Something doesn’t add up ...

[Super Universe]

I’ve been following the financial markets since 2009 (yes, my life is very exciting!) and I keep hearing about a financial recovery since circa 2010. I didn’t buy it then and don’t buy it now. Even though I’m not an expert, there are signs that anyone can see.

If we have an economic recovery, how is it that shops are closing left and right? And it’s not just because people are shopping online. They are, but one form of shopping doesn’t replace the other. People are buying less. Just today Toys r ’us filled for bankruptcy. According to this article from the Business Insider there is an epidemic of shops closing in the US - These haunting photos of the retail apocalypse reveal a new normal in America.

Last week the US achieved 20 trillion dollars in debt. If that’s the official version in reality it must be much higher. That’s around 61 800$ per person (Government Debt in the United States - Debt Clock)

The rest of the world has nothing to laugh about. Debt is everywhere. Here’s an article concerning the UK from today’s edition of the Guardian - UK debt is explosive – and it only needs a spark to light the fuse | Larry Elliott.

I hear that there are less people unemployed and depending how the numbers are cooked, it might be true, but the good paying full time jobs are disappearing and being replaced but low rate part-time jobs. Some people now need 2 or 3 jobs just to make ends meet. Let’s not even talk about student loans, auto loans and home mortgages.

Salaries are very low compared to the cost of living. Most people have very little left once they paid their basic bills, if anything at all.

Money velocity is extremely low, the dynamic yield curve is moving towards flat and the FED now has a balance sheet of 4.5 trillion that they want to unwind, nobody knows how.

Not long ago, marc Faber was saying that we have a bubble in everything (Marc 'Dr. Doom' Faber says ‘we have a bubble in everything’), Jared Dillian, Jim Rickards and a number of others have similar thoughts.

Yes, the stock markets are high. I expect them to go much higher for a while but they don’t reflect the reality of people’s lives and they are being manipulated and propped up.

But since I’m no expert, maybe I’m missing something. Maybe I’m wrong and things really are improving. Maybe the markets are not going bearish after all, who knows? I would love to be wrong about this one.

Did you feel an economic recovery where you live? Are people making more money, getting better jobs, living without much trouble the last few years in your part of the world?

The US unemployment is down from 10% in 2010 to 4.4% now. The numbers are not "cooked".

The Dow Jones (stock market) is up from 6,500 in 2006 to 22,200 now. These numbers are not "cooked" either.

The national debt is not the economy. It's the debt. Yes, it is getting to be too high but that is not a drain on our economy it just means that money is going to pay interest (most of the interest is paid to US citizens, some to China and other countries) instead of government programs.

The official version of the debt is the reality. It might not be exact to the dollar but there is no conspiracy to cover up the real number. Debt is only bad when it gets too high compared to GDP.

Greece has a problem because, to be blunt, they simply don't work enough and were borrowing to keep their lifestyle and their debt got to be too much so Germany said no more.

Businesses close in good times as well as bad times.

Most people have very little left once they pay their bills? Are they wasting their money on cigarettes, alcohol, tattoo's, dinner out most nights, excessive food, excessive toys (women's shoes and mens raised trucks with big tires) and excessive entertainment?

 

[Super Universe]

This is conspiracy territory but there are some people saying that US gold reserves right now are almost non-existent.

Gold reserves have nothing to do with the value of the US dollar. We stopped using the Gold Standard in 1933.

If you think the US dollar has to be backed by gold to have value then please give all the money you have to the nearest charity.

 

[Super Universe]

A serious, responsible person would think so, but the last time we were in the spot we are right now the banks did loan money to anyone regardless of their financial situation.
And then things started going wrong and they went to the government, claimed to be too big to fail and got themselves bailouts to be paid with fiat currency the Fed made up in their computers. The entire world is still paying that bill, while the banksters gave themselves big bonuses and a pat on the back.
Those banks that were "too big to fail" in 2008 are much, much bigger today.

