Double-Dip Recession a 'Virtual Certainty'

[ready4ONE 5,400]

The deficit failed! Double dip recession! Government regulation is strangling big business! Small business is the engine of our economy and taxes are killing them! Socialist! Fascist! Communist takeover!

All of these are RNW talking points, unsettling the population with the sole goal of business getting their desired party back in office. If it works...

[JohnSmith2007 353]

Getting angry, bro? I do admit that the RWN are doing all they can to create an environment as hostile to Muslims as the Nazis did back then to Jews. But aside from that, I see no 1930's Germany rising around here. Maybe I lack your exceptional visoniary capacity.

Not angry at all. I am very secure in my convictions. I will save my money, reduce my debt and do what I must to protect my job. You go ahead and break into your savings and stimulate the economy. And like a good little liberal you will be waiting in line for your government hand-out when the bottom falls out. As for compairing me to the RWN's and the muslim haters, I don't knwo what to tell you. I haven't expressed an opinion here or anywhere else about that. That is just your stereotyping and your predjudging speaking. Anyone that expresses a conservative opinion on anything is a RWN to you. That only shows your lack of understanding and your own bigotry.

The deficit failed! Double dip recession! Government regulation is strangling big business! Small business is the engine of our economy and taxes are killing them! Socialist! Fascist! Communist takeover!

All of these are RNW talking points, unsettling the population with the sole goal of business getting their desired party back in office. If it works...

Very good! Can I see more Far Left lunacy?

[JohnSmith2007 353]

U.S. Economy Looks Like Weimar on the Brink

Similar Forces that Blew Up Weimar's Money Threaten the Dollar

By Harold James 2/11/08 7:26 PM

Inflation in the Weimar Republic made it cheaper for this woman to burn money than firewood.

Twentieth-century economic history generated two great bogeymen: the Great Inflation and the Great Depression. The memory of both continues to haunt policy-makers.

Only a few years ago, the talk was about the dangers of a world trapped in deflation by the addition of ever more efficient producers in the poor economies of Latin America and Asia.

Today, the dramatic growth of those producers has pushed up energy and food prices, and economists now worry about world inflation. At the same time, America is anxious about dependence on inflows of foreign investments – whether as Chinese or Japanese central bank purchases of government securities, or controversial purchases of financial institutions by sovereign wealth funds.

These modern anxieties about inflation and dependence on foreign money have a frightening historical parallel in the early 20th century.

The world’s most dramatic and most famous inflationary experience of the 20th century was Germany after World War I — though other central European countries had similar experiences. By November 1923, the German currency, the Mark, had fallen to one trillionth (1/10 12 ) of its pre-war value.

In the last stages of inflation, prices changed several times a day. Shopkeepers followed the foreign exchange rates, and immediately adjusted their charges. Vast amounts of paper money were needed to make even the smallest purchases. Instead of purses, people used first baskets and then wheelbarrows to carry their money.

Ultimately, inflation destroyed German savings, and made the economy of the unstable democratic Weimar Republic vulnerable to yet more shocks. It also had a dramatic effect on popular and political psychology.

The constant alteration of prices, the dramatic story of fortunes made and lost through speculation, made ordinary Germans vulnerable and neurotic. Because it played into old established clichés about Jewish dominance of finance, the inflationary uncertainty fueled anti-Semitism. Later on, some shrewd observers, like the scientist and writer Elias Canetti, concluded that the Great Inflation made the Holocaust possible — by creating a world in which large numbers seemed unreal and incomprehensible. Bureaucrats simply wrote down impossibly big sums without thinking of the human consequences.

The German postwar inflation and hyper-inflation of the 1920s had two fundamental causes: a low savings rate, and bad monetary and fiscal policy. One consequence of World War I was an erosion of incomes, and a dramatically reduced savings rate. But at the same time, at least for a while, Germans were able to sustain their living standard, and run large trade deficits.

They had this luxury because investors from around the globe bought German assets: currency, securities, real estate. British and American investors were gambling on a German recovery. After all, before 1914, Germany had been, with the United States, one of the world’s two strongest economies.

Only at a relatively late stage in the story of the German inflation, in the summer of 1922, did foreigners begin to realize that Germany was unlikely to be able to pay all its debts — including the financial reparations that the Allies demanded under the 1919 Versailles Treaty.

