central Bank is also firmly expected.

The dollar is at its lowest level against sterling for the year – almost $1.91 at one point on Tuesday. The pound has gained 3.5 cents since the Federal Reserve’s meeting last week. The euro has gained 1.8 per cent, and the yen has strengthened even more, moving from Y119.36 to Y116.82 since the beginning of last week. The Fed Funds futures market puts the odds of a rate cut by next March at 50 per cent, having priced out any such possibility by the beginning of last week.

The 10-year US Treasury bond yield has given up a cool 21.5 basis points over the last six trading sessions, dropping from 4.83 per cent to 4.61 per cent.

The Halloween “tricks” could come for those making money from the yen carry trade – borrowing in low-yielding yen-denominated accounts to go “long” elsewhere. But more dollar weakness could be a “treat” for equities outside the US. The flood of US investors’ money into foreign markets is fuelled by the dollar.

According to Morgan Stanley Capital International, the world outside the US has grown by 9.4 per cent this year in local currency terms, but by 16 per cent in dollar terms.

Wake up America!  The only way to really bring down this country is economically and we are letting this happen.  Think about it.  Who owns most of our debt? Where are the jobs going?  How many corporations are now off-shore and pay no taxes? And how many countries own or are running businesses here?  Remember Dubai has bought but never sold back the running of our ports.  Wake up and question this government and every politician on this subject.

Advertisements

November 1, 2006 Posted by | Current News, Economy, Uncategorized | Leave a comment

Take heed of this and mind your future

Found this article on the AP today.  Comments to follow.

 Pressure builds on U.S. business to outsource: study

Tue Oct 31, 4:55 PM ET Pressure on the U.S. labor market from the outsourcing of traditionally white-collar jobs is just starting to build, according to a new study.

 Fortune 500 companies could potentially save $58 billion annually, or some $116 million per company, by offshoring general and administrative jobs, according to the Hackett Group, a strategic advisory firm.

 Hackett will formally issue the study next week.

 The study estimates that increased use of cheaper overseas labor could affect up to 1.47 million back-office jobs, or nearly 3,000 at a typical Fortune 500 company.

 Some of the job functions that can now more readily be shipped overseas than they could several years ago include IT, finance, human resources and procurement, the group said.

 “Over the past few years, the resources available offshore have matured to an extent no one could have imagined, creating a paradigm shift that companies can ignore only at their peril,” said Julio Ramirez, Hackett managing director.

The education base and skill set, and with it the potential savings on labor costs, is on the rise in India, China, the Philippines, Pakistan, Eastern Europe, Brazil and other emerging countries, the Hackett study contends.

Many companies are relying on outdated analysis to assess the benefits of outsourcing, and risk “under-scoping” such initiatives, Hackett said.

But once they get up to speed, it could be “Katie bar the (office) door.”

 Hackett is a division of Answerthink Inc. (Nasdaq:ANSR – news), a business and technology consulting firm.

This will hurt not just employment, it will hurt our economy.  These studies seem to stop at the savings for the Corporations but do not show how the loss of this many jobs, here, will effect our economy. Let’s face it…if people in the US can’t find good jobs, who will be able to afford the goods and services these corporations sell. And who will be able to afford to buy stock in these corporations.

Penny wise and pound foolish!

Time to put limits on these corporations and turn “free” trade into “FAIR” trade.

November 1, 2006 Posted by | Current News, Economy | Leave a comment

What Republicans won’t tell you about the tax cuts

The secret to Bush’s tax cuts is that the middle class will pay more taxes. There is a great article at Bloomberg.com today.  Here are a few excerpts:

Candidates Are Ignoring $1.35 Trillion Minimum Tax `Time Bomb’

By Ryan J. Donmoyer Oct. 31 (Bloomberg) — Congressional candidates this fall are furiously debating Iraq, Medicare and extending tax cuts. Most are staying quiet about an imminent legislative challenge: how to stop a tax increase that will hit more than 20 million households next year, some with incomes as low as $50,000.

Unless Congress acts, the alternative minimum tax will gradually impose $1.35 trillion in additional taxes over the next 10 years. Yet only six candidates in the 28 most-competitive House and Senate races across the country even mention it on their campaign Web sites.

Most candidates are avoiding the subject because the cost of stopping the tax increase would obstruct key elements of their agendas, such as the expansion of prescription-drug benefits for the elderly planned by Democrats, or Republicans’ plan to make permanent President George W. Bush’s 2001 and 2003 tax cuts.

Looks like no one wants to talk about this. Although, lets give the devil its due, the Democrats have addressed this issue. Not locally in the individual races because people don’t want to hear about tax increases. 

The minimum tax was created as a parallel tax system in 1969 to prevent 155 wealthy people from reducing their liability through excessive exemptions, credits, and other deductions. Because it wasn’t indexed for inflation, the tax increasingly affects people with modest incomes by denying deductions such as personal exemptions, property taxes, and medical expenses.

