NYT: The Perfect Storm That Could Drown the Economy

[DeepModem Mom]

The Perfect Storm That Could Drown the Economy
By DANIEL GROSS
Published: May 8, 2005


....The doomsday theme is seeping into the normally circumspect world of economics. In April, Arjun Murti, a veteran analyst at the investment bank Goldman Sachs, warned that oil could "super-spike" to $105 a barrel. And increasingly, economists are prophesying that the American economy as a whole may be sailing into choppy waters.

Just look at the many obvious and worrisome portents. The government each year spends much more than it brings in, and so the nation has a large budget deficit ($412 billion in fiscal 2004, and growing). Americans also import far more goods than they export, and so the nation has record trade and current account deficits.

As consumers, Americans personally spend significantly more than they earn. Worse, some imbalances are eerily reminiscent of conditions that helped touch off recent economic crises: Mexico in 1994, Asia in 1997, Russia in 1998 and Argentina in 2002. Throw in rising interest rates, warnings of a housing bubble and the potential for higher inflation and slower growth (a k a stagflation) - and you can understand why some economic analysts may be plumbing the New Testament for inspiration.

The forces propelling and buffeting the economy are like a series of interrelated and interconnected weather systems. Could they be setting the conditions for a perfect storm - a swift series of disturbances that causes lasting damage? If so, what would it look like?

"There's a pattern that is familiar from so many other countries that have gotten into debt problems," said Jeffrey A. Frankel, an economist at Harvard's Kennedy School of Government. "A simultaneous rise in interest rates, fall in securities prices and depreciation of the currency."...


http://www.nytimes.com/2005/05/08/weekinreview/08gross.html?8hpib

[blogbear]

1. I believe that this was the forcast the Taliban had for the former USSR

and the design of Bin Laden for us as well..

[physioex]

6. That's right.....

Great empires have rarely if never collapsed externally....

[leftchick]

17. yes indeed

this is all like some bad movie I have seen before. :(

[Trajan]

34. The Taliban and bin Laden ...

Are theistic extremists, ignorant of most earthly matters, and bent on the destruction of NON moslem thought ....

The economic conditions that existed in the USSR led to it's downfall, NOT pronouncments by shuttered clerics hurling hateful anathemas from their tents .... The same applies to bin Laden: he murdered lots of people, and razed some buildings: He is NOT responsible, nor prescient of, the current economic debacle that exists here in the US ...

This assertion is a non sequitur ....

It gives WAY too much creedance to a theocratic THUG of the worst degree ....

To say 'bin Laden did it', is it absolve Bush, the Neocons and the GOP of THEIR failure and malfeasance ....

[Straight Shooter]

2. Okay, but at least gays can't get married, and freedom is on the march.

:banghead:

[blogbear]

10. The states are slow..I've given some of those girls away..

[G2099]

3. Is the Perfect Storm Near?

http://www.gold-eagle.com/editorials_05/scott031605.html

[DeepModem Mom]

5. Thanks for posting this "storm" piece, G2099 -- and welcome to DU!

[Ouabache]

8. Anybody else have blackout periods on accounts soon??

I have two accounts that are being transferred ownership soon and for some odd reason the 'blackout period' on each is the same week. I find it an odd coincidence that has happened on these two totally unrelated accounts/services & sorry I can't say exactly what they are.

[suziedemocrat]

23. What is a "Blackout Period" on an account?

Could you give me the general concept of this? I'm a financial moron!

[NeoConsSuck]

36. I had a blackout back in January..

in my 401k, we switched providers. Actually, it worked out to my benefit. For the couple weeks it was inactive, the market tanked. When we got back in, the market was at the bottom of the dip.

Even now, after the March-April dip, I'm still up YTD on my 401k.

[lovuian]

4. Well $105 oil price would certainly blow everybody's

budget!!!

But I think capitalism is in trouble because the cheap labor is running out... it thrives on it and its getting harder and harder to fine!!!

[physioex]

7. LOL....

Yea not kidding. You know what I would give a shit, but considering how stupid and apathetic we have become as a country, I certainly hope it does go that high.....

[xxqqqzme]

9. probably why pretzeldent

wants 2 go 2 Mars. He heard they found 'life' there and him being the 'culture of life' prez 'n all......life=cheap labor

[Birthmark]

11. Interesting

This from the NYT link:

"Personal expenditures in the past 15 months have been largely financed by borrowing," said Wynne Godley, a Cambridge University economist who is affiliated with the Levy Institute at Bard College. "And even a reduction in the pace of debt creation will force people to start spending less, on a big scale."

Coupled with this story from a week or two ago paints a pretty bleak picture for the near future.

"In response to federal regulators, major U.S. credit card issuers, including Wilmington-based MBNA Corp., are raising the minimum amount cardholders must pay each month. Regulators are concerned that minimum payments are so low cardholders who pay the minimum won't ever pay off their balances.

