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Old 06-25-2011, 09:18 AM
 
3,327 posts, read 4,356,380 times
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Quote:
Originally Posted by user_id View Post
Things were no different in the past, banks rarely provide seed capital to businesses. Banks want to deal with secured loans or provide loans to businesses with a history of good cash-flow.

Its a rule that most will fail before they succeed? Its amazing to what degree this urban myth gets repeated.

Anyhow, business isn't for everyone, but not because of some changes that have occurred in the economy. Some people just plain suck at business...and some people will create an endless list of excuses.

Banks rarely provided seed capital to start large operations. That is true. No bank is going to front millions of dollars that a tech start up needs. However, banks did front low to mid 5 figure amounts for mom and pop operations to get started. That is dead now. Why would they do that when they can borrow at ZIRP, stick it into t-bills and get a guaranteed 3%+ (even if it's only 3% percent). The borrowing are much more stringent now because banks know most Americans are broke. The odds are not in their favor to be paid back.Especially in this environment.

Yes, it is generally a rule that in business one will have some failure before success. Just like most other things, being a good businessman comes through trial and error. That takes time and doing things wrong in order to learn. Great business don't come about because they do everything right the first time.

Of course some people suck at business. In fact, a lot of people aren't cut out for it. ON the other hand, all of the successful small- medium businesses I know were either inherited family owned operations or the proprietor is on his 2nd, 3rd, or 4th try. There are so many variables (those which the owner can control and others he can't) in getting a business to succeed that a lot of good businessman fail. Quite often, in fact.

Quote:
This is off point as well, the best time to start a business is during a recession, ideally right before it bottoms. This may seem counter-intuitive, but not if you think in terms of GDP growth and competition. When a recession bottoms many competitors have self-destructed which makes room for new businesses right when the economy starts to grow again. On the other hand in "good times", established businesses are the most powerful and barriers to entry are the highest.
Right now we have a demand side problem. Not a supply side problem. The problem isn't a lack of quality goods or services. It's a lack of consumer demand.

Starting a business right before the bottom is like trying to win the lottery so that's a moot point. If you're off by a few quarters here or there you could be toast. Just good old variance.

Quote:
wawaweewa wrote:

I'm one of those boomers who is inclined to agree with you up to a point. IMO, luck is a realtive term. Compared to more recently born generations, we-the-boomers were relatively lucky, but then we were forced agasint our wills to risk our lives and limbs in the Viet Nam fiasco and have our lives put on hold while mighty big brother drafted us to fight that dirty war. You guys don't have to deal with the draft and you don't have soldierhood forced upon you, so that is somewhat of a trade off. You can still go to war if you choose to do so, but big brother ain't making you do it....at the risk of prison time...should you refuse to toe the line.

Additionally, to a certain degree, luck is a factor that is attracted or repelled in accordance with ones attitude. If you keep lookin for scapegoats and keep playing the blame game, your probablity of attracting good luck is greatly diminished.

You don't think certain sectors of the US are still "forced"?

Yes, I wasn't forced because I grew up in a solid middle class family. Other didn't. Their only choice that provides a high probability to improve their life is the military. It's not very far from being forced.

Do you think most grunts join out of some patriotic duty ( i realize a small percentage do) or because the military provides outs that they otherwise would not have had? Would you tell an amputee that he chose to cut off his limb? It's more a necessity than a choice.

I admit, I was and still am lucky enough that I don't need to make that "choice".

Quote:
As a boomer who was looking for work in the 70's I can tell you that your numbers are off. When we got married in 1972 we were struggling. By 1975 we were bringing in a whopping $7k a year and felt damn lucky to have it. We went through gas shortages that made it difficult to find gas to buy, let alone being able to afford to buy it.

Oh, yeah, I almost forgot, do you know anyone that is waiting for a draft notice to be called to go to war? Didn't think so...
Just because things were better, doesn't mean they were great. I don't deny that there were folks like yourself. Nevertheless, more opportunity (on average) did exist back then.