45 Million Households

The tax affected 3.8 million households this year; that number will grow almost six-fold in 2007. By 2016, about 45 million American households face higher bills if changes aren’t made, according to an estimate this month by the nonpartisan staff of the congressional Joint Committee on Taxation.

And what will happen if we don’t address this?

Rangel, who is in line to become chairman of the tax-writing Ways and Means Committee if Democrats win control of the House, has said fixing the minimum tax is Congress’s “responsibility.” Some of Bush’s tax cuts, especially those for investors and multimillion dollar estates, would have to be pared or abolished to pay for a permanent fix without worsening the budget deficit, he said.

“Clearly we’re going to have to raise the money within the system,” Rangel, 76, said in an interview last month.

Bush and other Republicans have responded that Rangel and other Democrats are planning tax increases if they take power.

`Taxes Are Going Up’ “If the tax cuts we pass are not made permanent and they are left to expire, your taxes are going up,” Bush said at an Oct. 26 fund-raiser for Republican House candidate Jeff Lamberti in Iowa.

 John Buckley, chief tax counsel for the Democratic staff of the House Ways and Means Committee, said the minimum tax reclaims many of the benefits provided by Bush’s tax cuts. That is because the tax cuts lowered rates under the normal system, without altering the alternative minimum tax rates. By law, taxpayers must calculate their liability under both systems and pay whichever is higher.

As a result, twice as many households will pay the minimum tax if Bush’s tax cuts are made permanent than if the cuts are allowed to expire.

More here

October 31, 2006 Posted by | Economy, Government Policies | Leave a comment

GAO Chief Warns Economic Disaster Looms

The signs have been there for awhile and yet everyone tells you what a great economy we have. I am posting the whole article with a reccommendation that you read it all. This is scary, folks, and if we leave this admin in for much longer we’re going to crash.

This is from My Way, Oct 28, 12:32 PM (ET)

By MATT CRENSON

AUSTIN, Texas (AP) – David M. Walker sure talks like he’s running for office. “This is about the future of our country, our kids and grandkids,” the comptroller general of the United States warns a packed hall at Austin’s historic Driskill Hotel. “We the people have to rise up to make sure things get changed.”

But Walker doesn’t want, or need, your vote this November. He already has a job as head of the Government Accountability Office, an investigative arm of Congress that audits and evaluates the performance of the federal government.

Basically, that makes Walker the nation’s accountant-in-chief. And the accountant-in-chief’s professional opinion is that the American public needs to tell Washington it’s time to steer the nation off the path to financial ruin.

From the hustings and the airwaves this campaign season, America’s political class can be heard debating Capitol Hill sex scandals, the wisdom of the war in Iraq and which party is tougher on terror. Democrats and Republicans talk of cutting taxes to make life easier for the American people.

What they don’t talk about is a dirty little secret everyone in Washington knows, or at least should. The vast majority of economists and budget analysts agree: The ship of state is on a disastrous course, and will founder on the reefs of economic disaster if nothing is done to correct it.

There’s a good reason politicians don’t like to talk about the nation’s long-term fiscal prospects. The subject is short on political theatrics and long on complicated economics, scary graphs and very big numbers. It reveals serious problems and offers no easy solutions. Anybody who wanted to deal with it seriously would have to talk about raising taxes and cutting benefits, nasty nostrums that might doom any candidate who prescribed them.

“There’s no sexiness to it,” laments Leita Hart-Fanta, an accountant who has just heard Walker’s pitch. She suggests recruiting a trusted celebrity – maybe Oprah – to sell fiscal responsibility to the American people.

Walker doesn’t want to make balancing the federal government’s books sexy – he just wants to make it politically palatable. He has committed to touring the nation through the 2008 elections, talking to anybody who will listen about the fiscal black hole Washington has dug itself, the “demographic tsunami” that will come when the baby boom generation begins retiring and the recklessness of borrowing money from foreign lenders to pay for the operation of the U.S. government.

“He can speak forthrightly and independently because his job is not in jeopardy if he tells the truth,” said Isabel V. Sawhill, a senior fellow in economic studies at the Brookings Institution.

Walker can talk in public about the nation’s impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States – basically, the government’s chief accountant – he is serving a 15-year term that runs through 2013.

This year Walker has spoken to the Union League Club of Chicago and the Rotary Club of Atlanta, the Sons of the American Revolution and the World Future Society. But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker’s concern for the nation’s budgetary future.

“You can’t solve a problem until the majority of the people believe you have a problem that needs to be solved,” Walker says.

Polls suggest that Americans have only a vague sense of their government’s long-term fiscal prospects. When pollsters ask Americans to name the most important problem facing America today – as a CBS News/New York Times poll of 1,131 Americans did in September – issues such as the war in Iraq, terrorism, jobs and the economy are most frequently mentioned. The deficit doesn’t even crack the top 10.

