For some types of debt the problem with having lots of it is that interest on the debt can go up. Currently the US government can manage to service its enormous and growing debts because interest rates are so low. But what if interest rates turn back up? Lawrence B. Lindsey, a former US Federal Reserve governor, says, if interest rates go back up to levels seen on average over the last couple of decades then the US federal deficit will swell by hundreds of billions per year.
First, a normalization of interest rates would upend any budgetary deal if and when one should occur. At present, the average cost of Treasury borrowing is 2.5%. The average over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest expenses would be roughly $420 billion higher in 2014 and $700 billion higher in 2020.
By running up large deficits even before the bulk of the baby boomers retire Congress and Presidents Bush and Obama have put the US government in a tenuous financial condition. Interest payments are already set to soar. A spike in interest rates could cause a sovereign debt crisis.
Against a background of growing debt, large deficits as far as the eye can see, and a very weak economic recovery we are beginning to see serious proposals to cut entitlements programs. After decades of their unchallenged growth finally we are nearing limits. Representative Paul Ryan wants to turn Medicare into an insurance voucher program. As an alternative Senators Joseph Lieberman and Tom Coburn want to raise Medicare eligibility age to 67 years old. Jennifer Rubin argues only the left wing of the Democratic Party denies current entitlements are unsustainable.
Congress might still duck responsibility for years. But the interest rate risk described by Lindsey could materialize if we continue to see weak economic growth. Deficits will widen and the market will grow nervous about US government debt. I see continued weak economic growth due to peak oil, limited other natural resources, and demographic changes.
The problem is even bigger than the mainstream discussion recognizes because a return to business as usual economic growth rates is still assumed in mainstream models of future program costs and tax revenues. Therefore for your own personal life planning expect to need to work years longer than current retirees did. Raising retirement ages, means-based eligibility testing, cuts in benefits, and higher taxes will all be used as policies to fund entitlements. So even once you retire at a later date you'll be faced with higher out-of-pocket costs.
Half Sigma points to a report about how Chinese engineering companies are building bridge sections in China and shipping them to the United States. Remember when infrastructure spending was a reliable way to boost domestic employment? Yet another thing to be nostalgic about.
The reason why stimulus spending doesn’t work is because even when spend on construction projects, the jobs created are Chinese jobs instead of American jobs.
Real wages are stagnating and clearly there's something wrong (among the things I see wrong: more people chasing shrinking resources). Your choice (if you even have a choice) is to move up or down. You can't stay in a thinning middle class.
And you should give up trying to change things with political action. You are better off trying to become one of the elite yourself so you can get rich from this stuff and laugh at the little people who don’t have jobs from your Hamptons beach house.
How are those who do not have high levels of skills supposed to do okay? Answer: they can't. They will lose still more ground.
Pan Zhongwang, a 55-year-old steel polisher, is a typical Zhenhua worker. He arrives at 7 a.m. and leaves at 11 p.m., often working seven days a week. He lives in a company dorm and earns about $12 a day.
According to the article by outsourcing a large chunk of the new Bay Bridge to China the state of California saved $400 million on a project that cost $7.2 billion. But since the US runs a large trade deficit with China every time we outsource an infrastructure to China we go more deeply in debt to the world. How can that be a good idea?
Seriously: Does it make sense to make the US trade deficit with China even bigger?
Razib "big words" Khan thinks liberal multiculturalism is epiphenomenal. But before start slogging thru those 6 syllables we need to look at why this came up in the first place. In response to the white guy who posed as a Lesbian Muslim Syrian blogger and got adulation from the liberal press Mark Steyn opines "Amina Arraf" supplied liberals with a fantasy figure who makes their belief in multiculturalism seem more plausible than it is in real life.
From CNN to The Guardian to Bianca Jagger to legions of Tweeters, Western liberalism fell for a ludicrous hoax. Why?