During college I worked part time at a warehouse. One of my co workers was a Guyanese who came into the US illegally in 77 or 78 (he later received amnesty under Reagan). He used to tell me how his first job, as an illegal, paid $10.50/hour. In 2006, after he was laid off from a warehouse making 33/hour, we were working for $12/hr. $10.50 in '78 or 12 in 2006. Inflation much?
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Old 06-25-2011, 09:26 AM
 
3,327 posts, read 4,356,380 times
Reputation: 2892
Never a big fan of Mort Zuckerman but I'm not one to ever shoot the messenger.

__________________________________________________ _________________

Why the Jobs Situation Is Worse Than It Looks

We now have more idle men and women than at any time since the Great Depression
By MORTIMER B. ZUCKERMAN
Posted: June 20, 2011
The Great Recession has now earned the dubious right of being compared to the Great Depression. In the face of the most stimulative fiscal and monetary policies in our history, we have experienced the loss of over 7 million jobs, wiping out every job gained since the year 2000. From the moment the Obama administration came into office, there have been no net increases in full-time jobs, only in part-time jobs. This is contrary to all previous recessions. Employers are not recalling the workers they laid off from full-time employment.


The real job losses are greater than the estimate of 7.5 million. They are closer to 10.5 million, as 3 million people have stopped looking for work. Equally troublesome is the lower labor participation rate; some 5 million jobs have vanished from manufacturing, long America's greatest strength. Just think: Total payrolls today amount to 131 million, but this figure is lower than it was at the beginning of the year 2000, even though our population has grown by nearly 30 million. [Check out a roundup of political cartoons on the economy.]

The most recent statistics are unsettling and dismaying, despite the increase of 54,000 jobs in the May numbers. Nonagricultural full-time employment actually fell by 142,000, on top of the 291,000 decline the preceding month. Half of the new jobs created are in temporary help agencies, as firms resist hiring full-time workers.

Today, over 14 million people are unemployed. We now have more idle men and women than at any time since the Great Depression. Nearly seven people in the labor pool compete for every job opening. Hiring announcements have plunged to 10,248 in May, down from 59,648 in April. Hiring is now 17 percent lower than the lowest level in the 2001-02 downturn. One fifth of all men of prime working age are not getting up and going to work. Equally disturbing is that the number of people unemployed for six months or longer grew 361,000 to 6.2 million, increasing their share of the unemployed to 45.1 percent. We face the specter that long-term unemployment is becoming structural and not just cyclical, raising the risk that the jobless will lose their skills and become permanently unemployable. [See a slide show of the 10 best cities to find a job.]

Don't pay too much attention to the headline unemployment rate of 9.1 percent. It is scary enough, but it is a gloss on the reality. These numbers do not include the millions who have stopped looking for a job or who are working part time but would work full time if a position were available. And they count only those people who have actively applied for a job within the last four weeks.

Include those others and the real number is a nasty 16 percent. The 16 percent includes 8.5 million part-timers who want to work full time (which is double the historical norm) and those who have applied for a job within the last six months, including many of the long-term unemployed. And this 16 percent does not take into account the discouraged workers who have left the labor force. The fact is that the longer duration of six months is the more relevant testing period since the mean duration of unemployment is now 39.7 weeks, an increase from 37.1 weeks in February. [See a slide show of the 10 cities with highest real income.]

The inescapable bottom line is an unprecedented slack in the U.S. labor market. Labor's share of national income has fallen to the lowest level in modern history, down to 57.5 percent in the first quarter as compared to 59.8 percent when the so-called recovery began. This reflects not only the 7 million fewer workers but the fact that wages for part-time workers now average $19,000—less than half the median income.

