Investor Alert; Here are the major problems you will face in the next ten years of ticklish transition from crisis to attempted normalcy. Call it the WALL OF WORRIES! Excerpted from The Economist Conference on Fixing Finance. And remember; not all problems have quick solutions, like all of the ones below.
1. Economic growth in the US unlikely to pass 2% for the next 3 to 5 years -- and maybe even up to 10 years. There can be no stimulus program in light of the expected Republican victory in November. "This is going to be a period of pain," said Joseph Stiglitz, Columbia University professor. The bottom line: unemployment will plague as because there is a 1% annual growth in labor force- but only 2% economic growth.
2. QE2 or Quantitative Easing, the expectation of pouring another trillion dollars into the banking system is seen likely to only trigger inflation, but create no new jobs. Proof positive; yesterday, the Treasury sold inflation protection bonds at negative interest rates -- a major sign that investors expect treasuries to drop in price as inflation rises.
3. Expect a new bubble in sovereign debt. The sign; Mexico is ready to sell a 100 year duration bond at 6%. A very risky investment in a nation rent by a civil war with the drug lords, in the opinion of Wilbur Ross, Jr., chairman of W L Ross & Co., one of the nation's most successful investors.
4. Large corporations are only part of private sector benefiting from cutting overhead(reducing employee count) and bringing more revenues to bottom line.
5. The Fed will be sitting on its $2 trillion in cash for a long time without any practical use for it. There is very little demand for bank loans from the private sector. Adding reserves to the banks wont accomplish any more economic activity.
6. The economics profession let the world down because it had the tools that were politically acceptable.
7. No solution in sight for the housing market. Wilbur Ross suggested a plan to reduce the amount of principal owed on homes to below the mortgage debt still owed, and then let the parties share in whatever upside can be earned on the homes. But, no plausible mechanism to get this accomplished.
8. The shadow banking system trying to escape from the regulators. Hedge fund industry official pleaded with Deputy Treasury Secretary Neil Wolin to allow hedge funds to regulate themselves. Wolin was far too polite and non-0commital. Since hedge funds gobbling up all the proprietary traders from big Wall St. investment banks.
9. China and India are graduating 7 times more engineers a year than the U.S.
10. We are papering over the structural problems in finance with bubbles. There is still great uncertainty about the efficacy of regulation by Dodd-Frank and Basel 3.
Final note; at yesterday's session, Vikram Pandit, CEO of Citigroup, gave what many believe was a most bizarre performance. For several minutes he went on at length about how worried Citi was about the ability of poor Americans to be able to borrow money in light of Dodd-Frank, the finance reform bill. Yet, he went overboard in his adamant support of the Consumer Finance part of the bill, seeming to separate himself and Citi from the opposition to the bill from other large banks, namely JP Morgan.
Follow Robert Lenzner on Twitter: www.twitter.com/boblenzner
Simon Johnson: Vikram Pandit Has No Clothes
Rep. Carolyn Maloney: Privatizing Social Security: Haven't We Seen This Movie Before?
Dr. Philip Neches: Get Ready for Gridlock
The best long term investments are precious metals, land and durable goods.
2. Point 9 in the article points to the need for bigger government in the area of supporting education and for investing in basic science research. The private sector sure isn't doing it, otherwise QE2 would be a resounding success!
We must demand leadership from our government to take us where we need to go. Things will not get better by themselves- they never do.
Obama saved the auto industry and the jobs that come with it. He's passed soft reforms that actually cater to private business. If anything he's done as much to promote business as any president ever.
When CEO's or other business types make statements like this their pining for more advantages. They say this in an attempt to sway public opinion without much factual basis behind it. They want lower corporate taxes and less regulation- they always do. But what public good ever comes from that?? They piss in your drinking water while walking away from their social responsibility.
fanned for truth
We're 4% of worlds people, emerging markets are thriving, corporations don't need US consumers. The higher our unemployment, the lower our wages, the higher corporate profits, which are now back to same as before crash. The stock market loves the current economy.
Karl Marx pointed out that there is no such thing as "the economy". It is not an organism, being or entity. It's a battleground for competing interests, namely labor (want wages), consumer (want low prices) and corporations (want profits).
The stock market is interested only in profit, not what workers or consumers want.
We are toast.
fanned for thruth
If you mean combined, their population is 7x ours, so per-capita we are equal.
And "engineer" is a vague term. There is massive construction going on in China and India, they probably need a lot of construction engineers. We don't, they won't help us compete.
The major output of engineers isn't stuff, it is knowledge. In China, engineering knowledge will be growing in all fields at a rate several times ours - and theirs is mostly codified in Chinese, which few Americans can read while American knowledge is codified in English which virtually all Chinese engineers can and do read.
The situation with India is a bit different because at least we do not have the language barrier, however there is still a great deal of friction in moving knowledge from India to the U.S. whereas there is very little friction in moving it the other way.
For the time being we are a net donor of knowledge when and if this will change will depend on a number of variables, most of which are not under our control. The number of engineers we graduate and their linguistic and engineering abilities, however, are within our control and must be improved.
If the recovery ever takes hold, a barrel of oil will be $100, in 5-6 years it's predicted to go to $200 a barrel because of peak oil. Because oil is priced in dollars a devalued dollar would make it even higher. We import more oil than we could ever ramp up to export goods and services over the next decade.
This would create jobs through the "Home star" and "Building Star" programs as outlined here:
http://pacenow.org/documents/Recovery_Through_Retrofit_Final_Report.pdf that precisely spells out both the public and private roles that creates a market through which private sector jobs are created.