Because they wanted to. It would be nice if "Amina Arraf" existed. As niche constituencies go, we could use more hijab-wearing Muslim lesbian militants and fewer fortysomething male Western deadbeat college students. But the latter is a real and pathetically numerous demographic, and the former is a fiction – a fantasy for Western liberals, who think that in the multicultural society the nice gay couple at 27 Rainbow Avenue can live next door to the big bearded imam with four child brides at No. 29 and gambol and frolic in admiration of each other's diversity. They will proffer cheery greetings over the picket fence, the one admiring the other's attractive buttock-hugging leather shorts for that day's Gay Pride parade as he prepares to take his daughter to the clitoridectomy clinic.
The problem with liberal multiculturalism is that liberalism has a value system that really isn't compatible with a large number of existing cultures in other countries. The multiculturalists do not celebrate differences so much as they celebrate the idea that the only real enduring differences between cultures only encompass areas that do not conflict with liberal values and liberal fantasies.
Reacting to Steyn Razib says liberal multiculturalism is epiphenomenal. In other words, it is a result of another phenomenon. But how will it end? That's the important part.
Liberal multiculturalism as it is presently constituted is epiphenomenal. It will end with a monoculture, a de facto hegemonic culture atop others, or a Millet system.
As for the end of liberal multiculturalism: In a sense Razib is more optimistic than me. While I'm no fan of liberalism I fear what will replace it. Liberal multiculturalism is not only unstable but it undermines liberalism and threatens to make it a very marginal belief system while taking a number of other beliefs and cultural practices along with it. Will it remain strong enough to sustain itself as a hegemonic culture? World and American national demographics argue against this outcome. How can liberals stay strong enough in Europe, for example, when Muslims and other non-liberal groups are a rising fraction of their populations?
Then there's the Millet system where different cultures are allowed to rule themselves. I think the low cost and wide use of transportation and communication technologies today argue against this possibility because the different cultures can't achieve sufficient isolation of their communities to make this practical. We'd need something like Larry Niven and Jerry Pournelle's Todos Santos in Oath Of Fealty where massive buildings function as their own local governments. In an era when national governments are creating massive electronic surveillance apparatuses will they allow that degree of local autonomy? What (I think quite unstable) balance of factions would make this possible? Carved out communities only seem to occur under dictatorships, and even then rarely.
"Being the world's policeman" is a phrase often used to suggest America is the nation chiefly responsible for peace and the establishment of democracy in the rest of the world. But just 11% of Likely U.S. Voters think that should be America’s role.
A new Rasmussen Reports national telephone survey finds that 74% disagree and say the United States should not be the world's policeman. Fifteen percent (15%) are not sure. (To see survey question wording, click here.)
Americans are opposed to Team America: World Police.
This is not a recent decision on the part of Americans.
That’s virtually unchanged from findings in September 2009.
Unfortunately, the 9/11 attack has been used as a justification not only for invasion of a country unrelated to the attack but also for a general ramping up of federal power.
People on the levers of power are more into pulling those levers abroad.
Most voters share these views across virtually all demographic categories. But while 81% of Mainstream voters oppose the United States being the world's policeman, 30% of those in the Political Class feel it's the right role for America.
That link to the Political Class takes us to an August 2010 Rasmussen poll which illustrates the gap between the rulers and the ruled: 67% of Political Class Say U.S. Heading in Right Direction, 84% of Mainstream Disagrees. Speaks volumes.
Economists measure a recession by the length of time an economy contracts. By contrast, regular citizens measure a recession by how long unemployment is high, incomes are lower than they used to be, and the economy is not growing much. Therefore it is not surprising that Rasmussen Reports finds 66% of the American people believe the US is in a recession.
The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, held steady on Saturday at 74.4. Consumer confidence is down four points from a week ago, down three points from a month ago and down four points from three months ago.
Twenty-three percent (23%) of Consumers say the U.S. economy is getting better these days, while 56% say it's getting worse. Two-out-of-three consumers (66%) think the United States is currently in a recession.
With oil prices near a level that will cause another recession and supply worries likely to keep oil prices high (unless China goes into a recession) we are stuck in a long period of slow economic growth or worse. Noted Yale housing economist Robert Shiller believes our risk of double-dip recession is substantial.
Lower your expectations. Fundamentals have shifted in ways that limit the rate of economic growth.
CNN iReporter Johnny Colt visits the island of Nauru and finds a very small country that has fallen far into poverty now that most of its phosphate has been mined.