Just to illustrate how insecure the labor movement is, there is nobody on strike in the United States today, according to David Rosenberg of wealth management firm Gluskin Sheff. Back in the 1970s, it was common in any given month to see as many as 30,000 workers on the picket line, and there were typically 300 work stoppages at any given time. Last year there were a grand total of 11. There are other indirect consequences. The number of people who have applied for permanent disability benefits has soared. Ten years ago, 5 million people were collecting federal disability payments; now 8 million are on the rolls, at a cost to taxpayers of approximately $120 billion a year. The states today owe the federal insurance fund an astonishing $90 billion to cover unemployment benefits. [See cartoons about the deficit and debt.]

In past recessions, the economy recovered lost jobs within 13 months, on average, after the trough. Twenty-three months into a recovery, employment typically increases by around 174,000 jobs monthly, compared to 54,000 this time around. In a typical recovery, we would have had several hundred thousand more hires per month than we are seeing now—this despite unprecedented fiscal and monetary stimulus (including the rescue of the automobile industry, whose collapse would likely have lost a million jobs). Businesses do not seem to have the confidence or the incentive to add staff but prefer to continue the deep cost-cutting they undertook from the onset of the recession.

But hang on. Even to come up with the 54,000 new jobs, the Bureau of Labor Statistics assumed that 206,000 jobs were created by newly formed companies that its analysts believe—but can't prove—were, in effect, born in May under the so-called birth/death model, which relies primarily on historical extrapolations. Without this generous assumption in the face of a slowing economy, the United States would have lost jobs in May. Last year the bureau assumed that 192,000 jobs were created through new start-ups in the comparable month, but on review most of them eventually had to be taken out, as start-ups have been distressingly weak given the lack of financing from their traditional sources such as bank loans, home equity loans, and credit card lines. [Read more stories on unemployment.]

Where are we today? We have seemingly added jobs, but it is not because hiring has increased. In February 2009 there were 4.7 million separations—that is, jobs lost—but by March 2011 this had fallen to 3.8 million. In other words, the pace of layoffs has diminished, but that is not the same thing as more hiring. The employment numbers look better than they really are because of the aggressive layoffs in the early part of this recession and the reluctance of American business to rehire workers. In fact, the apparent improvement in job numbers has been made up of one part extra hiring and two parts reduced firing.

Even during past recessions, American firms still hired large numbers of workers as part of the continual cycle of replacing employees. Of the 150 million workers or job seekers in America, about one third turn over in a typical year, leaving their old jobs to take new ones. High labor "churn" is characteristic of our economy, reflecting workers moving to better jobs and higher wages and away from declining sectors. As Stanford business professor Edward Lazear explains so clearly in the Wall Street Journal, the increase in job growth over the past two years is attributable to a decline in the number of layoffs, not from increased hiring. Typically, when the labor market creates 200,000 jobs, it has been because 5 million were hired and 4.8 million were separated, not just because there were 200,000 hires and no job losses. But when an economy has bottomed out, it has already shed much of its excess labor, as illustrated by the decline in layoffs—from approximately 2.5 million in February 2009 to 1.5 million this April. In a healthy labor market like the one that prevailed in 2006 and into 2007, American firms hired about 5.5 million workers per month. This is now down to about 4 million a month. Quite simply, businesses have been very disciplined in their hiring practices. [Read Zuckerman: America's Fading Exceptionalism.]

We are nowhere near the old normal. Throughout this fragile recovery, over 90 percent of the growth in output has come from productivity gains. But typically at this stage of the cycle, labor has already taken over from productivity as the major contributor of growth. That is why we generally saw nonfarm payroll gains exceeding 300,000 per month with relative ease. This time we have recouped only 17 percent of the job losses 23 months after the recession began, as compared to 207 percent of the jobs lost from previous recessions (with the exception of 2001). There is no comfort either in two leading indicators of employment, with no growth in the workweek or in factory overtime.

Clearly, the Great American Job Machine is breaking down, and roadside assistance is not on the horizon. In the second half of this year (and thereafter?), we will be without the monetary and fiscal steroids. Nor does anyone know what will happen to long-term interest rates when the Federal Reserve ends its $600 billion quantitative easing support of the capital markets. Inventory levels are at their highest since September 2006; new order bookings are at the lowest levels since September 2009. Since home equity has long been the largest asset on the balance sheet of the average American family, all home*owners are suffering from housing prices that have, on average, declined 33 percent (compare that to the Great Depression drop of 31 percent). [See a slide show of the 10 cities with the lowest real income.]