AIG wrote policies for mortgage insurance for many banks, too many. Small town banks gave out loans to sub-prime people, people who did not have a good credit history. Too many of those sub-prime people also tended to be uneducated and bought adjustable rate mortgages instead of fixed rate mortgages as well. When the economy went into recession many people lost jobs and walked away from their home mortgages so AIG owed too much mortgage insurance to all of those small town banks and the big banks as well.

Saving AIG isn't just saving AIG, it saved your town bank. Being too big to fail doesn't mean it can't fail, it just means it's too big to be allowed to fail.

 

[Twilight Hue]

Gold reserves have nothing to do with the value of the US dollar. We stopped using the Gold Standard in 1933.

That in my opinion, was a huge mistake.

 

[Vee]

The national debt is not the economy. It's the debt. Yes, it is getting to be too high but that is not a drain on our economy it just means that money is going to pay interest (most of the interest is paid to US citizens, some to China and other countries) instead of government programs.

Seriously? Did you really just say that?
BTW, there isn't enough money to pay the interest, let alone interest + debt.

Debt is only bad when it gets too high compared to GDP.

And when is that exactly? What is the ratio?
The 8th of September that ratio was 103% (Federal Debt: Total Public Debt as Percent of Gross Domestic Product). Is that high enough to be worried?

 

[Super Universe]

That in my opinion, was a huge mistake.

Seriously? Did you really just say that?
BTW, there isn't enough money to pay the interest, let alone interest + debt.



And when is that exactly? What is the ratio?
The 8th of September that ratio was 103% (Federal Debt: Total Public Debt as Percent of Gross Domestic Product). Is that high enough to be worried?

Did I just say that? Yes, I did just say that. We pay interest to ourselves, so, the government is borrowing money from US citizens and paying US citizens interest. What's so difficult to understand?

Some of our debt is owed to China and to European countries but that is not necessarily a bad thing. If a bank lends you money to start a business or buy a house or a vehicle, is that bad?

There isn't enough money to pay the interest? Name one person who has not received interest money for a US treasury bond? Just one. I'll wait...

What is the ratio for debt to GDP? I think what you are asking is what is an acceptable ratio. I would have to do some research that I haven't done since college. Our debt is getting high, it is, but that's not hindering our economy. Paying bills doesn't hurt the economy, it helps. Now you can absolutely argue that spending money on interest payments is not as good as spending it on healthcare or other government programs, I would agree, but, paying interest on the debt is not hurting the economy.

 

[Super Universe]

That in my opinion, was a huge mistake.

The gold standard is not better. Recessions are caused by people not spending as much as they were. There are many factors for that, unemployment getting too high and consumer confidence dropping are big factors.

One bad thing about letting the value of the US dollar have some flexibility is that other countries devalue their currency, which is better for them because it makes their own products cheaper and foreign products more expensive. This is essentially economic war, something China has been playing hardball at for years.

 

[Vee]

Did I just say that? Yes, I did just say that. We pay interest to ourselves, so, the government is borrowing money from US citizens and paying US citizens interest.

I like your positive spirit but the money being borrowed from citizens is not being paid back to them. The people benefiting for the ponzy scheme that is the financial system are the richest people who keep getting richer by enslaving the poorest and making the middle class disappear.

 

[Vee]

BTW, that reminds me of the excellent Frontline episode on the Abacus Bank prosecution, which was shown last week: Abacus: Small Enough to Jail I highly recommend it.

I just watched it. Very good, than you for sharing.

 

[Super Universe]

I like your positive spirit but the money being borrowed from citizens is not being paid back to them. The people benefiting for the ponzy scheme that is the financial system are the richest people who keep getting richer by enslaving the poorest and making the middle class disappear.

Money being borrowed from citizens is not being paid back to them? You're confusing tax money with interest on bonds.

Tax money is not supposed to go back to you unless you work for the government. Tax money is supposed to go to pay government bills which are being paid to workers, contractors, defense companies, student loans, and distributed by the various departments.

The financial system does not take money from the poor or middle class America unless you get a loan. Making loan payments is not enslaving people. Live in an apartment, drive an old used car, pay off your credit card before the end of the month, and pay for school yourself if you don't want to make loan payments then.