Not long ago, Nauru was one of the wealthiest nations on Earth: The phosphate mines, before they dried up, gave the nation the second-highest per-capita GDP in the world. But today, 90% of its residents are unemployed and the nation's economy sags under enormous debt. The phosphate mineral money that brought Ferraris to the island in the 1970s and '80s has dried up, leaving all those sports cars to rust. Today, most Nauruans live on about 90 to 100 Australian dollars a week.
Fortunately, America's decline will not be that sharp. But as world mineral resources become more expensive to extract and as water, farmland, and other resources get divided over a growing population we will have to live on less per person. Only ways to produce really cheap energy can save us from this fate.
Scientific research produces the news you can use. Drive a Porsche for flings, not to get a wife.
New research by faculty at Rice University, the University of Texas-San Antonio (UTSA) and the University of Minnesota finds that men's conspicuous spending is driven by the desire to have uncommitted romantic flings. And, gentlemen, women can see right through it.
The series of studies, "Peacocks, Porsches and Thorstein Veblen: Conspicuous Consumption as a Sexual Signaling System," was conducted with nearly 1,000 test subjects and published recently in the Journal of Personality and Social Psychology.
"This research suggests that conspicuous products, such as Porsches, can serve the same function for some men that large and brilliant feathers serve for peacocks," said Jill Sundie, assistant professor of marketing at UTSA and lead author of the paper.
So if a Porsche-driver manages to marry the girl anyway is he at greater risk of getting cheated on? Is a guy better off exuding totally paternal familial aura in order to get the kind of girl who will make a good wife?
According to the researchers, women found a man who chose to purchase a flashy luxury product (such as a Porsche) more desirable than the same man who purchased a non-luxury item (such as a Honda Civic). However, there was a catch: Although women found the flashy guys more desirable for a date, the man with the Porsche was not preferred as a marriage partner. Women inferred from a man's flashy spending that he was interested in uncommitted sex.
So peacocking really does work. But it only works on women who aren't ready to settle down.
"When women considered him for a long-term relationship, owning the sports car held no advantage relative to owning an economy car," said co-author Daniel Beal, assistant professor of psychology at Rice. "People may feel that owning flashy things makes them more attractive as a relationship partner, but in truth, many men might be sending women the wrong message."
Women find happy guys significantly less sexually attractive than swaggering or brooding men, according to a new University of British Columbia study that helps to explain the enduring allure of "bad boys" and other iconic gender types.
The study – which may cause men to smile less on dates, and inspire online daters to update their profile photos – finds dramatic gender differences in how men and women rank the sexual attractiveness of non-verbal expressions of commonly displayed emotions, including happiness, pride, and shame.
Very few studies have explored the relationship between emotions and attraction, and this is the first to report a significant gender difference in the attractiveness of smiles. The study, published online today in the American Psychological Association journal Emotion, is also the first to investigate the attractiveness of displays of pride and shame.
Roissy argues straight guys can learn from how gay guys treat women.
Serving professionals in Washington DC but doing so with worker collectives. Lots of punk band members find a way to make a living without compromising in the patriarchy. If they manage to make some hit songs they'll manage to move way up in the dominance hierarchy while pretending not to. How cool is that? In the mean time its pugs, beagles, and terriers, who all have pack hierarchy rules programmed into their genes.
A segment of the women of Libya are some of Kaddafi's biggest fans because he's let them do stuff they otherwise wouldn't be able to do. Libya has one of the highest female participation rates in the labor market among Arab countries.
“Moammar Gadhafi is the one who opened the opportunities for us to advance. That’s why we cling to him, that’s why we love him,” says Mansour. “He gave us complete freedom as a woman to enter the police force, work as engineers, pilots, judges, lawyers. Anything.”
Among Gadhafi’s most ardent loyalists are a core of Libyan women who have risen to high-profile roles in the police, military and government and credit Gadhafi with giving them greater career avenues than many of their sisters elsewhere in the Arab world. They consider any threat to his regime a threat to their own advancement.
Barack Obama and a few other Western leaders want to overthrow Gadhafi. If that happens then the rights of women in Libya might go down. Whether democracy will benefit Libyan women remains to be seen.