No wonder the general economic mood is one of alarm. The Conference Board measure of U.S. consumer confidence slumped to 60.8 percent in May, down from 66 percent in April and well below the average of 73 in past recessions, never mind the 100-plus numbers in good times. Never before has confidence been this low in the 23rd month of a recovery. Gluskin Sheff's Rosenberg captured it perfectly: We may well be in the midst of a "modern depression."

Our political leadership in both Congress and the White House will surely bear the political costs of a failure to work out short- and long-term programs to fix the job shortage. The stakes are too high to play political games.
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Old 06-25-2011, 10:54 AM
 
Location: Conejo Valley, CA
12,460 posts, read 20,079,981 times
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Quote:
Originally Posted by wawaweewa View Post
However, banks did front low to mid 5 figure amounts for mom and pop operations to get started. That is dead now.
No its not dead now, it is rare today just like it was in the past. You are claiming something has changed, but it hasn't. The SBA will still guarantee these sorts of loans, but banks just don't like them and nothing has changed in this regard. Seed loans are just very risky...

In terms of your comment about buying treasuries, its not accurate as well, you are looking at the rates banks can get short-term loans at and comparing it to what a bank can get in a long-term bond. Short-term treasuries have yields that are close to 0%. There are no real arbitrage opportunities here for banks, any bank that borrows short-term and puts the money into 10+ year treasuries is taking on significant risks and this isn't what is happening right now.


Quote:
Originally Posted by wawaweewa View Post
Yes, it is generally a rule that in business one will have some failure before success.
I'm not even sure what you mean by this, what does it mean to have "some failure"? You mean that a start-up may make some mistakes starting out? If that is what you mean, I'm not sure why you'd use that as an argument against starting a business.


Quote:
Originally Posted by wawaweewa View Post
Right now we have a demand side problem. Not a supply side problem. The problem isn't a lack of quality goods or services. It's a lack of consumer demand.
This is just the point, when a recession bottoms supply has been hollowed out by companies going out of business, yet when the recession starts to recover demand picks up again. Furthermore, the players that haven't gone out of business are often in very weak financial situations which makes it difficult for them to deal with competition from new entrants to the market.

Anyhow, reality is the opposite of what you suggest, the best time to create a business is during the depths of a recession and the worst time is during the heat of a boom. Of course, most people start businesses in booms and make excuses during recessions. Just as most people end up selling their stocks low, and buying high.
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Old 06-25-2011, 01:01 PM
 
Location: Philadelphia Area
1,720 posts, read 1,315,778 times
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Quote:
Originally Posted by wawaweewa View Post
Banks rarely provided seed capital to start large operations. That is true. No bank is going to front millions of dollars that a tech start up needs. However, banks did front low to mid 5 figure amounts for mom and pop operations to get started. That is dead now. Why would they do that when they can borrow at ZIRP, stick it into t-bills and get a guaranteed 3%+ (even if it's only 3% percent). The borrowing are much more stringent now because banks know most Americans are broke. The odds are not in their favor to be paid back.Especially in this environment.

Yes, it is generally a rule that in business one will have some failure before success. Just like most other things, being a good businessman comes through trial and error. That takes time and doing things wrong in order to learn. Great business don't come about because they do everything right the first time.

Of course some people suck at business. In fact, a lot of people aren't cut out for it. ON the other hand, all of the successful small- medium businesses I know were either inherited family owned operations or the proprietor is on his 2nd, 3rd, or 4th try. There are so many variables (those which the owner can control and others he can't) in getting a business to succeed that a lot of good businessman fail. Quite often, in fact.



Right now we have a demand side problem. Not a supply side problem. The problem isn't a lack of quality goods or services. It's a lack of consumer demand.

