Challenges ahead for US economy

[UpInArms]

http://news.bbc.co.uk/1/hi/business/4549942.stm

Many people may not know the name Ben Bernanke. But at the end of January he becomes the world's most powerful central banker when he succeeds the respected head of the US Federal Reserve, Alan Greenspan.

<snip>

But there is long-term shadow hanging over the dollar - the huge US trade deficit that is running at an annual rate of nearly $700bn.

As it keeps growing, fears are growing that there will be a run on the dollar, which would force the Fed to intervene.

<snip>

And in the longer term, the large budget deficit also puts increased pressure on the US dollar, and reduces the US savings rate, forcing the Treasury to borrow more money for foreigners to fund the deficit.

...more...

"Chopper" Ben's history:

http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002

excerpt:

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

[Donkeykick]

1. WOW!

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

I guarantee that I will be at the end of that press, with a wheelbarrow, to collect my part!:rofl:

[PATRICK]

2. determined, always, positive inflation

And they confirmed this guy easily? If in just ONE speech he departs from the cautious code games of his predecessor because he has drunk too much neo-con kool-aid things might get very interesting.

Essentially it is bluff and blackmail rules. Determination overcomes reality. No one would dare take advantage of our weakness because this fatted calf auctioned off overseas can still bring the world down.

I suppose this is supposed to be refreshing change from the benevolent corporate model of the NWO Greenspan had been trying to sell to the people below the peak of the pyramid.

The attitude smacks of imminent disaster.

[UpInArms]

3. if you're interested in reading the tea leaves on the economy

here's a page of charts that will fascinate you

http://images.google.com/imgres?imgurl=&imgrefurl=http://www.idorfman.com/Charts/&h=357&w=289&sz=21&tbnid=UxRTRphicxsJ:&tbnh=116&tbnw=94&start=3&prev=/images%3Fq%3Dhelicopter%2Bmoney%26hl%3Den%26lr%3D%26sa%3DN

[Toots]

4. On the total household assets chart it is easy to spot when a Dem was Pres

except for Nixon. He was pretty damn Liberal after all.

[cliss]

8. Every picture tells a story.

Thanks for the graphs. It doesn't take a genius to see where all these lines are going......down....down.

And they know this in Washington, by the way. They know the picture is unbelievably bleak. We're a hollowed-out shell. All they have left is windbag blathering, get up there and make it sound wonderful, exaggerate the numbers pump them all up by 25%.

The fact is, our entire economy is sitting on the edge of the abyss. It's not that we're strong. We are a strong country, have unbelievable assets, have a well-trained labor force.

But the problem is, we've been robbed. Our strength has been sapped, by the government.

[belab13]

9. Money Supply another Important indicator

The Fed introduced $115 billion into the system just in the last month. To put this into perspective the Fed added approximately 180 billion right after 9/11. This tells me that they are terribly worried about something... could be a hedge fund meltdown or strikes on Iran, though I couldn't tell you.

http://research.stlouisfed.org/fred2/series/WM3NS/

[UpInArms]

10. thanks for the link and info belab13!

(adding another picture)

[Koeln]

11. yes and no

Some of the facts you present are really "alarming" and it would be easy to establish a doom scenario for the US and the american economy. But i am not that pessimistic.

The US ( and the us consumers) are a really interesting topic.

I make research on bankruptcy prediction systems for companies especially small and middlezised.


1. I would agree that there will be a change in the behavior of american households in the upcoming years because it has to be.

- You mentioned the saving rate but it is even worse as you graph showed. In the last Q it was negative and if you take pension programs and other things into account that are counted as savings but do not belong to the disposable income the situation gets more worse.

- we saw an huge increase in household debt in the last years although the rates in the US were at an historical low. With rising interest rates the even now record debt burden will increase without additional debts but there is no real sign that the american consumer change their behavior.

- new types of mortgages and loans. American households used these "new" mortgages where they feel no or only a very low debt burden at the start but nothing is for free in this world. These forms make now more than 1/3 of of all new loans.


And so on and on

In the end a lot of americans had a nice party with cheap money from the FED as a result a booming housing market and people willing to spent the equity ( or should i say the virtual equity) of their houses for whatever they need or not need.

These times will end or the US had found a new way of nerver ending happiness with enough money for everyone.

There will be a recession in the next years but the US will survive and will come back when the hangover is over.

[VegasWolf]

5. As always, hold onto the wheelbarrow! It will be more valuable than

the pile of greenbacks inside it!

[Donkeykick]

6. About as valuable as this? :wink:

[barb162]

7. It is frightening what we are doing in this country

And Greenspan should have raised interest rates and been screaming about the deficit when Bush started the Iraq war. And he should have called for higher taxes to finance the damned war