The precedents so far are not encouraging. Egypt and Iraq both show what will happen when an Arab Muslim country loses its strong man rule. The overthrow of Hosni Mubarak has been bad news for Egypt's Christians and women just as Saddam Hussein's ouster led to persecutions and killings of Christians and suppression of women. Large numbers of Iraqi Christians fled Iraq as a result.
While reading Amazon reviews of David Mamet's The Secret Knowledge: On the Dismantling of American Culture (about a very successful liberal playwright's turn to the right) I came across an enthusiastic recommendation for Juggernaut: Why The System Crushes The Only People Who Can Save It By Eric Robert Morse. From the book description:
By now, everyone recognizes the severity of the 2007-08 financial crisis. But, to many Americans, the bailouts, stimulus packages, and regulatory schemes aimed at solving the problem seemed to merely pull the economy further into the mire of bureaucracy, party politics, and unsustainable debt that led to the crisis in the first place. Only the bankers and officials who caused the problem were in a position to solve it, and so fixing the system necessarily meant becoming part of it--and thus making it even harder to fix. This is the crux of the Juggernaut.
The bankers do not want a fundamental fix because that would cut the size of their banks and restrict their risk-taking with the public dime. No objective and yet competent people can possibly become influential in trying to reform the financial system. Many forces are arrayed against a sound banking system.
Is the Federal Reserve trying to manage an uncontrollable system that is going more berserk?
A sprawling, uncontrollable system that only grows larger and more berserk the more we try to quell it, the Juggernaut has become a way of life. It is not, as many would suggest, a product of the last ten or even thirty years. Rather, it is inherent in the system itself, with roots that reach as far back as Columbus and the dawn of modern times.
The writer sounds like he draws a great deal from the Austrian school of economics and also from public choice theory. But the web site for the book presents an interesting twist on what the book's about. Note the reference to the closing of the frontier and our inability to escape from a huge web of interdependencies. The Thesis of Juggernaut:
The modern system is based on alternatives. Private property, free enterprise, specialism, industry, cooperation, and all other central aspects of the modern politico-economic system are based in the ability for the participants to reject the system and make do somewhere else. Since the close of the frontier around 1890, those alternatives have become increasingly difficult to secure since it has become increasingly difficult to reject the system and move somewhere else.
Even after the frontier closed there was a sort of afterglow of its effects on American culture. The country was still sparsely populated and the beliefs the frontier engendered made Americans more independent of mind and less inclined to see government, especially federal government, as a major force in their lives. But the afterglow is fading and the world is becoming a smaller place. It is hard to get away from it all.
As a result, growing interdependency has given larger authority to those in power. Those in power are granted wider freedoms in their rule, and everyone else must acquiesce or attempt to gain positions of power to survive. As the close hardens, society sheds its free and democratic characteristics and takes on a more hierarchic or statist appearance.
The Patriot Act, anyone? Security threats emanating from abroad (or from immigrants whose religious beliefs are incompatible with a free society) get used to justify more power for central governments and more cooperation between governments to monitor and control people. Also, as governments become more powerful they attract more of the ambitious. The ambitious naturally want to make government more powerful so they can do more things from their positions of power. Seems like a vicious cycle.
Morse proposes decentralization as a solution. But aren't the same historical forces that have brought us to this point bound to keep us going even further toward centralization?
The only way to reverse this trend is to open alternatives by localizing power, denationalizing the economy, and increasing self-sufficiency.
Were the last couple of centuries in America an inherently unsustainable brief interlude between the periods which naturally characterize human societies? As the world becomes more densely populated, polluted, and resource-constrained will even our current potential for independence become an impossible fantasy?
I've downloaded sample chapters of Mamet's and Morse's books to see if they are worth a read. Anyone read either of them?
Update: The problem is bigger than just bankers and big money special interests which benefit from the Leviathan. Higher population densities, bigger impacts on the environment, and rapid movement of goods brings us into more interactions with each other. We have many more relationships to manage. We have many more reasons to object to what other people do. It is the difference between living in the country and living in an apartment building. Suddenly you share walls, sidewalks, parks, parking spaces. The number of ways we turn to government to regulate our interactions goes up as our frequencies of interactions go up.
