American Economic Collapse?

[dpari]

American Economic Collapse

Lehman Brothers Bankrupt

Merril Lynch Sold to Bank of America

Countrywide Sold to Bank of America

Fannie Mae and Freddie Mac Bailout

Bear Stearns Bailout

AIG on the verge of Bailout / Bankruptcy

Real Estate - Residential / Commercial Collapse

Wall Street is in crisis, some say it is filled with Liars and Thieves and it is now on the verge of collapsing.

What's next?

Is this really worth being concerned about?

Shall we all just continue to spend...spend...spend...and pretend that we are living large in America?

Maybe get another credit card or two?

Whats your opinion?

By the way....If you are someone who can see "Light at the end of the tunnel" can you please share exactly what you see on the horizon that will make anything better?

 

[yandig]

dpari, glad you asked.
It may be too late to save the American economy from total collapse in the next century. There are SO MANY problems right now, that it is hard to see anything but a doomsday scenario.

Here's what I see happening:
The financial institutions failing are just the tip of the iceberg. As the biggest banks fail, they bring down other banks and institutions with outstanding loans to those banks. For instance, a Hong Kong arm of Citigroup loaned $275 million to Lehman Bros before Lehman's collapse. Citi will see very little of those funds, if any. That causes Citi to have to looking into raising even more capital from foreign markets than it already has, or cut more costs (jobs). This is just one small example. Most people don't know that our biggest banks are operating with 10% or less of what they loan out on deposit. In other words, they are like a house on stilts, where a giant weight is supported by toothpicks, and the tidal wave is somewhere offshore, ready to strike.

As these companies fail, the unemployment rates will rise --- we haven't seen much of this yet. As the jobless rate rises, housing prices will continue to fall, because supply of houses for sale will outweigh demand. This causes more foreclosures as people try in vain to rid themselves of mortgages that they can no longer afford.

But the key to keeping the American economy propped up is the dollar. As the fed is printing more and more money to keep Fannie Mae, Bear Stearns, etc... alive, the dollar is losing its value faster than ever. It's like a company that issues twice as many additional shares to pay off debt. As a shareholder, you just lost half your value. The American dollar is quickly losing value relative to other currencies and resources.
The dollar's power is that it remains THE MAIN currency for world trade. But, a time is coming (I believe within the next few years) when the dollar will be at least partially replaced on the world scene by a more world-friendly currency that is not weighted down by trillions of dollars of debt. When this happens is anybody's guess, but I think it's only a matter of time.
Consider the debt of the American goverment...one economist recently estimated the total real debt of the USA at $70 trillion dollars. If there are 300 million people in the US, that gives a national debt of over $230,000 per person. That does not include private debt, such as credit cards, etc... Face it --- We are in a world of hurt.

You asked how we could make this situation better? Money is only valuable if it can be used to secure valuable things. Those that control the world's resources control the world economy. The United States has drastically lost ground to the rest of the world in terms of invention, innovation and securing and use of resources. If the U.S. is to rise above the impending turmoil, it will be done by once again becoming a dominant force in the technology and production of goods that the world needs (more exports than imports).
my $.02

 

[dpari]

One World Monetary System (It it written)

Thank you for your reply, very interesting insight you have.

I agree we are headed towards a one world monetary system, this will be the beginning of the end, (IMHO).

dpari, glad you asked.
It may be too late to save the American economy from total collapse in the next century. There are SO MANY problems right now, that it is hard to see anything but a doomsday scenario.

Here's what I see happening:
The financial institutions failing are just the tip of the iceberg. As the biggest banks fail, they bring down other banks and institutions with outstanding loans to those banks. For instance, a Hong Kong arm of Citigroup loaned $275 million to Lehman Bros before Lehman's collapse. Citi will see very little of those funds, if any. That causes Citi to have to looking into raising even more capital from foreign markets than it already has, or cut more costs (jobs). This is just one small example. Most people don't know that our biggest banks are operating with 10% or less of what they loan out on deposit. In other words, they are like a house on stilts, where a giant weight is supported by toothpicks, and the tidal wave is somewhere offshore, ready to strike.

As these companies fail, the unemployment rates will rise --- we haven't seen much of this yet. As the jobless rate rises, housing prices will continue to fall, because supply of houses for sale will outweigh demand. This causes more foreclosures as people try in vain to rid themselves of mortgages that they can no longer afford.