Yet on the rare occasions that pollsters ask directly about the deficit, at least some people appear to recognize it as a problem. In a survey of 807 Americans last year by the Pew Center for the People and the Press, 42 percent of respondents said reducing the deficit should be a top priority; another 38 percent said it was important but a lower priority.

So the majority of the public appears to agree with Walker that the deficit is a serious problem, but only when they’re made to think about it. Walker’s challenge is to get people not just to think about it, but to pressure politicians to make the hard choices that are needed to keep the situation from spiraling out of control.

To show that the looming fiscal crisis is not a partisan issue, he brings along economists and budget analysts from across the political spectrum. In Austin, he’s accompanied by Diane Lim Rogers, a liberal economist from the Brookings Institution, and Alison Acosta Fraser, director of the Roe Institute for Economic Policy Studies at the Heritage Foundation, a conservative think tank.

“We all agree on what the choices are and what the numbers are,” Fraser says.

Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That’s almost as much as the total net worth of every person in America – Bill Gates, Warren Buffett and those Google guys included.

A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.

And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.

People who remember Ross Perot’s rants in the 1992 presidential election may think of the federal debt as a problem of the past. But it never really went away after Perot made it an issue, it only took a breather. The federal government actually produced a surplus for a few years during the 1990s, thanks to a booming economy and fiscal restraint imposed by laws that were passed early in the decade. And though the federal debt has grown in dollar terms since 2001, it hasn’t grown dramatically relative to the size of the economy.

But that’s about to change, thanks to the country’s three big entitlement programs – Social Security, Medicaid and especially Medicare. Medicaid and Medicare have grown progressively more expensive as the cost of health care has dramatically outpaced inflation over the past 30 years, a trend that is expected to continue for at least another decade or two.

And with the first baby boomers becoming eligible for Social Security in 2008 and for Medicare in 2011, the expenses of those two programs are about to increase dramatically due to demographic pressures. People are also living longer, which makes any program that provides benefits to retirees more expensive.

Medicare already costs four times as much as it did in 1970, measured as a percentage of the nation’s gross domestic product. It currently comprises 13 percent of federal spending; by 2030, the Congressional Budget Office projects it will consume nearly a quarter of the budget.

Economists Jagadeesh Gokhale of the American Enterprise Institute and Kent Smetters of the University of Pennsylvania have an even scarier way of looking at Medicare. Their method calculates the program’s long-term fiscal shortfall – the annual difference between its dedicated revenues and costs – over time.

By 2030 they calculate Medicare will be about $5 trillion in the hole, measured in 2004 dollars. By 2080, the fiscal imbalance will have risen to $25 trillion. And when you project the gap out to an infinite time horizon, it reaches $60 trillion.

Medicare so dominates the nation’s fiscal future that some economists believe health care reform, rather than budget measures, is the best way to attack the problem.

“Obviously health care is a mess,” says Dean Baker, a liberal economist at the Center for Economic and Policy Research, a Washington think tank. “No one’s been willing to touch it, but that’s what I see as front and center.”

Social Security is a much less serious problem. The program currently pays for itself with a 12.4 percent payroll tax, and even produces a surplus that the government raids every year to pay other bills. But Social Security will begin to run deficits during the next century, and ultimately would need an infusion of $8 trillion if the government planned to keep its promises to every beneficiary.

Calculations by Boston University economist Lawrence Kotlikoff indicate that closing those gaps – $8 trillion for Social Security, many times that for Medicare – and paying off the existing deficit would require either an immediate doubling of personal and corporate income taxes, a two-thirds cut in Social Security and Medicare benefits, or some combination of the two.

Why is America so fiscally unprepared for the next century? Like many of its citizens, the United States has spent the last few years racking up debt instead of saving for the future. Foreign lenders – primarily the central banks of China, Japan and other big U.S. trading partners – have been eager to lend the government money at low interest rates, making the current $8.5-trillion deficit about as painful as a big balance on a zero-percent credit card.

In her part of the fiscal wake-up tour presentation, Rogers tries to explain why that’s a bad thing. For one thing, even when rates are low a bigger deficit means a greater portion of each tax dollar goes to interest payments rather than useful programs. And because foreigners now hold so much of the federal government’s debt, those interest payments increasingly go overseas rather than to U.S. investors.

More serious is the possibility that foreign lenders might lose their enthusiasm for lending money to the United States. Because treasury bills are sold at auction, that would mean paying higher interest rates in the future. And it wouldn’t just be the government’s problem. All interest rates would rise, making mortgages, car payments and student loans costlier, too.