We need a revival of Puritanism or a new religion based around very austere lifestyles combined with long hours of work at the best paying occupations. Why? A new report from the Employee Benefit Research Institute finds that based on how much people at various income levels are saving toward retirement a large portion of the US population will need to work into their 70s and beyond.
Those who earned between $11,700 and $31,200 will need to work till age 76 to have a 50% chance of covering basic expenses in retirement. Those who earned between $31,200 and $72,500 will need to work to age 72 to have a 50% chance and those who earned more than $72,500, those in the highest income quartile, catch a break; they get stop working at age 65 to have a 50/50 chance of funding their retirement.
Since their full report assumes "historic equity returns" (which the market is not going to deliver in the next 20 years) the real level of unpreparedness is much greater than this report indicates.
Unfortunately, some substantial portion of the population will retire too early. They'll be senile and/or sick before they realize that they do not have enough money. I already know people in their 50s with ambitions to retire in their late 50s who are in no way ready (still paying mortgages with years to run on them and little in the way of savings). But it is hard to reason with people who hate their jobs.
Average life expectancy at age 65 is about 18 years (big PDF) and rising. The latter link is probably insufficiently optimistic since advances in biotechnology will cause a large jump in rejuvenation therapies in the 21st century. That jump in biotech argues for saving to directly pay for cutting edge medical treatments you might not otherwise be able to get.
The lowest income people need to work into their 80s. Basically, they need to work until dead.
LOWEST-INCOME LEVELS, HIGHER CHANCES OF ADEQUACY: If the success rate is moved to a threshold of 70 percent, only 2 out of 5 households in the lowest-income quartile will attain retirement income adequacy even if they defer retirement age to 84. Increasing the threshold to 80 percent reduces the number of lowest preretirement income quartile households that can satisfy this standard at a retirement age of 84 to approximately 1 out of 7.
Generation Y (born from 1977 to 1994) aren't doing enough for their retirement and with the decline in defined pension benefit plans they are in even worse shape. Kids, you've got to work longer hours, spend less, save more, and find some worthwhile investments. Making too little money? Your college education was probably worthless. Better start studying for computer network administrator certificates from Cisco and Microsoft. Get useful education.
Then there's the problem of medical cost inflation. Since Medicare benefits are bound to get cut (and you are better off being able to pay a specialist who refuses to participate in Medicare) you need even more money.
Future retirees could face even higher costs. A recent Urban Institute report projected that median out-of-pocket costs for the typical senior could rise from about $2,600 in 2010 to $6,200 in 2040 in constant 2008 dollars. I asked researchers from each of these organizations how we should go about budgeting for health care costs in retirement. Check out The High Cost of Growing Older.
The solution is to make career moves to make more money while living like a pauper. What's needed: a new religion of very hard work and extremely low living standards. Time to bring back Puritanism. In the new austere hard-working religion wearing ragged clothes should be portrayed as a virtue. TV should be labeled as evil. That way you won't have to pay a monthly cable bill. I dropped cable already just to save time. You need that time to work at a second job or to take night classes.
You need to make and save so much money that you won't have to spend 35% of your income in retirement on medical costs.
Furthermore, health spending as a share of after-tax income will rise dramatically. In 2000, health care spending for older married couples was 16 percent of their total income. According to the Center for Retirement Research, that number is expected to increase to:
- 24 percent of income in 2010.
- 29 percent in 2020.
- 35 percent in 2030.
Time to start a new religion of austerity and hard work. I'm looking for names for the religion. Anyone got any ideas?
Immigration reform and stricter enforcement of current immigration laws could significantly boost labor costs for California’s $20 billion fresh fruit, nut and vegetable crops, according to agricultural economists at UC Davis and the U.S. Department of Agriculture.
This, in turn, would likely prompt the industry to adjust by increasing mechanization and introducing harvesting aids to boost laborers’ productivity, they predict. Imports may also rise.
Unions had this same effect on mining and other industries. Raise the cost of labor and the owners of capital will figure out how to use less of it. The resulting boosts in productivity raise living standards in the long run.