Typical minimum payments will climb over the year from the current 2 percent of the balance to between 3 percent and 4 percent, according to an estimate from Agawam, Mass.-based Cambridge Credit Counseling Corp., a nonprofit group that offers credit counseling services."
http://www.delawareonline.com/newsjournal/business/2005/04/15creditcardminim.html

Maybe there's something I'm missing, but it sure looks like we are creating our own Perfect Storm.

.

[truthisfreedom]

14. one pretzel away from whirled peas...

[Toots]

24. Ahhh just visualize whirled peas

:-)

[Massacure]

20. Mars was a cheap PR stunt.

[AndyTiedye]

15. Look who our Capitalists go to for their cheap labor: CHINA.

Seems nobody can provide a more exploitable labor force than "Communist" China.
Karl Marx is surely spinning in his grave.

Capitalism does NOT require cheap labor in order to function,
in fact it works a lot better with a well-paid, well-motiviated
workforce. Far from abolishing stock options, we should give them
to all employees (as many high-tech companies do). Companies should
earn the loyalty and hard work of their employees. Well-paid employees
make better consumers too, since they have more disposable income.

[Trajan]

35. RIGHT fuckin ON ! ...

This is EXACTLY the point ...

The 'slave labor' gambit is a short lived effort to obtain the HIGHEST short term profits, but in the end will leave a nation unable to sustain it's own economic activity ...

I once had a good job, for an employer whom I respected and admired, and whom I was LOYAL to ....

I had a great wage ...

I and my family had 100% health insurance ...

I also had 20 years vested in a GREAT pension plan (which may or may not still exist when I retire) ...

This WHOLE economic regime of the GOP is to grab as MUCH as possible, and run like hell when it all falls apart ...

They couldnt care LESS about the welfare of the nation's citizens ...

[valis]

30. Nah. Still much lower than in Europe.

A government not in the pockets of the oil industry would have no problem dealing with this. And use it to promote aggresively better energy alternatives.

[GetTheRightVote]

12. The La Rouche group/PAC has been prodicting these issues

for some time now and trying to help Dems put together a plan to survive a turn down in the economy.

:kick:

[chascarrillo]

28. Well, three cheers for those fascists, then

Whoopee-doo.

[eridani]

43. Not going to be of much use--

--unless you decide that you can also learn something from people that you propose to teach.

[dchill]

13. $105 - barrel - oil

...would give Cheney a "super-spike" without Viagra.

[DeepModem Mom]

22. LOL! Welcome to DU, dchill --

[vince3]

16. This economy has been terrible for 3.5 years...

....it's only going to get worse. There could be a perfect storm, but there has certainly been a gradual storm since never-elected took over. The economy will never get better with Bush because this republican thing doesn't work.

[radfringe]

18. it's not a hole, it's a tunnel

[xchrom]

19. debt every where you look.

i can't imagine, given the rate of individual, corporate{i.e. pension funds} and government {state and federal} why this isn't a story that captures the headlines each and every day.

unregulated capitalism, of course, has to run in this direction because it's about the creation of immediate wealth.
but there are no free lunches -- and the inability of capitalism to regulate itself and look long range, and a complete inability to serve the community creates a perfect storm every time.

[harpo]

21. proves lack of responsibility by gop AND consumers...yes consumers

People need to not be in so much debt...quit diving in so deep over your head that you are barely floating. Be responsible!!!

[llmart]

25. And stop watching and listening to the advertising.......

that insidiously tells you that you too should have it all - right now! It's amazing to me that people think they can't live without stuff. There is truly very few "necessities" in life. The majority of people in this country think they'll be happy once they get that hot tub, or new car or completely remodeled kitchen or highspeed internet, etc. etc. etc. and then they never are happy so they go after that next thing, never stopping to think about why they buy this stuff.

[many a good man]

26. Running on fumes

The gas tank is empty and our economy is running on fumes. We've run out of ways to stimulate the economy. Responsible governance would dictate a long painful period of belt-tightening and reality-checking. What political leader would dare deliver another "malaise" speech like Carter?

I can't see any alternative to a reprisal of 70s-era stagflation. But the end game will be much different this time. The stagflation of the 70s only ended when the price of oil began a long decline in the 80s. Instead of oil prices going down, this time they will only go up up up as we scale Hubbert's Peak. Jack will fall down, breaking his crown, and Jill will come tumbling after...

How will the end game play out? One vision portends a world war to the death over the remaining oil reserves. The other clings to the hope that conservation and technology will save us. The stakes for humanity are high, and we're on the right side.

[cliss]

27. Thanks for the reality check, Deep.

Of course, we at the DU don't need the reality check as much as the general population. We've seen the train, and it's coming off its tracks.

Now, I noticed Mr. Gross focused on oil hitting $105 per barrel, and this would be the death blow, the last injury to an economy which has ha d a 'death by a thousand cuts'. I'm not sure if he feels that will be the deciding factor, because in my opinion there are several things going on that will destroy this economy before oil prices do.