Are you one of those people who spends money as fast as it comes in? Maybe that's why you have this feeling that "It's a conspiracy" or that the government or banks are the cause of your money problems.

 

[beenherebeforeagain]

Doesn't it still have a residual effect, though?

I don't think so in terms of the functioning of the economy, but there are still lots of people who think and act as though it does, and who still want money to be tied to some material thing...and they may have a point...

 

[leibowde84]

I’ve been following the financial markets since 2009 (yes, my life is very exciting!) and I keep hearing about a financial recovery since circa 2010. I didn’t buy it then and don’t buy it now. Even though I’m not an expert, there are signs that anyone can see.

If we have an economic recovery, how is it that shops are closing left and right? And it’s not just because people are shopping online. They are, but one form of shopping doesn’t replace the other. People are buying less. Just today Toys r ’us filled for bankruptcy. According to this article from the Business Insider there is an epidemic of shops closing in the US - These haunting photos of the retail apocalypse reveal a new normal in America.

Last week the US achieved 20 trillion dollars in debt. If that’s the official version in reality it must be much higher. That’s around 61 800$ per person (Government Debt in the United States - Debt Clock)

The rest of the world has nothing to laugh about. Debt is everywhere. Here’s an article concerning the UK from today’s edition of the Guardian - UK debt is explosive – and it only needs a spark to light the fuse | Larry Elliott.

I hear that there are less people unemployed and depending how the numbers are cooked, it might be true, but the good paying full time jobs are disappearing and being replaced but low rate part-time jobs. Some people now need 2 or 3 jobs just to make ends meet. Let’s not even talk about student loans, auto loans and home mortgages.

Salaries are very low compared to the cost of living. Most people have very little left once they paid their basic bills, if anything at all.

Money velocity is extremely low, the dynamic yield curve is moving towards flat and the FED now has a balance sheet of 4.5 trillion that they want to unwind, nobody knows how.

Not long ago, marc Faber was saying that we have a bubble in everything (Marc 'Dr. Doom' Faber says ‘we have a bubble in everything’), Jared Dillian, Jim Rickards and a number of others have similar thoughts.

Yes, the stock markets are high. I expect them to go much higher for a while but they don’t reflect the reality of people’s lives and they are being manipulated and propped up.

But since I’m no expert, maybe I’m missing something. Maybe I’m wrong and things really are improving. Maybe the markets are not going bearish after all, who knows? I would love to be wrong about this one.

Did you feel an economic recovery where you live? Are people making more money, getting better jobs, living without much trouble the last few years in your part of the world?

I'm sorry, but I wholeheartedly disagree with your first couple of paragraphs. A significant reason brick and mortar stores are closing is because of online shopping. Online shopping 100% replaces in-store shopping. If you buy a sweater online, you aren't going to go to a clothing store to buy the same sweater. Toys R Us shouldn't be a surprise because it is so much easier to buy toys online ... and cheaper too. I am not a fan of shopping, never have been, but I can honestly say that toy stores are at the bottom of my list along with makeup stores as being horrific in nature. Now, even grocery stores are moving online.

I'm not saying this is a good thing. I think it is killing small businesses and jobs, but it's just the way it is. The blooming online marketplace is necessarily going to harm the retail marketplace. That is because we all absolutely choose one or the other when it comes to a specific purchase. If we buy it online, we aren't going to buy it retail, and visa versa. And, the problem is only going to get worse.

 

[ChristineM]

Well, there is very little doubt that the US has enough gold reserves to back all the cash they're printing.

You reckon?

 

[Revoltingest]

AIG wrote policies for mortgage insurance for many banks, too many. Small town banks gave out loans to sub-prime people, people who did not have a good credit history. Too many of those sub-prime people also tended to be uneducated and bought adjustable rate mortgages instead of fixed rate mortgages as well. When the economy went into recession many people lost jobs and walked away from their home mortgages so AIG owed too much mortgage insurance to all of those small town banks and the big banks as well.