It is interesting to note in this regard that the opening of China as a source of cheap labor has caused manufacturing in a number of industries (e.g. photovoltaic panels, batteries) to shift from more automated Western factories to less automated factories in China. The labor was so cheap that it was cheaper than machines. So this shift of manufacturing to low labor countries can slow the rate of progress.
Given the US government's $61.6 trillion in unfunded liabilities one naturally wonders how the US government will deal with mounting debts and rising demands on its tax revenues. Higher taxes? Huge cuts in benefits? Or high inflation? Given the popular opposition to both higher taxes and less benefits hyperinflation begins to look plausible. The willingness of Ben Bernanke and the US Federal Reserve to resort to "quantitative easing" (create cash out of thin air and use it to buy hundreds of billions of debt) seems to show some willingness to opt for inflation as a policy tool. Some commentators call for inflation to allow escape from debt. So is hyperinflation in the cards?
Please note that banks do not want hyperinflation or even massive inflation. The reason is simple: Banks will not want to be paid back with cheaper dollars, especially worthless dollars, and Congress is beholden to itself and the banks.
Hyperinflation could theoretically come from massive sustained political will to bail out the little guy at the expense of the banks, the wealthy, and the political class. However, unlike Mugabe and Zimbabwe, neither the banks nor the Fed nor the political class wants to bail out the poor at the expense of the wealthy.
Indeed, Bernanke's, Paulson's, and Geithner's actions to date have done the exact opposite!
We have bailed out the banks at the expense of the ordinary taxpayer (keeping the little guy in debt).
This is what it comes down to: In theory, Congress can easily cause hyperinflation. In practice, they won't, and neither will the Fed. As Yogi Berra once quipped "In theory there is no difference between theory and practice. In practice, there is."
So does big money oppose hyperinflation? I am uncertain and welcome any insights into how the balance of interests will develop with regard to inflation. I see the US government's financial situation as more dire than mainstream projections would lead one to expect. Peak Oil is near and will prevent the economic growth needed to pay off debts and entitlements promises. So the pressure to escape financial obligations will grow much larger. How will that pressure be relieved?
In some nations (e.g. Argentina) the financial balance of power within government is still too weak against inflation. In Argentina the government flagrantly lies about the inflation rate.
The government’s official 10.9 percent inflation rate is less than half the estimate of private economists and firms like Ecolatina, which put inflation at 26.6 percent in a report last month. The official 12 percent number for poverty is also well below independent estimates of about 30 percent.
All nine Argentine economy watchers dinged with hefty fines of about $120,000 (U.S.) apiece said inflation is well above official estimates.
John Williams of ShadowStats on his web site publishes results from older methods the US government used to use to measure of inflation and he argues the US government is under-reporting inflation. Williams is predicting hyperinflationary depression. Is he right? Or will we have a deflationary depression as Nicole Foss (Stoneleigh) predicts?
Update: Ron Paul expects default by loss of value in the currency. i.e. inflation.
Al Hunt: Your speaker John Boehner says he will absolutely insist on a dollar of spending reduction for every dollar the debt ceiling goes up. Do you take that seriously?
Ron Paul: I don't take that seriously. President Reagan wanted 2 dollars of cuts. The deficit exploded. Do you think the American people will believe that we are going to cut in the future? The only budget that counts is this year. 10-year programs are pie-in-the-sky talking. This year our obligations are 5 trillion dollars.
Al Hunt: The idea of a spending cap that takes place in 10 years does not appeal to you?
Ron Paul: A 10-year spending cap is too little, too late. No one is going to believe it. All governments when they get this far into debt, default. They don't default by not paying the bills. We will always pay the bills. The default comes from the devaluation of the currency.
If you do not think inflation will become a major tool for the US government to escape from debt then how else do you think the US government will deal with the problem? High taxes? Huge slashes thru spending programs? The size of the needed adjustment is unavoidably very large. But what form will it take? This question going to be one of the biggest political battles of the next 20 years.
When the US opened the doors to goods made in China the US was (in theory) supposed to make money off of intellectual property. But why pay for something when you can get it for free?