A modest rise in interest rates wouldn’t necessarily be a bad thing, Rogers said. America’s consumers have as much of a borrowing problem as their government does, so higher rates could moderate overconsumption and encourage consumer saving. But a big jump in interest rates could cause economic catastrophe. Some economists even predict the government would resort to printing money to pay off its debt, a risky strategy that could lead to runaway inflation.

Macroeconomic meltdown is probably preventable, says Anjan Thakor, a professor of finance at Washington University in St. Louis. But to keep it at bay, he said, the government is essentially going to have to renegotiate some of the promises it has made to its citizens, probably by some combination of tax increases and benefit cuts.

But there’s no way to avoid what Rogers considers the worst result of racking up a big deficit – the outrage of making our children and grandchildren repay the debts of their elders.

“It’s an unfair burden for future generations,” she says.

You’d think young people would be riled up over this issue, since they’re the ones who will foot the bill when they’re out in the working world. But students take more interest in issues like the Iraq war and gay marriage than the federal government’s finances, says Emma Vernon, a member of the University of Texas Young Democrats.

“It’s not something that can fire people up,” she says.

The current political climate doesn’t help. Washington tends to keep its fiscal house in better order when one party controls Congress and the other is in the White House, says Sawhill.

“It’s kind of a paradoxical result. Your commonsense logic would tell you if one party is in control of everything they should be able to take action,” Sawhill says.

But the last six years of Republican rule have produced tax cuts, record spending increases and a Medicare prescription drug plan that has been widely criticized as fiscally unsound. When President Clinton faced a Republican Congress during the 1990s, spending limits and other legislative tools helped produce a surplus.

So maybe a solution is at hand.

“We’re likely to have at least partially divided government again,” Sawhill said, referring to predictions that the Democrats will capture the House, and possibly the Senate, in next month’s elections.

But Walker isn’t optimistic that the government will be able to tackle its fiscal challenges so soon.

“Realistically what we hope to accomplish through the fiscal wake-up tour is ensure that any serious candidate for the presidency in 2008 will be forced to deal with the issue,” he says. “The best we’re going to get in the next couple of years is to slow the bleeding.”

Let’s hope we can get a fiscally responsible government in because it is going to be a big job straightening out this mess.  I blame Greenspan for this.  What are your thoughts?

October 29, 2006 Posted by | Current News, Economy | 2 Comments

America’s Middle Class Has Become Globalization’s Loser

From Spiegel On Line International.  Great article.

 A SUPERPOWER IN DECLINE

By Gabor Steingart

At the beginning of the 21st century, the United States is still a superpower. But it’s a superpower facing competition from beyond its borders as well as internal difficulties. Its lower and middle classes are turning out to be the losers of globalization.

There are essentially three exclusive characteristics whose simultaneous development have served as the foundations of the United States’s success up until now — and they only appear in this particular combination in America. They are not only the country’s biggest strengths, but also its greatest weaknesses. It’s worth scrutinizing them more closely. 

First, nowhere in the world can you find such a high concentration of optimism and daring. America is the country that strives hardest for what is new — not just since yesterday (like Eastern Europeans) and not just for the last three decades (like the Chinese); rather from the very instant settlers began arriving. Unabashed curiosity seems to be hardwired into the nation’s genetic code.

The steady influx of the adventurous and hard-working — which helped increase the country’s labor force by about 44 million people since 1980 alone and continues today — ensures a constant replenishment of daring. After all, it’s not just the additional people that make the difference. The mere addition of 17 million people into Germany following reunification in 1990 – newcomers more concerned with preserving their guaranteed rights than with making the extraordinary effort necessary for success – did nothing to foster the kind of daring you see in the United States. Indeed, the result was exactly the opposite, and it has been a painful lesson for Germany.

Second, the United States is radically global. Its very origins — in the rebellious citizens from every country in the world who assembled on the territory that is now the United States — mark its people as true children of the world. Former German Chancellor Helmut Schmidt calls the founding fathers of the United States a “vital elite,” one that continues to pass down its genes to this very day. Their language is dominant, having marginalized Spanish and French during the second half of the past century. Their everyday culture — from the T-shirt and rock ‘n’ roll to e-mail — has peacefully colonized half the world. And from the very beginning, US corporations were eager to venture abroad in order to trade and set up production sites in other countries. Multinational corporations may not have been a US invention, but they became its specialty.

 snip

 The trial of strength

But there is a flip side to the coin. First, Americans are so optimistic that they often blur the line between optimism and naivete. Public, private and corporate debt far exceeds any previously known dimensions. Forever piously trusting in a future rosier than the present, millions of households are borrowing so much money that they end up endangering the very future they’re looking forward to. The lower and middle classes have practically given up on putting aside any savings. They’re going into the 21st century like a poverty-stricken, Third World family, living from hand to mouth without any financial reserves whatsoever.

There’s more and it’s a good read and a warning to us all.

October 25, 2006 Posted by | Economy | 1 Comment