But the key to keeping the American economy propped up is the dollar. As the fed is printing more and more money to keep Fannie Mae, Bear Stearns, etc... alive, the dollar is losing its value faster than ever. It's like a company that issues twice as many additional shares to pay off debt. As a shareholder, you just lost half your value. The American dollar is quickly losing value relative to other currencies and resources.
The dollar's power is that it remains THE MAIN currency for world trade. But, a time is coming (I believe within the next few years) when the dollar will be at least partially replaced on the world scene by a more world-friendly currency that is not weighted down by trillions of dollars of debt. When this happens is anybody's guess, but I think it's only a matter of time.
Consider the debt of the American goverment...one economist recently estimated the total real debt of the USA at $70 trillion dollars. If there are 300 million people in the US, that gives a national debt of over $230,000 per person. That does not include private debt, such as credit cards, etc... Face it --- We are in a world of hurt.

You asked how we could make this situation better? Money is only valuable if it can be used to secure valuable things. Those that control the world's resources control the world economy. The United States has drastically lost ground to the rest of the world in terms of invention, innovation and securing and use of resources. If the U.S. is to rise above the impending turmoil, it will be done by once again becoming a dominant force in the technology and production of goods that the world needs (more exports than imports).
my $.02

 

[Brunch]

Well they said things were going to get worse before they get better but even so this latest news is surprising coming so soon after the Fannie Mae/Freddie Mac announcement one wonders where it will all end the most frustrating thing is that the people at the very top of these companies are effectively bleeding them dry with ridiculously excessive bonuses on top of an already generous salary but there you go.

 

[yandig]

Also consider that the FDIC, which insures all bank deposits up to $100,000, has only around 5% of the funds needed to cover the $1 trillion in deposits at our nation's financial institutions.
It's getting icky.

Here's an additonal article that I wrote on how Money Market Funds are NOT insured by the FDIC:
http://stockmarketplus.blogspot.com/2008/01/are-money-market-funds-safe.html

 

[dgridley]

Hm, maybe we need to go back to the gold standard? Or use the technocratic approach and base the economy on man hours.. we can't keep printing money when there's nothing to back it.

 

[BinderGang]

Lehman Brothers Bankrupt

Merril Lynch Sold to Bank of America

Countrywide Sold to Bank of America

Fannie Mae and Freddie Mac Bailout

Bear Stearns Bailout

AIG on the verge of Bailout / Bankruptcy

Real Estate - Residential / Commercial Collapse

Wall Street is in crisis, some say it is filled with Liars and Thieves and it is now on the verge of collapsing.

What's next?

Is this really worth being concerned about?

Shall we all just continue to spend...spend...spend...and pretend that we are living large in America?

Maybe get another credit card or two?

Whats your opinion?

By the way....If you are someone who can see "Light at the end of the tunnel" can you please share exactly what you see on the horizon that will make anything better?

God Bless America.

 

[Kate]

Also consider that the FDIC, which insures all bank deposits up to $100,000, has only around 5% of the funds needed to cover the $1 trillion in deposits at our nation's financial institutions.

Can you say 'Ponzi' ?

we can't keep printing money when there's nothing to back it.

Bingo :bingo:
Yet US politicians and candidates keep silent on that extremely serious issue. Who is going to tackle the problem ?

The bottom line is: America is bankrupt and the greeback is less and less the trusted currency standard. The world has changed.

You can't be 'half-dead'.
When you're dead you're dead 8-X

 

[yandig]

Yet US politicians and candidates keep silent on that extremely serious issue. Who is going to tackle the problem ?

That's because no one who really wants to tackle the problem would EVER get elected. Too many corporate big-wigs with politcial ties would put a stop to it.

 

[CrazyTech]

Hm, maybe we need to go back to the gold standard?

We need to, but of course we won't.

 

[dpari]

Worst day since 9-11 folks!

Markets close with worst day performance since 9-11.

Dow Jones Industrials DOWN 488 Points.

Here is a thought, take a trip to Hollywood and make yourself FeeeeeeeeeeelGoooood.

 

[yandig]

Here is a very forward-thinking article from 1999 regarding the repeal of the Glass-Steagall Act of 1933 by Bill Clinton (and a Republican-led Congress) in 1999.

http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml

A quote from the article:

"The proposed deregulation will increase the degree of monopolization in finance and worsen the position of consumers in relation to creditors. Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system."

and an Ironic quote:
'The Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." '

 

[GILSAN]

Scott (yandig) your thoughts about the economic situation in the US make a lot of sense. But how do you get Americans to spend less and save more?. I just don't see it. Its so rooted in the American culture to spend, spend, spend, that it's virtually impossible to change this way of thinking. It's like a runaway train out of control. Perhaps this is the beginning of the train derailment.