Starting a business right before the bottom is like trying to win the lottery so that's a moot point. If you're off by a few quarters here or there you could be toast. Just good old variance.




You don't think certain sectors of the US are still "forced"?

Yes, I wasn't forced because I grew up in a solid middle class family. Other didn't. Their only choice that provides a high probability to improve their life is the military. It's not very far from being forced.

Do you think most grunts join out of some patriotic duty ( i realize a small percentage do) or because the military provides outs that they otherwise would not have had? Would you tell an amputee that he chose to cut off his limb? It's more a necessity than a choice.

I admit, I was and still am lucky enough that I don't need to make that "choice".



Just because things were better, doesn't mean they were great. I don't deny that there were folks like yourself. Nevertheless, more opportunity (on average) did exist back then.

During college I worked part time at a warehouse. One of my co workers was a Guyanese who came into the US illegally in 77 or 78 (he later received amnesty under Reagan). He used to tell me how his first job, as an illegal, paid $10.50/hour. In 2006, after he was laid off from a warehouse making 33/hour, we were working for $12/hr. $10.50 in '78 or 12 in 2006. Inflation much?
Yep, I've compiled a very appropriate post for what you describe. The post by Mircea describes this dynamic as well. And GUYnTexas says it ALL!

Originally Posted by workingclasshero:

it doesnt

its becoming harder to afford many things for all people

a personal example...I make about 3 times what my father made at his highest level...and it is tougher for me to make ends meet that it was for him

look at the price of a car...a midsize chevy (say the nova) in 1970 was $2200.....today a midsize chevy is 20k or more

the value of the dollar is in the toilet


Yep!!!!! And going lower. Wait till QE3 LOL!

Quote:
Originally Posted by Mircea:

Also the wages aren't there and if you compare that with inflation it just doesn't work.

In 1980, I had an entry level job as a sound engineer with a local independent TV station earning $5.00 per hour. One paycheck paid my rent and utilities and auto insurance and the other 3 paychecks each month were disposable income.

An entry level job today pays $8.50 to $10 per hour and even at $10 per hour it takes 2 paychecks to cover the cost of rent, utilities and auto insurance (and don't forget in 1980 $10 -- or two hours of work -- paid for 2 tickets to the cinema show, a tank full of gasoline and something to eat after the movie -- the cost of two movie tickets now is over $20).

GuyNTexas says IT ALL Here!!!!

Originally Posted by GuyNTexas:

No. I'm really disagreeing with .. not missing your point. And those numbers don't tell a very accurate story, and the proof is demonstrated by the drop in net worth of middle income earners as their debt has increased significantly, while earnings have declined relative to inflation.

By most measurable data points, the middle income class has been dying a very slow, incremental death for 4 decades because the costs on high ticket items have increased more rapidly than the either the inflation rate or rates of increases in income. To further compound the problem, average income levels have failed to keep pace with the inflation rate itself. Much of this goes unnoticed because of it's slow incremental nature (like growing old). But if you are old enough, and still maintain your mental faculties, you can't be bull $hted into believing what you are trying to say here.

As just one example, in 1977, I bought a brand new Pontiac Trans Am for $5200. And since it was my first car purchase, I suspect I was clubbed like a baby seal (paid full MSRP), as I simply asked how much, and said OK (later I learned the error of this way to purchase automobiles )

Now today, that car is no longer available, but a comparable car "Chevy Camero SS" is. And a similarly configured model is around $35,000 MSRP. Which is almost double the adjusted for inflation number of $18,700 that Camero should cost relative to the $5200 Trans Am of 1977.

My income back then was 14,000 or just shy of 3 times what the car cost ... if you apply that same formula to the $35,000 Camero today, I'd have to earn roughly $100,000 per year to maintain the same standard (drive the same car) as my $14,000 income provided then. I was not wealthy then .. I was a 20 year old working in a warehouse driving a forklift. And I don't think there are many 6 figure forklift drivers around today ... I would say, the 40-50K range would be the upper limit ... or roughly the same as my $14,000 would be, adjusted for inflation.