In the summer of 1922, the assassination of Foreign Minister Walther Rathenau underlined the political instability of the Weimar Republic. From that moment, foreigners no longer wanted to buy German assets. The big capital flow of the earlier period came to a stop. The Mark went into a free fall.

The second driving force of the inflation was the policy of the German government and the German central bank. Both were sensitive to political considerations. Both worried that rising unemployment might destabilize the precarious political order. So they were willing to do anything in fiscal and monetary policy to counteract economic slowdown. The government ran large budget deficits as it tried to keep up employment in the state-owned railroad and postal systems, and also to generate more purchasing power. It kept on looking for new ways to administer repeated fiscal stimuli.

Equally significant, the president of the central bank, an elderly Prussian bureaucrat called Rudolf Havenstein, boasted about his success in getting new printing plants (132 factories, as well as the bank’s own facilities), printing plate manufacturers (29) and paper factories (30) to meet the enormous demand for new money. He found more and more ingenious ways of stimulating bank lending to large businesses on ever more dubious securities. And he kept on saying that keeping the money presses rolling was a patriotic duty.

There was, in short, what would now be called a “Havenstein put” — in which the central bank would keep its interest rate at levels sufficiently low so that German business could continue to expand.

The United States today is clearly a different economy and society than Weimar Germany. But the same kinds of forces that blew up Weimar’s money are threatening.

First, there are persistently low savings rates, declining steadily since the 1970s. This is matched by higher rates of savings in fast-growing Asian economies and in Middle Eastern oil producing countries. The combination has produced a structural dependence on foreign capital inflows, and over recent years foreign investors have seen the U.S. as a good buying opportunity. There is a gigantic sucking sound of money flowing in. The United States accounts for about three-quarters of the world’s net capital inflows.

Second, the U.S. policy environment is extremely sensitive to downturns. American society was traumatized by the other 20th-century bogeyman — the sustained depression of the 1930s. We are deeply worried about recession and unemployment. We are even more obsessed with the fear that financial assets in housing or securities might be lost.

So far, as in Germany before the summer of 1922, there is not too much worry about rising inflation, because we think that foreigners will continue to keep us in the money. Like Germany then, the United States is a powerful industrial economy and there are plenty of reasons why it should attract inflows.

But we are, in consequence, vulnerable to a swing in expectations. If that took place, we might be closer to Weimar than we can ever imagine.

Harold James, a professor of history and international affairs at Princeton University, is the author of “The German Slump: Politics and Economics 1924-1936″ and “The Nazi Dictatorship and the Deutsche Bank”

http://washingtonindependent.com/2345/us-economy-looks-like-weimar-on-the-brink

[Mr. Big Dog 10,747]

And like a good little liberal you will be waiting in line for your government hand-out when the bottom falls out.

This here liberal works for a living. I know, I know, that makes yer head explode but there are still some liberals left in the workforce.

As for compairing me to the RWN's and the muslim haters, I don't knwo what to tell you.

Who compared you to a RWN or Muslim hater? I sure didn't. But if you read that somewhere between the lines then I don't know what to tell you.

[Mr. Big Dog 10,747]

U.S. Economy Looks Like Weimar on the Brink

Similar Forces that Blew Up Weimar's Money Threaten the Dollar

By Harold James 2/11/08 7:26 PM

Well, that prediction was made back in Nov of 2008 - by a history professor no less. We have since been sitting here worrying about deflation. Got something more relevant and timely to offer?

[JohnSmith2007 353]

This here liberal works for a living. I know, I know, that makes yer head explode but there are still some liberals left in the workforce.

Who compared you to a RWN or Muslim hater? I sure didn't. But if you read that somewhere between the lines then I don't know what to tell you.

I am sure you work hard like a responsible father, I never wanted to suggest otherwise. The difference between you and me is I see the government as a hindrence to our growth rather than the cause of it.

RE: the RWN and muslim haters? You brought it up so therefore I assumed you were lumping me into that group. When I was talking about your history I wasn't referring to the Nazis, I was talking about the Weimar Republic and the inflation they went through. We are heading the same way if we are not carefull. The Chinese are already moving away from buying our debt. When they stop our only alternative is to monitize our debt by printing more money. I noticed the other day we have already started down that road. That is what caused the hyper inflation of the Weimar Republic.

Well, that prediction was made back in Nov of 2008 - by a history professor no less. We have since been sitting here worrying about deflation. Got something more relevant and timely to offer?