I hope this thread can be half as popular as "MCCAIN'S VP CHOICE: Sarah Palin" thread, as that would mean that lots of people are really interested in probably the most important issue; the US economy.

But I have a sneaking suspicion that Sarah Palin's lack of experience, or John McCain's age, or Obama's pin on his lapel, or whatever the media uncovers next, will remain much more important subjects till November.

 

[ddchan]

Here is a very forward-thinking article from 1999 regarding the repeal of the Glass-Steagall Act of 1933 by Bill Clinton (and a Republican-led Congress) in 1999.

http://www.wsws.org/articles/1999/nov1999/bank-n01.shtml

A quote from the article:

"The proposed deregulation will increase the degree of monopolization in finance and worsen the position of consumers in relation to creditors. Even more significant is its impact on the overall stability of US and world capitalism. The bill ties the banking system and the insurance industry even more directly to the volatile US stock market, virtually guaranteeing that any significant plunge on Wall Street will have an immediate and catastrophic impact throughout the US financial system."

and an Ironic quote:
'The Wall Street Journal wrote, "With the stroke of the president's pen, investment firms like Merrill Lynch & Co. and banks like Bank of America Corp., are expected to be on the prowl for acquisitions." '

Great post, rep added.
Have heard a lot of talk about problems will surface in third quarter, and now it's materializing.
So are we in for a 3-6 months adjustment, or something even longer?

 

[yandig]

Scott (yandig) your thoughts about the economic situation in the US make a lot of sense. But how do you get Americans to spend less and save more?. I just don't see it. Its so rooted in the American culture to spend, spend, spend, that it's virtually impossible to change this way of thinking. It's like a runaway train out of control. Perhaps this is the beginning of the train derailment.

You are probably right about it being impossible to change our way of thinking in the current economy. What will change our way of thinking is when we can no longer afford things that are important to us, such as house payments, travel costs, and the ability to provide for our families. If things get to that point, then people will listen to leaders who speak sensibly about our spending as a nation. It may be too late, but I hope that the current situation will serve as a wakeup call.
We need to start ASAP cutting into that huge national debt, which means higher taxes and less involvement in international affairs. For awhile, our nation would look socialist in nature (some say it already does) as our tax rate would need to approach 40%. I am guessing that it would take 25-30 years just to get to the point where we could start decreasing the national debt, and maybe 50 more years to pay it down.
Nobody is going to want to do this --- most are only concerned about their own welfare, and don't care about what our country will be like after they are gone. It will take a leader who's an economist, communicator, salesman, and disciplinarian all in one to lead the US out of the dark time that is coming. I'm not holding my breath...
I believe that the better way to improve our economic situation is to develop technologies and resources that the world needs. We import for more than we export, and borrow far more than we lend. This is the sign of a declining economy that will eventually fail. It has been said that the American worker is our greatest asset. When I look around the world, I see other nations that have more dedicated workers than we do, with equal or better natural resources and technology that is catching up to ours very quickly. Thus, it makes perfect sense that there would be a shift in economic power to those countries that are producing the most value.
I love my country, and think it's still a great place to live. We just haven't been very smart in Economics 101 in the past few decades, and now we must begin to clean up the mess while we can.

Great post, rep added.
Have heard a lot of talk about problems will surface in third quarter, and now it's materializing.
So are we in for a 3-6 months adjustment, or something even longer?

My guess is that by early 2009 we will know if this recession is just a necessary adjustment, or something far worse. I also guess that virtually all of the large financial institutions will need sizable cash infusions, or go the way of Lehman Bros, etc..
I do think the real estate market will hit a bottom in 2009, provided that there are no major catastrophes in the economy, such as the dollar being replaced on the world stage, or people losing their savings. I am hearing that interest in purchasing homes is starting to swing back up, and that's a sign that house prices will stabilize in the near future.
I do think that the next 6 months will see more of what we saw today, and the Fed will face some very tough choices: whether to keep printing dollars until they are worthless, or let more financial institutions crumble.
It's obvious that more regulation (not less) is needed, and perhaps changes in the laws that govern banks to require a higher percentage of reserves. This will not help the current situation, but would go a long way toward preventing a similar situation in the future.

 

[whitebark]

What's next?

Is this really worth being concerned about?

Shall we all just continue to spend...spend...spend...and pretend that we are living large in America?