In his address to employees at the company's new Beijing offices, Mr. Ballmer said Microsoft's revenue per personal computer sold in China is only about a sixth of the amount it gets in India. He noted that Microsoft's total revenue in China, population 1.3 billion, is less than what it gets in the Netherlands, a country of fewer than 17 million.
In a world with worsening natural resource limitations rising buying power of the Chinese, enabled in large part by massive technology transfers, pushes up the costs of natural resources (e.g. oil). China's gains are part of a zero sum game that makes others poorer. Intellectual property theft undermines our ability to buy the resources we need to support our own living standards.
Mr. Market has decided to make housing much more affordable. Great news for prospective buyers who have good jobs.
Writes Capital Economics’ senior economist Paul Dales, “On the Case-Shiller measure, prices are now 33% below the 2006 peak and are back at a level last seen in the third quarter of 2002. This means that prices have now fallen by more than the 31% decline endured during the Great Depression.”
This is great news. Lower prices are better. Granted, these lower prices come with a multi-trillion dollar cost due to a corrupt ruling class. The scale of the intellectual and financial corruption that brought us to this point makes me worry about the future of the commonwealth. I see little sign our populace is going to make the corrupt ruling class act less corruptly. But at least there's an upside of surplus housing for those who can afford to make enough to buy one.
Time to buy yet? Depends on the market. Looking at home prices over the last couple of decades it seems like prices still have room to go down. The cities with the sharpest declines might be nearer their bottoms.
Back in February 2008 I made a prediction: Recession Assures Republican Presidential Defeat In 2008. But Obama's got a really big advantage independent of the economy that Shelby Steele has explained: Obama's Unspoken Re-Election Edge: This presidency flatters America to a degree that no white Republican can hope to match. Still, the economy is a really big enemy of Obama's election chances and another oil price spike could send the economy into a deeper downturn than 2008-2009.
Guy Molyneux, a Democratic pollster, said that while the economy might not be the sole factor in deciding Obama’s political fate, it will set the overall frame of the campaign.
“If things get worse, it would take a great campaign or a terrible failure by his opponent for Obama to win,” Molyneux said. “And if this ends up being just a hiccup and we see strong growth next year, then a Republican victory starts to look pretty unlikely.”
What is funny: Obama's reelection depends on a large increase in oil production. Only a big uptick in exports from Iraq or Saudi Arabia or some other big producer could lower prices enough to allow faster economic growth. Obama needs economic growth fast enough to lower unemployment. But hiring slowed and the economy is slowing down to at best a 2% growth rate.
Economic growth is going to become increasingly difficult. Since the system has many pieces designed with the assumption that growth will occur (e.g. pension funds that are only financially sound if rapid economic growth enables a high return on investment to pay future benefits) the lack of robust growth causes huge financial problems. Since nanotech's potential has been exaggerated, Peak Oil is near, the world economy is becoming limited by other natural resource shortages, and the external costs of population growth are rising we are headed for hard times.
Parenthetically, since the less educated have very high unemployment rates it would be sensible for policy makers to put an end to all low-skilled immigration. Of course, America is not ruled by sensible people. But still, it would be sensible to deport all the illegal aliens and stop letting in anyone who doesn't have at least a college degree, preferably in engineering or another especially well-paying occupation.
The economic problems of the US are part of a larger global pattern. With slow economic growth in both developing and developed countries the whole world shows the effects of high commodity prices, especially high oil prices.
The IMF forecasts 6 per cent gross domestic product growth rate for 2011 for emerging economies – three times higher than in the developed world.
The less developed countries are hardest hit by high grain prices since poorer people spend much larger fractions of their income on food. That article reports on high inflation in a number of developing countries (e.g. India at 8.7%).
Parts of Latin America look headed for harder times. Chronically mismanaged Argentina has 25% inflation. Venezuela's inflation is at 23% and in spite of oil wealth the poorest quarter of Venezuelans spend 45% of their income on food. Given Hugo Chavez' mismanagement that's not surprising.
We are in a zero sum world. Economic mismanagement in some countries can cut demand and prices for resources and therefore allow other countries to grow. Obama could be helped by a downturn in China that would lower commodity prices. But he'd be hurt by political unrest in the Middle East or Nigeria that would raise oil prices. His political fate is very much out of his hands.