It is very relevent. More so every day. The prediction is coming true as we speak. IMO he hit the nail on the head.

[Ban Hammer 13,352]

[JohnSmith2007 353]

Federal Reserve Begins Massive Monetization of U.S. Government Debt

In a step that will be one of the markers on the road to economic and financial catastrophe, the Federal Open Market Committee (otherwise known as the FOMC) of the Federal Reserve, made a bombshell policy decision on August 10, 2010, one fraught with dangerous long-term consequences for the American and global economy.

In a policy being dubbed QE2, the Federal Reserve's FOMC conceded that the so-called U.S. economic recovery has "slowed," and required more stimulus from the Fed. However, with federal funds interest rates now effectively at zero, the only aspect of monetary policy left is money printing. Thus, the Federal Reserve, in effect, will use its printing press to buy long-term U.S. government debt.

Of course, that is not how the FOMC is positioning this major escalation in quantitative easing by the Federal Reserve. In the dry, obtuse language that the obscurantists of the Federal Reserve love to engage in, the committee's official statement said:

"To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities. The Committee will continue to roll over the Federal Reserve's holdings of Treasury securities as they mature."

In its first bout of heavy quantitative easing, in the wake of the implosion of the major Wall Street investment banks in the fall of 2008, Ben Bernanke, utilizing his printing press, purchased $1.25 trillion in mortgage-backed securities, and an additional $200 billion in debts owed by so-called government-sponsored enterprises, primarily Freddie Mac and Fannie Mae.

This massive explosion in the Fed's balance sheet has thus far failed to stimulate economic activity and retard a persistent deflationary recession. All that Bernanke has accomplished has been to create a new asset bubble, this time on Wall Street, with equities exploding in price far beyond their post-crisis lows.

Beyond the Dow Jones index, however, the impact of Bernanke's balance sheet expansion has been impotent in the face of economic realities, particularly a collapsing labor market and the contraction in consumer demand. The erosion in the M3 money supply, a statistic the Federal Reserve no longer publicly discloses, attests to the failure of its policies.

Now that the Federal Reserve admits, though in its typically obscure linguistic constructs, that a double-dip recession is becoming increasingly likely, Bernanke is going to enter a buying binge of long-term U.S. Treasuries. The hope is that this will stabilize financial markets, and somehow force liquidity into the economy. That, at least is the hope. Given Ben Bernanke's track record, I would not bank on hope in the infallible judgement of the Federal Reserve and its FOMC.

What is likely to result from the QE2 phase of the Federal Reserve's disastrous policymaking? In time, sovereign wealth funds will recognize Bernanke's maneuver for what it is: monetization of the U.S. national debt. When that happens, Treasury auctions will begin to fail, and yields will advance.

This will all put added pressure on the Fed to print even more dollars, and monetize an increasing proportion of the federal government's debt. This will unquestionably inject liquidity into the U.S. economy. But this Federal Reserve monetary injection will be as beneficial as money printing was in Weimar Germany in the early 1920s, or Zimbabwe more recently.

In deciding on a process that will lead to an ever-growing proportion of the U.S. national debt and yearly budget deficits being monetized by its printing press, the Federal Reserve, under the leadership of its chairman, Ben Bernanke, has taken a fateful step towards irredeemable economic and financial ruin, ultimately convulsing America with a savage, hyperinflationary depression. And, as history teaches us, severe economic depressions bring along other unanticipated consequences, often leading to political and social turmoil and even global war.

http://www.huffingtonpost.com/sheldon-filger/federal-reserve-begins-ma_b_677483.html

[HAL 9000 96]

Oh Good Lawd. I see where this is heading. No, there's no anger there...

[Mr. Big Dog 10,747]

The Chinese are already moving away from buying our debt. When they stop our only alternative is to monitize our debt by printing more money. I noticed the other day we have already started down that road.

The Chinese can't live without us consuming what they produce and we can't consume if they quit buying our debt. They know this.

Sure, we have a very unhealthy trade imbalance and that is something that needs to be corrected. Part of that has got to be that we start producing goods again in this country. Corporations today are literally encouraged to produce overseas - that will have to change.

GE, for example, netted a 10 billion profit in 2009 and paid $0.00 in corporate income taxes to Uncle Sam. They do this by making money overseas and incurring losses in the US - at least on paper. But you want to cut that corporate tax so they can hire more workers here? How do you cut a zero dollar income tax liability?