This is one example, and almost any big item ... car, house, etc. works out to be the same. Some other items like Healthcare have dramatically exceeded those rates exponentially compared to 1977 where mine was absolutely free and first rate, including dental.

Now, add to this the higher taxes, social security withholding, and medicare ... all of which have exceeded the inflation rate (and don't let anyone BS you into believing it hasn't), means that the net spending power of your income has declined dramatically over the past 30+ years. (See video below she documents ALL this IN DETAIL)

Now around about that same time frame, my step father worked for one of the US Government agencies earning roughly in the 50-60K range, and at the time, that was very good money, but not even close to RICH & Wealthy .... but adjusted for inflation, that comes out to around $200+K now. The house he purchased then at $50,000 appraised for $480,000 in 2004-5 even though the adjusted for inflation value would have only dictated a $155,000 figure ... 3 times the inflation rate!! By the time he retired in the late 90's, his income may have doubled, yet his house increased by 6-8 fold. What does that tell you?

Now if you are following me here ... this is where it gets real hairy ... if you take a Quarter ... 25 cents ... from say 1964 (the last 90% silver Quarter) that 25 cents equates to $1.76 in 2010 value. But guess what? Today's melt value of that sliver quarter is about $3.70 which is again more than double the published inflation rate ....

So what does that all mean? It means very simply, that the value of your money is worth about half of what it's claimed to be worth, even after being adjusted for inflation .... and all it takes is to actually look at the historical costs of items like cars, and houses and health care costs from the late 60's to today, and also the median incomes. You see that the purchasing power has indeed declined. And this is a result of the devaluation of the currency (a hidden tax).

So when it comes to buying power, there has been a continuous decline that doubles the the inflation rates admitted .. which is why the middle class really doesn't exist for all practical purposes today.

There are the ultra wealthy, and the rest. The $250kers are just at the higher end of that rest of us, and they are the last of the upper middle class, and the next in line to fall ... apparently, much to delight of many who think that they are members of the Wealthy Club, and must fall for the sake of everyone.

I suppose this proves that indeed, misery loves company.






YouTube - The Coming Collapse of the Middle Class
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Old 06-25-2011, 08:43 PM
 
3,327 posts, read 4,356,380 times
Reputation: 2892
Quote:
Originally Posted by user_id View Post
No its not dead now, it is rare today just like it was in the past. You are claiming something has changed, but it hasn't. The SBA will still guarantee these sorts of loans, but banks just don't like them and nothing has changed in this regard. Seed loans are just very risky...

In terms of your comment about buying treasuries, its not accurate as well, you are looking at the rates banks can get short-term loans at and comparing it to what a bank can get in a long-term bond. Short-term treasuries have yields that are close to 0%. There are no real arbitrage opportunities here for banks, any bank that borrows short-term and puts the money into 10+ year treasuries is taking on significant risks and this isn't what is happening right now.
This is exactly what's happening. What long term risk are you speaking of? The long term risk of making bad moves and then getting pumped full of liquidity by the Feds and FED? That risk? Such immeasurable risk! The people running this institutions aren';t in it for the long haul. They're there to make there millions and move on. You better believe they're playing the long end of the curve because there will be QE 57 if necessary. There is no other way out for the US economy as it is presently constituted. It doesn't take a genius to figure that out.

Furthermore, these banks borrowing at 0% are encouraged to push the paper into riskier investments. Equities, commodities, etc. Why loan to small businesses when you can ride the excess liquidity train in other markets minting coin?

Quote:
This is just the point, when a recession bottoms supply has been hollowed out by companies going out of business, yet when the recession starts to recover demand picks up again. Furthermore, the players that haven't gone out of business are often in very weak financial situations which makes it difficult for them to deal with competition from new entrants to the market.