1) the most damaging is the war in Iraq. This is a sink hole which is sucking tremendous amounts of borrowed capital, debt into the future as far as the eye can see. We're spending between $4.9 and $8 billion per month.

2) our deficits are like a noose that's slowly tightening. We're moving into unsustainability. Think of a house of cards.

3) our trade deficits are unbelivable, staggering. And they keep growing every year.

4) consumer attitudes. Most of my friends love to spend money. They can't wait for some excuse to go down to the Crate & Barrel to go blow more money on the visa card. Several of them have filed for bankruptcy, by the way.

In other words, there are many problems in the economy which will sink us, before oil prices will.

[Barkley]

29. 'Bad things happen to good economies' Krugman

paraphrased.

It depends on how you respond/ react to the crisis that matters more!

Unfortunately, the Fed policy goal is to control inflation and price stability first and full employment is an after thought.

After the 1997 Asia the IMF imposed pro-cyclical policies (like high interest rates & limits on deficit spending) that made things worse.

I don't think the Fed would raise interest rates unless inflation were a real problem.

However, if gas goes to $105 per barrel, interest rates will also rise, unemployment notwithstanding.

In a financial crisis Bush would go about proposing more and permanent tax cuts for the rich.

We're kinda like the Titanic ... 'a crisis can't happen to us'. So we don't need to carry all the extra life boats (e.g. welfare unemployment insurance, health care) - arrogance.

But even still, there were enough boats on the Titanic to save everyone if they had rationed space fairly.

But panic, greed, and class made the crisis far worse than it needed to be.

[Phoebe Loosinhouse]

31. The Russian Collapse was NOT ideological, it was not military,

it was ECONOMIC. Reagan upped the arms race and caused the Russians to spend themselves defensively into ruin. We are doing the same thing, only we are doing it to ourselves. The incredibly irresponsible fiscal policies of this adminstration, which cut taxes in a time of war, will be the cause of our ultimate economic demise. My best advice is buy a bicycle and invest short term in catfood stocks which is what most of us will be eating.

[Jackpine Radical]

39. I think this is a RW myth.

Ronnie RayGun upped the military spending of the US, but the USSR never did follow suit. All that happened was that the US ended up with a huge deficit and no social safety nets. The Soviet economy was by then well on its way to falling apart anyway, for a variety of reasons mostly related to the fact that they never could get a civilian consumer economy going over there. I can't remember who it was, but somebody in that era referred to the Russians as "the poorest white people on Earth." That was pretty accurate. To repeat--RayGun's military excessed did not end the cold war. They just dug us into an unnecessarily big hole and cost us a socially progressive society.

[Phoebe Loosinhouse]

40. The RW myth is that is it was an ideological and economic

triumph - "Mr. Gorbashav, tear down that wall" leading to the break-up of the Soviet Union and the embracing of capitalism. They hate to think that it was a self-inflicted economic implosion, because where does that leave the Reagan legend? You can only devote so much of your GDP to defense until it turns into a form of fiscal cannibalism to the other supports of an economy. We spend way too much on defense and healthcare as a percent of GDP and we too will implode in the near future.

[teryang]

42. Russian infrastructure was and still is inadequate

Not enough warm water ports, not enough rail lines, dependence on roads and rivers that iced up a large part of the year. The misallocation of resources toward military applications compounded the handicaps.

[Zorra]

44. Reagan, and the US, had nothing to do with the collapse of the Soviet

Union. That really is a RW myth. Reagan was "asleep at the wheel" with Alzheimer's disease long before the dissolution of the Soviet Union.

The Soviet Union collapsed just like all imperialistic empires eventually collapse - in their greed they expand beyond their capabilities to sustain themselves economically, socially, politically, and militarily, and they gradually fall apart. The Soviet Union went down quicker than most though.

Here is a fairly concise explanation from BBC of the reasons for the collapse of the Soviet Union:

'...it was liberalisation and democratisation that brought the regime to crisis point.'

Reform, Coup and Collapse: The End of the Soviet State
By Professor Archie Brown

Professor Archie Brown explains the reasons behind the dramatic collapse of the Soviet Union, and examines how such an authoritarian system could be dismantled peacefully.

http://www.bbc.co.uk/history/war/coldwar/soviet_end_01.shtml

[Cocoa]

32. whatever happens

it'll be Clinton's fault.

[La Coliniere]

33. Let's not forget..

the stock market will crash because "the people" weren't allowed to bolster the markets by contributing to their privatized Social Security accounts.

[Joebert]

41. If we'd had more tax cuts

We could have invested even MORE in the market.

:-)

[indepat]

37. My guess is history will label the fiscal and tax policies of the Gipper,

Bush I and Bush II and possible unknown Repug presidents to follow as the most economically devastating events ever inflicted upon this nation. Hopefully I'll be proven dead wrong.

[XemaSab]

38. Schadenfreude vs personal misery:

some days it's a tough call....