The Treasury should damn the torpedoes and full speed ahead on re-fiing everyone with an existing mortgage as Bill Gross has suggested and do it over the winter.
Lastly, the Fed should let it be known that in June of next year it will begin to raise interest rates, this will get the fence sitters off the fence.
As resource constraints were overcome, the amount could be increased to increase the number of homes being retrofitted at any one time.
If this were put into a revolving fund paid through property taxes, the program would have the ability to grow organically over time and once all homes in the country were retrofitted and all new homes in compliance with the energy saving guidelines, the bonds could be retired and the PACE program dissolved.
This is a multi-year solution that makes great sense. It would never see the light of day in our current political which prefers the destruction of the country if that will enable the short term political victory of the most self-interested, short-term thinkers among us.
Mr. Lenzer's post here is describing the best case scenario, and to hell with the population. Crisis economy formation measures must be implemented now or this great nation is doomed. The President, his entire cabinet, servants of the International Financier cabal, must resign, removed from office for the good of the nation, the protection of the population.
International Financier cabal demand government trillions in bailouts to cover derivative trading loses, while forcing austerity measures on the population. The world economy's collapsing operation continues to accelerate under the diktats of Globalization. This is the crisis.
Lyndon LaRouche must be given a position in the government to create/implement economic recovery measures.
Reinstate Glass-Steagall in US banking, Put the Fed into bankruptcy protection, Recover the bailout trillions, Enact the Bank and Homeowners Protection Act, Stop the Perpetual War, Then fund the necessary economic recovery measures that will save the nation and protect the population.
The United States must activate its' economic platforms: Expand Social Security and Medicare, Expand NASA space programs, Start the Nuclear Fueled Energy Economy, Construct the interstate maglev rail system, Construct the continental water distribution system proposed in the NAWAPA plan. These measures would employ millions of Americans reversing our crisis.
The United State must commit itself to the redevelopment of the North American continent to counterattack Globalization, activate actual economic recovery.
hey I thought you were going to get some help? .
A nuclear fueled economy is a stopgap measure. Those who oppose it and assume that we'll be able to provide sufficient energy for our growing population are whistling in the dark. However, to assume that that is all that needs to be done is denying reality. Our energy future is solar and everything else we do is a stopgap.
Too bad that ClarcKing has to trot out the International Financier cabal. A cabal isn't necessary and exposes otherwise reasonable proposals to ridicule. All that is needed is a confluence of interests to create the same effects. These folks grow up in similar communities, go to the same schools, serve in the same government offices and banks... no formal cabal is necessary; they all think the same way.
The most important lesson NOT learned is; "what you resist persists, what you fight you strengthen". When fighting "evil" you have to be careful or "evil" will move into you and you will become the very thing you are fighting.
Our leaders have decided not to fight Corporate/Wall Street corruption, but to join it.
End the Military Empire
Cut defense, Homeland insecurity, black budgets etc.
Rescind ALL of the Bush tax cuts
Give an exemption from payroll taxes of the first $25,000 of income
Change the home mortgage deduction to a tax credit of 25% of interest and taxes capped at $2500.
Limit the number of deductions for dependents to 2.
Reduce tax rates for incomes under $100000 (single)/$200000 (joint) to 15%
Calculate the standard deduction by (minimum wage rate) x (2080 hours); (2x joint)
Adjust and Index the AMT
Reduce tax rates on dividends only from companies paying taxes
Reduce taxes on long term capital gains
Eliminate special treatment of hedge fund earnings
Remove all corporate tax loopholes and subsidies; reduce corporate tax rate to 25%
Apply the employee portion of the Social Security and Medicare taxes to all unearned incomes allowing a $10000 (single)/$20000 (joint) exemption
Remove the cap from Social Security taxes
Phase in a surtax on motor fuels of $2.00 per gallon (exempting natural gas and bio fuels)
Apply GENEROUS tax credits for point of use alternative energy installations (solar/wind) for both individuals and businesses; conversion of vehicles to natural gas and bio fuels and for the purchase of natural gas, electric and plug in hybrid vehicles.
Require net metering with the excess power being sold back at fair market rates.
Offer Government backed loans for large scale alternative energy investments.
Create an infrastructure to accommodate electric and natural gas powered vehicles.
Two things are happening that cause people to spend less: High unemployment, and an increased focus on saving/paying debt by those that are fortunate enough to be employed.
How do you conservatives believe the economy will recover without money in people's pockets and a sense that it will keep coming? And if you don't believe it, then where will the money come from?
Choose your poison, whichever you choose, the pharmacist will make his profit.
"Stimulus", whether it's Democrat or Republican doesn't work. Spending for the sake of spending doesn't work. Economic creation can best be achieved in an environment where success is rewarded and failure is allowed to occur.
In the short term, directly employ the unemployed until employment improves. Face it, you can either employ people, providing them something useful to do - or a handout. Or starve 'em. ... Do we want to starve them? Some do. Ask Rand Paul and his ilk.
Stimulus works great when it is applied properly. The money must be spent on worthwhile public expenditures (infrastructure, water(!), education, etc.). As much money as possible needs to go directly to those who will immediately spend it, because they have to. That will stimulate.
Printing money won't work now, because all those bond sellers (when the gubmint buys back bonds to create the money) are the ones who are sitting on billions of dollars and not investing. Tax cuts won't work for exactly the same reason - plus a large percentage of the population that needs the money the most, and would spend it immediately don't even pay taxes, either because they don't make enough, or are unemployed.
Is there a downside to direct employment (I mean other than the screaming Repugnuts who don't want the unemployed to be employed for some reason)? Yes. Deficits. There is no free lunch. But we have to feed people, one way or