Financial News You May Have Missed This Week
There is alot of interesting stuff being written by folks who are not exactly part of the cable news shouting match or who are talking about long term effects of this crash that may be useful. These are some of the best I read this week:
- NYT piece discusses something I’ve been pointing out for awhile — there is going to be a long-term if not permanent contraction of the consumption that so much of our economy was based on. To me, this is an argument for retraining to industries where jobs won’t be outsourced and additional investment (public and private) in New Economy initiatives.
- Not exactly news, but Barry Ritholtz gets on a righteous rant about the idiocy of bailing out AIG.
- Baseline Scenario discusses what would happen if bank bondholders were stiffed in receivership. Basically, they think that taxpayers pay to clean up the broken china; or taxpayers pay to keep the china in a cabinet that is currently leaning at a 60° angle. The key being that taxpayers pay and increasingly there are few to no scenarios where taxpayers don’t pay for failed banks.
How about you? Any Must read financial articles or blog posts you want to share?
Tags: Bush's Fubar Economy
a long-term if not permanent contraction of the consumption
Stated another way, this means most Americans will have to accept a lower standard of living for the first time.
The lower standard of living will have political fallout as politicians argue over who can restore the lost prosperity.
And it will have economic fallout, since lower GDP will mean paying back the current spending will consume a larger share of the (newly smaller) GDP.
The only way out of the trap is to resume GDP growth at historical norms or above. Government spending is desparately needed now but when growth resumes, we will have to pivot and go to an austerity budget; that is where politicians (Dem and Repub) usually fail.
It could be healthy for us as a culture to redefine prosperity away from our ability to consume and toward our ability live sustainably.
good finds Cass
All good socialist comments…down with the bourgeoisie!
I’m glad you are on board Tom. It gives me hope for mankind that a bloated plutocrat like you can see that we’ve paid too much attention to atomistic wealth building.
I just want to learn how to fix my house with a butter knife.
I think anon is absolutely right. Our American way of life is not sustainable. We’re using a disproportionate amount of resources, and we now know we didn’t really have the money for the lifestyle. The changing standards will continue for a while, as the world continues to chase cheaper and cheaper labor. We need a new paradigm.
I linked to the definition of standard of living for a reason… don’t let Republicans confuse you with the difference between “standard of living” and “quality of living.”
Of course some people can have a good “quality of living” with less money (“standard of living”). The middle class has room to cut back without serious deprivation. That is not in dispute. But if you want to have a technical discussion about the economy you need to understand the difference.
Go try telling the rich that they can live on half their income and still have a good “quality of living.”
Good luck with butter knife Rebecca, you can do it, you are Wooooooman………
we’ve paid too much attention to atomistic wealth building.
I think that there has been an illusion of wealth building — too many folks were looking for easy, transactional ways to build wealth (real estate) and too many people who would look at the stuff they had as indicators of wealth. The business of working hard, prudent savings, prudent investments, and looking for a long term financial benefits were blown away by alot of folks who got all of the trappings of wealth via their credit cards. You just aren’t going to get any real wealth until you own free and clear something of real value. Or following bubbles (and following bubbles on borrowed money) is not a winning strategy for most people.
But I think that anon is on to something, though — I would say that Americans’ standard of living has been truly lowered for some time. We’ve just been living on credit to pretend otherwise.
This goes out to Mike Castle and Tom Carper and Joe Biden, on their cherished bankruptcy repeal (via Daily Kos):
Let’s resolve to call the 00’s the “Nobody could have predicted….” decade.
The initial question is ‘what have you read this week’.
This week the (conservative) Wall Street Journal had an article by Jason Zweig on Take Some Control with practical financial pointers for these times.
The article that really resonated with me (a professional investment advisor) was Brett Arends’ Has Fear Blinded Investors to Value article. He describes ‘crowd think’ such as ‘since the market is down 50% therefore all major US public companies’ earnings/profitability is down 50%. This logic (to which we are doomed due to our brain’s wiring–see amygdala–serves investors just as poorly on the way up (see late 1990s). His concluding paragraph: “The economy is probably going to be much worse, for much longer, than many people expect. But whether these depressed shares are priced correctly, or too low, is another question.”
Finally, on the consumer consumption question, it is generally accepted that consumers’ share of GDP will fall from the recent 70% level (which had been enabled through expanded personal and credit), but this doesn’t mean that it is going to 35% of the economy.
US consumers cut their gasoline usage a few percent in the Spring and Summer, and this brought oil prices down to about 1/3 of their peak.
Don’t confuse direction with magnitude. Personal consumption has fallen and is unlikely to regain 2007 levels (on a per-capita basis) as far as the eye can see. This doesn’t mean that it is falling so much that net exports, government spending, investment, housing and construction (the other components of GDP) are incapable of softening the blow.
Furthermore, consumption is aided by population growth and productivity improvements, neither of which requires recovered consumer confidence.
Hi Paul, I don’t think that consumption is going down to 35% of the economy — but I do think that a contraction of even 10% is a reduction in retail that will take quite some time to come back. Part of the question is how much debt will consumers get back into after living through this. And I hope it isn’t much.
This doesn’t mean that it is falling so much that net exports, government spending, investment, housing and construction (the other components of GDP) are incapable of softening the blow.
This is true, but not much of this is especially functional right now. Government spending is coming on line but that won’t fill the GDP gap. Lots of money has fled the investment markets and housing and construction looks from here that at least the housing part is going to be stalled for awhile. There are a lot of vacant units out there and not much demand for them.
FYI–Housing/construction is 3.8% of US GDP (as of 6/30/08), and 38% of headlines in the media.