Anyhow, reality is the opposite of what you suggest, the best time to create a business is during the depths of a recession and the worst time is during the heat of a boom. Of course, most people start businesses in booms and make excuses during recessions. Just as most people end up selling their stocks low, and buying high.
Today 11:26 AM

You're making a poor assumption. What makes you think demand will return to previous levels? From where? From higher wages? From lower unemployment? From higher purchasing power? Where is this demand going to come from? Revolving debt is declining. Non revolving debt is increasing. So not only are Americans slowly whittling down living beyond their means but the income that they will have will go towards paying of the nearly $1 trillion (and counting) in non revolving debt.

This situation will persist for many years to come. You're making a terrible assumption that things will return to circa 2006.
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Old 06-25-2011, 11:38 PM
 
1,196 posts, read 1,804,543 times
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Quote:
Originally Posted by tamajane View Post
So they are good soldiers as long as they are assigned the task at hand. What about creativity and innovation? Do they have the ability to self-motivate and think independently? Suppose they don't have a pack or a boomer around to give them support or praise. This is not a generation of leaders or free thinkers.
Creativity and innovation is being driven by Generation X-Y if you look at the technology we use everyday.

Generation X just doesn't work and communicate the same way as the older boomers. We also seem to want to find more a balance in our lives compared to the older generation.

I also believe the economy has changed forever. Contracting will be the future. Outsourcing will continue even with white-collar jobs. Also, we are not the lone superpower anymore like we were going into the 1990s. We have a global marketplace to compete with for businesses, jobs, money, and talent. The big problem is is the requirement of college today for even a lot every entry-level jobs that are a bit silly to me for a college degree requirement. The other problem is that we also have too many people going to college. The law field is experiencing an over-supply which has hurt a lot of those in that field.

Last edited by Wolfpacker; 06-26-2011 at 12:25 AM..
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Old 06-26-2011, 11:27 AM
 
Location: Conejo Valley, CA
12,460 posts, read 20,079,981 times
Reputation: 4365
Quote:
Originally Posted by wawaweewa View Post
This is exactly what's happening. What long term risk are you speaking of? The long term risk of making bad moves and then getting pumped full of liquidity by the Feds and FED?
No, if you look at banks balance sheets you can see that its not happening. The risks are obvious, if you borrow short and invest long you run the risk of short-term rates going up higher than your long-term yields. The risks here outweigh the benefits. Furthermore, the whole premise here isn't accurate either, the fed isn't giving banks large sums of money at 0%. The banks can borrow at the discount window at close to 0%, but these are secured loans. Otherwise banks are borrowing from each other...at very short terms (days).


Quote:
Originally Posted by wawaweewa View Post
You're making a poor assumption. What makes you think demand will return to previous levels? From where? From higher wages? From lower unemployment? From higher purchasing power? Where is this demand going to come from?
The recession ended over a year ago and GDP has been growing, that is, demand has been increasing for almost 2 years now. What I said is already happening, those that created businesses 1-2 years ago are in better positions than the folks that will create businesses when the economy is stronger.

Now, the economy is growing at a slow rate so start-ups should try to minimize their leverage until growth picks up.
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Old 06-27-2011, 02:18 AM
 
Location: Cleveland bound with MPLS in the rear-view
5,509 posts, read 11,871,642 times
Reputation: 2501
I've read that banks continue to have tight lending policies because they are bracing for the 2nd part of the housing bubble impact -- the inevitability of the commercial real estate forclosure crisis. The bad loans they ALSO made to companies for commercial real estate. Until the jobless rate increases and things become clearer, lending will likely continue to be tight, counter-intuitive to what banks need to be doing and what the govt. needs banks to do to ignite the economy. Unfortunately, people don't like to spend lots of money when they don't have jobs AND/OR are losing more money faster than ever before AND working twice as hard to get it!

We all like rising profits, but can any of these banks think outside of themselves for the betterment of a community/country? How greedy are some of these people? Big money now -- no money for 99.9% of Americans. But hey, that will look GREAT on their resumes, right?
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