Saving AIG isn't just saving AIG, it saved your town bank. Being too big to fail doesn't mean it can't fail, it just means it's too big to be allowed to fail.

If a large lender fails, what harm is done?
Sure, the stockholders lose their investment, but there's no economic benefit to bailing them out.
Why?
To bail them out is to take money from taxpayers, & give it to the stockholders.
There's no net gain.
But what of the business?
All the assets, ie, loans receivable, retain the value they had before the company failed.
Those would be sold to other lenders, thereby mitigating the stockholders' loss.
Jobs to service the loans at the company would move to the loans' buyers.
As for the newly unemployed executives....I don't worry about them.

This is different from bailing out GM.
If it went under, its assets have little salvage value because most are dedicated to making their specific products, & cannot be quickly re-tooled to serve another manufacturer. And all the vertical suppliers & dealers will go under, because they cannot quickly adapt to other manufacturers.

I say the financial industry was too much in bed with politicians, & received undeserved & unneeded favorable treatment. Only AIG was in an economically critical position, because it was an insurer.

If anyone should've been bailed out, fairness & economic usefulness would dictate that under-water borrowers receive this benefit.

 

[Super Universe]

If a large lender fails, what harm is done?
Sure, the stockholders lose their investment, but there's no economic benefit to bailing them out.
Why?
To bail them out is to take money from taxpayers, & give it to the stockholders.
There's no net gain.
But what of the business?
All the assets, ie, loans receivable, retain the value they had before the company failed.
Those would be sold to other lenders, thereby mitigating the stockholders' loss.
Jobs to service the loans at the company would move to the loans' buyers.
As for the newly unemployed executives....I don't worry about them.

This is different from bailing out GM.
If it went under, its assets have little salvage value because most are dedicated to making their specific products, & cannot be quickly re-tooled to serve another manufacturer. And all the vertical suppliers & dealers will go under, because they cannot quickly adapt to other manufacturers.

I say the financial industry was too much in bed with politicians, & received undeserved & unneeded favorable treatment. Only AIG was in an economically critical position, because it was an insurer.

If anyone should've been bailed out, fairness & economic usefulness would dictate that under-water borrowers receive this benefit.

If a large lender fails, what harm is done? Well, if a large bank like AIG is allowed to fail then hundreds of banks across the US fail and the FDIC guarantees all savings up to $250,000 per person so, it costs the country a whole lot of money and thousands of people lose their jobs. That's a huge economic cost.

Some financial institutions were allowed to fail. Bear Stearns, Lehman Brothers, and Merrill Lynch was sold to Bank of America.

All the assett's retain the value they had before the company failed? But the assets (peoples homes) did not have the original value, housing prices dropped.

 

[Revoltingest]

If a large lender fails, what harm is done? Well, if a large bank like AIG....

AIG is (as I stated), an insurer, & is different from lenders by having failure cause significant repercussions.

All the asset's retain the value they had before the company failed? But the assets (peoples homes) did not have the original value, housing prices dropped.

A lender's assets' value before failure would be about the same after failure.
(Of course, they're reduced below face value because a portion are troubled.
But bailing out the lender doesn't affect this value.)
A manufacturer is different in that they have great value when in use, but
almost none when no longer making the specific products.

 

[Super Universe]

AIG is (as I stated), an insurer, & is different from lenders by having failure cause significant repercussions.

A lender's assets' value before failure would be about the same after failure.
(Of course, they're reduced below face value because a portion are troubled.
But bailing out the lender doesn't affect this value.)
A manufacturer is different in that they have great value when in use, but
almost none when no longer making the specific products.

A lender's assets value before failure would be about the same after failure? Correct, their asset's are the same value but the money coming in for interest payments is reduced because the people have walked away from their homes that are under water and they are no longer paying for them.

So, the bank doesn't have the money to provide any more loan's and doesn't have the money to give to people who want to withdraw their own money. An influx of money keeps that bank afloat.