[Pinocchio Liberal 268]

What planet are you on? We are in dire straights right now. The economy isn't any better than it was 18 months ago. In many ways it is much worse. The stimulus did absolutly nothing to help. The expansion is just fudging the numbers to make sheep like yourself think the stimulus worked. Unemployment is still around 10%, the deficit is skyrocketing, business is not expanding and people are losing all hope. My god man, look around!

Sorry John but the unemployment figure is more like 16%.

U6 unemployment: U5 + part-time workers who cannot find full-time jobs for economic reasons. This is the widest definition of unemployment and gives the most accurate picture of the total number of under-employed people.

U3 is the "official unemployment rate" according to the BLS website. Due to this, it is the current measure of Unemployment that gets focused upon by most media, and therefore the public. It has, over the years, slowly excluded many of the factors that USED to go into how the US reported unemployment. Hence, there has been a gradual decrease in the Unemployment rate that has occurred regardless of what was happening in the Jobs market.

U3 is now comprised in a way that merely repeating it without a slew of caveats borders on fraud.

http://portalseven.com/employment/unemployment_rate_u6.jsp

Edited August 17, 2010 by Col. Lingus

[JohnSmith2007 353]

The Chinese can't live without us consuming what they produce and we can't consume if they quit buying our debt. They know this.

Sure, we have a very unhealthy trade imbalance and that is something that needs to be corrected. Part of that has got to be that we start producing goods again in this country. Corporations today are literally encouraged to produce overseas - that will have to change.

GE, for example, netted a 10 billion profit in 2009 and paid $0.00 in corporate income taxes to Uncle Sam. They do this by making money overseas and incurring losses in the US - at least on paper. But you want to cut that corporate tax so they can hire more workers here? How do you cut a zero dollar income tax liability?

The same way we give tax breaks to low income people that don't pay taxes, give them a refundable credit.

As to the Chinese buying our debt? Well,....

China Grows More Picky About Debt

Published: May 20, 2009

HONG KONG — Leaders in both Washington and Beijing have been fretting openly about the mutual dependence — some would say codependence — created by China’s vast holdings of United States bonds. But beyond the talk, the relationship is already changing with surprising speed.

China’s Changing Role China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.

China has actually bought Treasury bonds at an accelerating pace over the last year — notwithstanding Chinese officials’ complaints about American profligacy. But the borrowing needs of the United States government have grown even faster. So China represents a rapidly shrinking share of overall purchases of Treasury securities. “China’s demand for Treasuries has increased over the past year, but it hasn’t increased at anything like the pace of the Treasury’s sale of new Treasury bonds,” said Brad W. Setser, a specialist in Chinese financial flows at the Council on Foreign Relations.

Americans and investors elsewhere are buying Treasuries instead. They are saving more and have been shifting out of other investments — including equities until the past two months — and into Treasuries.

China bought less than a sixth of the Treasuries issued in the 12 months through March. Less than two years ago, by contrast, Chinese purchases of Treasuries, which included purchases in the secondary market as well as newly issued securities, briefly exceeded the entire borrowing needs of the United States.

Financial statistics released by both countries in recent days show that China paradoxically stepped up its lending to the American government over the winter even as it virtually stopped putting fresh money into dollars.

This combination is possible because China has been exchanging one dollar-denominated asset for another — selling the debt of government-sponsored enterprises like Fannie Mae and Freddie Mac in a hurry to buy Treasuries. While this has been clear for months, new data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing’s concerns that inflation will erode the dollar’s value in the long run as America amasses record debt.

So China’s rising purchases of Treasuries do not represent the confident bet on America’s future that they might seem to be on the surface. For instance, China does not appear to be dumping euros or yen to buy Treasuries, economists said.

That said, recent Chinese and American data suggest that an astounding 82 percent of China’s $2 trillion in foreign reserves is in dollars, according to calculations by Standard Chartered.

The development has caught the attention of the leaders of both countries.

“The long-term deficit and debt that we have accumulated is unsustainable — we can’t keep on just borrowing from China,” President Obama said last Thursday.

Wen Jiabao, prime minister of China, also has expressed concern.

“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” Mr. Wen said earlier this year.

China now earns more than $50 billion a year in interest from the United States, Mr. Setser at the Council on Foreign Relations calculated.

China’s leaders were able to buy more Treasuries in recent months without buying more dollars because they have abruptly turned their back on the market for securities issued by government-sponsored enterprises.