Maybe get another credit card or two?

Whats your opinion?

By the way....If you are someone who can see "Light at the end of the tunnel" can you please share exactly what you see on the horizon that will make anything better?

You make some good points not being brought up right now in the mass media - and that is the massive consumer debt also held by Americans in general. It's a double-whammy waiting to happen.

Hold your hats people - this could get ugly. I went out today and bought some gold and silver - there was a lineup. I've never seen a lineup at the brokerage!

 

[yandig]

You make some good points not being brought up right now in the mass media - and that is the massive consumer debt also held by Americans in general. It's a double-whammy waiting to happen.

Hold your hats people - this could get ugly. I went out today and bought some gold and silver - there was a lineup. I've never seen a lineup at the brokerage!

Interesting...I've been thinking about alternatives to simple money market or savings accounts...precious metals and foreign currencies being a couple of attractive ones. I'd be interested in hearing more on others (domains?)
In any case, you want to be near the front of the line in these sorts of things. Those near the end will be too late.

 

[whitebark]

That's because no one who really wants to tackle the problem would EVER get elected. Too many corporate big-wigs with politcial ties would put a stop to it.

That's the worst part. Politics are getting in the way of doing something - anything, to ensure better times ahead. I listened to both McCain and Obama today. Both made good little speeches but said nothing of substance. McCain will get rid of earmarks - less than 1% of the total budget. Obama offered even less.

America has to reign in the runaway spending. There is one large cash cow that needs to be brought to earth - the American military industrial complex. It's sucking the life out of America. And some Americans need to realize taxes are not evil. Taxes when used properly can make for a prosperous high standard of living. It seems federally that American politicians MUST lower taxes - be damned the consequences. What's really happening is the states must pick up the slack or cut back on services and infrastructure etc while the feds go deeper and deeper into hock.

The former economic basket-case Russia now has foreign currency reserves of over $400 billion - with all that corruption too! If they can do it, so can America.... crossing my fingers!

Interesting...I've been thinking about alternatives to simple money market or savings accounts...precious metals and foreign currencies being a couple of attractive ones. I'd be interested in hearing more on others (domains?)

If the economy does take a nose-dive and we end up like the 1930's money won't be reliable imo. Hyper-inflation could make your $10,000 worthless in a few days. Gold, silver, gems, and that type of thing though will hold much of their value. If I'm producing carrots I'd much rather take a sliver of gold for a bushel than a wad of bills that might be worth half as much tomorrow.

I felt compelled to cover my butt because I remember clearly the stories my Grandfather told me about the depression era and how hard it was for him. I like to eat too much!
:hehe:

 

[dpari]

AIG (All but finished)

This is a big one folks, if AIG goes down it is anyones guess as to what happens to America.

Even if there is a Bailout, Buyout, Takeover, Bankruptcy,etc I cannot say it will be a good thing for the American financial backbone.

I am not by any means a financial expert, however, I do believe that there has got to be a lot of downstream lower level banking institutions that are affiliated in some way shape or form to the big guys. As the big guys go so go the majority of the smaller institutions, no?

What say you?

 

[RogueWriter]

Eh, have not owned a credit card for several years, though I am still paying down debt from an old one. It's prepaid or debit for me from here on out.

Actually, I think the real scoundrels are credit card companies that are allowed to jack up % rates into the 28%-30% range, the add on fees when you, say, want to pay over the phone with a check, and banks that stick you for every little mistake that you make.

Here's something my bank does, for example:

Say you miscalulated the date godaddy automatically dings your checking account. For whatever reason, you only have $100 left in your checking account.

Four other checks come in at the same time, one fo $5.00, one for $10, one for $15.00, and one for $101. My bank could, for example, pay the checks out from smallest to largest, resulting in one overdraft of $31, and a penalty of $29.95, giving me a balance of -$60.95. Ouch, I need to deposit something quickly. BUT, my bank, instead, will subtract the largest first. So, $100-$101, oops, you have a negative balance of $1+$29.95 in fee. Then oops, -$30.95 balance - $15, is -$45.95+ -$29.95 in fee. Then, oops, -$74.90 - $10 is -$84.90 + -$29.95 in fee. Then, oops, -$113.85 - $5 is -$118.85 + -$29.95 in fee, for a grand total of -$147.80 overage.

What I mean by that lengthy example is to show the many ways that big business has gotten greedy. They are finding non service related areas in which to charge for a service. And, individuals are no longer financially willing to put up with their bs.