 

[Revoltingest]

A lender's assets value before failure would be about the same after failure? Correct, their asset's are the same value but the money coming in for interest payments is reduced because the people have walked away from their homes that are under water and they are no longer paying for them.

My point is that a lending company's survival or failure doesn't affect asset value.
But for a company like GM, failure would destroy the value of its assets & those of its suppliers & vendors.

So, the bank doesn't have the money to provide any more loan's and doesn't have the money to give to people who want to withdraw their own money. An influx of money keeps that bank afloat.

Bailed out lenders weren't lending back then anyway.
So my taxes were just given to them for the stockholders' benefit.
There were a great many banks which didn't fail....I ended up borrowing from one of them.
But I wouldn't have needed to borrow as much if I got to keep the money government took
to give to the failed lenders.

I'm no fan of bailouts, but if they are to be given, the basis should be
significant economic benefit to multiple parties, not just the failed recipients.
And the benefit should greatly
exceed the cost.

 

[Super Universe]

My point is that a lending company's survival or failure doesn't affect asset value.
But for a company like GM, failure would destroy the value of its assets & those of its suppliers & vendors.

Bailed out lenders weren't lending back then anyway.
So my taxes were just given to them for the stockholders' benefit.
There were a great many banks which didn't fail....I ended up borrowing from one of them.
But I wouldn't have needed to borrow as much if I got to keep the money government took
to give to the failed lenders.

I'm no fan of bailouts, but if they are to be given, the basis should be
significant economic benefit to multiple parties, not just the failed recipients.
And the benefit should greatly
exceed the cost.

A banks survival doesn't affect asset value? Okay, but a bank's ability to be a bank requires cash flow. You have to be able to give people their own money and you can't do that when other people are no longer paying their mortgages.

Bailed out lenders weren't lending back then (2008) anyway? That's what got them into trouble, too much lending to people without enough credit history when the recession hit. Then they stopped lending to people without credit but it was way too late.

I'm not a fan of bailouts but AIG I think we had to save. Chrysler I would have allowed to fail, back in the 80's I think it was, and GM I would have allowed to fail as well.

 

[Revoltingest]

A banks survival doesn't affect asset value? Okay, but a bank's ability to be a bank requires cash flow. You have to be able to give people their own money and you can't do that when other people are no longer paying their mortgages.

The FDIC insures deposits.
So the question is....would it be better to bail out the lenders or the troubled borrowers?
By bailing out the lender, the company stockholders are protected somewhat.
By bailing out the borrowers, then all would survive....borrowers, lender, & stockholders.
Why then did the lender get the lucre?
Political corruption I wager.
The fed's troubled borrower programs excluded anyone with a less than perfect payment record.
So no troubled borrowers could qualify for relief. Think this was by accident? Nah.

Bailed out lenders weren't lending back then (2008) anyway?

I & others who needed loans couldn't get'm.
The fed was even requiring lenders to foreclose upon borrowers with troubled payment records, essentially converting a possibly survivable loan into a 100% probability of failure loan. Such
loans in foreclosure were often sold at deep discount to private equity firms. The most vicious
of the lenders was a British company RBS, which owned big US lenders, eg, Citizens.
Personal experience there....love those private equity companies! Now they will work with you.

That's what got them into trouble, too much lending to people without enough credit history when the recession hit. Then they stopped lending to people without credit but it was way too late.

A banker friend explained that banks were lending to buyers they didn't consider qualified, but the fed required extending such loans under the Community Reinvestment act, & by threat of denying any mergers or acquisitions. So we have some regulatory mischief which created the problem of reckless lending.

I'm not a fan of bailouts but AIG I think we had to save. Chrysler I would have allowed to fail, back in the 80's I think it was, and GM I would have allowed to fail as well.

If bailouts were decided based upon maximizing overall economic benefit per dollar invested, you can't do better than large scale vertically integrated manufacturers like GM. But if political donations rule the game, then Wall St financial companies will get the money.

Personally I wouldn't bail out anyone...cuz I'm a libertarian. But we don't live in a libertarian country, so I'd require that money be spent in the most useful way possible. But government didn't do that.