China was the world’s biggest buyer of these securities a year ago, splashing out more than $10 billion a month.

But in the 12 months through March, it actually had net sales of $7 billion, and ramped up purchases of Treasuries instead.

China has also changed which Treasuries it buys. It has done so in ways calculated to reduce its exposure to inflation or other problems in the United States. As recently as a year ago, China actively bought long-dated bonds, seeking the extra yield they could bring compared to Treasury securities with short maturities, of which China bought virtually none.

But in each month since November, China has been buying more Treasury bills, with a maturity of a year or less, than Treasuries with longer maturities. This gives China the option of cashing out its positions in a hurry, by not rolling over its investments into new Treasury bills as they come due should inflation in the United States start rising and make Treasury securities less attractive.

The big question now for policy makers and economists alike lies in whether the Chinese government’s purchases of American securities will rise or fall in the coming months.

Two big forces are at work — but they are pushing Chinese investments in opposite directions and might cancel each other out.

The first big shift is that Chinese foreign exchange reserves might start growing again, after shrinking early this year.

A senior Chinese economic policy maker, Xu Lin, expressed concern here on Monday that the reserves might grow faster if speculators started pushing more foreign exchange into China in the months ahead.

China is strongly opposed to any significant appreciation or depreciation of its currency, Mr. Xu said at a press conference. But if international investors conclude that the Chinese economy has stabilized ahead of economies elsewhere, they may start pumping more money into the Chinese economy, he said.

To keep its currency at the same level, the Chinese government buys foreign currency flowing into the country in excess of China’s needs. If overseas demand for Chinese exports recovers, then China’s trade surplus could start widening again as well. This would also tend to fatten Chinese reserves.

China’s Changing Role But the countervailing trend is that the Chinese government is trying to foster channels for foreign currency to be pumped out of the country without the involvement of the central bank. The government has been buying a wider range of assets and encouraging the private sector to invest more money overseas.

“That’s part of a strategic move by the authorities to diversify,” said Wensheng Peng, the head of China research at Barclays Capital. “The reserves growth should accelerate because of inflows, but it will not be as large as what we observed in 2007 and the first half of 2008.”

The State Administration of Foreign Exchange, which is part of the central bank, issued draft regulations on Monday that would make it considerably easier for private companies to raise dollars in China to spend on overseas investments — a step that would lessen the need for the Chinese government to buy up those dollars.

This spring China has also been stepping up its purchases of commodities, which are usually bought in dollars. Iron ore has been piling up on Chinese docks, government stockpiles of crude oil and grain are being expanded and stockpiles are being started for products like gasoline, diesel and sugar.

After six years of silence, China unexpectedly disclosed last month that it had been gradually buying gold from domestic producers. The country’s reserves had climbed from 600 tons in 2003 to 1,054 tons, worth $31.8 billion at prices late Wednesday.

The disclosure, which produced a frisson of excitement in gold markets, may have been aimed at reassuring a domestic audience that the Chinese government was not putting all the nation’s savings into American dollars. But the actual investment was tiny compared with China’s foreign exchange reserves — and showed that China was accumulating gold at a much slower rate than foreign currency.

A person in periodic contact with China’s central bank, who insisted on anonymity to preserve his access, said that a Chinese central banker complained to him last year that “we have so much money and there’s so little gold, we can’t buy much without driving up the price.”

http://www.nytimes.com/2009/05/21/business/global/21reserves.html

[SupportGeek 21]

So if you had 10 employees and you could only pay 5 you would be loyal and keep them all? no matter what? (time passes) Now 10 people are out of work and your bankrupt!

Way to look at the big picture

The point was that if employers had not eliminated job security then more spending and less belt tightening would be happening and they wouldnt NEED to scale back because of lack of spending.

Oh, and if the wages of 5 people would bankrupt you, you shouldnt be running a business anyhow

[Pinocchio Liberal 268]

Way to look at the big picture

The point was that if employers had not eliminated job security then more spending and less belt tightening would be happening and they wouldnt NEED to scale back because of lack of spending.

Oh, and if the wages of 5 people would bankrupt you, you shouldnt be running a business anyhow

#######? There is no such thing as job security!

[SupportGeek 21]

#######? There is no such thing as job security!

No argument exists with that, not sure why you are trying to create one.

Read where I said employers eliminated it, in case you missed that.