Causes for Economic Downturns (Reagan, financial, world, jobs)

[Bob The Builder]

Originally Posted by NewToCA

To the point of the original question, I would state that both the cost of the Iraq War and the creation of unregulated alternative credit instruments led to the "bubble".

If you want to add a third element that let the credit go unchecked, to me the main culprit is the lack of sufficient integrity in critical evaluation by organization such as Standard & Poor and Moody's of financial packages being marketed to investors. This is really the underreported main problem that continues to not be addressed.

NewToCA

That was the Wall Street I was referring to. What good is S&P and there kin if they can miss by such a wide margin and still stay in business? And what are they teaching in Biz school these days?

[NewToCA]

Originally Posted by Bob The Builder

NewToCA

That was the Wall Street I was referring to. What good is S&P and there kin if they can miss by such a wide margin and still stay in business? And what are they teaching in Biz school these days?

The core problem here is that S&P and Moody's are paid by those issuing the credit, which inherently compromises their independence. They SHOULD NOT BE PAID by those creating these debt instruments for market.

[One Thousand]

Originally Posted by ViewFromThePeak

The Medicare bill? Massive highway bill? The vast majority of the exhuberant spending was on non-military discretionary spending. Yet spending all that money does little to nothing for securing the border.

The electorate keeps crying about the "infrastructure". They're delivering what we demand. Why would you spite them for that?

Medicare bill? Same thing. The electorate wants something from the governmnet. They gave it.

I don't care what McCain says he doesn't do. He wants zero fed rates. McCain defines hyperinflation. I'd rather have high taxes than a worthless currency.

Source for McCain's desire?

You'd rather have the government taking most of the value you earn rather than raising the price of your labor to reflect the lowered value of the dollar? Why? That makes no sense to me whatsoever.

I'm fine with eliminating SS altogether as well as a flat or national sales tax. Ask any Republican who really supports it outside of Linder of GA?.

The nation has a de facto sales tax. The only way to hide money from taxation is to keep it invested. The only reason you take money out is to make purchases.

I hear you. Who're your Congressional reps (all 3) and why'd you vote for them? Are you happy with what they've done so far and why?

[Bob The Builder]

Originally Posted by NewToCA

The core problem here is that S&P and Moody's are paid by those issuing the credit, which inherently compromises their independence. They SHOULD NOT BE PAID by those creating these debt instruments for market.

You are being very generous to them. I would go further to suggest that they should be liable for investor losses and run out of business like Arthur Anderson did with Enron.

[NewToCA]

Originally Posted by Bob The Builder

You are being very generous to them. I would go further to suggest that they should be liable for investor losses and run out of business like Arthur Anderson did with Enron.

You are going to the point of critical analysis of their work, I was discussing structural deficiencies.

If they are found to be derelict, we agree.

[Bob The Builder]

Originally Posted by NewToCA

You are going to the point of critical analysis of their work, I was discussing structural deficiencies.

If they are found to be derelict, we agree.

I recall hearing on CNBC a discussion of two analysts from Merrill who tried to call attention to this sub prime risk years ago. They were fired,

The fact of who paid the S&P is just an obvious factor. Everyone who relied on S&P knew who was paying. Not everyone knew that what S&P was reporting was absolute bunk.

The core problem lies in our society's willingness to accept bad behavior and allow it to be taught, institutionalized, rewarded and unpunished.

[silas777]

out of control federal spending!

[Mircea]

Originally Posted by Frankie117

Which would be the most likely cause of the current economic situation? (job loss, inflation, etc.).

Cost Inflation.

When Wage Inflation occurs, higher wages drive prices higher. Why? Greed. Back in the late 1700s, Adam Smith notes that in his book, "The Wealth of Nations." Seems every time the factory workers got a raise, the pubs and shoppes across the way raised the price of a pint of ale and food and stuff. He attributed it to the "invisible hand" but that's nonsense. When people know you can afford to pay more, they make you pay more, out of sheer greed.

The US suffered Wage Inflation back in the early 1970s and Nixon's solution was his famous Wage & Price Freeze. I don't think that was the correct course of action, but I don't see too many alternatives that wouldn't require a bloated government bureaucracy.

When Currency or Fiscal Inflation exists, prices and wages rise together. You've probably seen the photo of the guy with a wheel barrel full of Deutsch Marks going to buy a loaf of bread for DM 3 Million in post WWI Germany. How could he afford DM 3 Million for a loaf of bread? He was probably making DM 40 Million a day.

But Cost Inflation is very bad. Prices rise, but wages don't.

The reason wages don't rise is because the price increases are meant to restore the profit margin, not increase the profit margin. You only get a pay raise if profits increase.

If you manufacture something, and your parts cost $0.40, labor is $0.40 and overhead is $0.20 per item, then it costs you $1.00 per item and if you sell it for $2.00 then you make $1.00 in gross profit.

What happens when your parts cost $0.60? Your total cost is now $1.20 and selling for $2.00 is only $0.80 profit, not $1.00. If you raise your price to $2.20 per item then you have restored your profit margin back to $1.00, not increased your profit margin.

If you work for a private corporation, partnership or limited liability company, you'll last longer. They aren't beholden to share-holders and they can operate indefinitely on a profit margin of 0% (at least in theory). Publicly traded corporations cannot operate on reduced profit margins and they either cut back production, lay-off or close the plant.

Raising prices isn't always the answer though. You have to deal with Price Elasticity. Raising prices might actually result in even fewer profits. Raise the price of a bottle of ketchup, and I'll start buying the cheapest brand, since there's no difference in quality and little difference in taste, and if prices rise too high, I'll start buying tomato sauce and tomato paste and making my own ketchup (I do that now anyway).

You should get used to Cost Inflation. Much of it is due to the lower value of the US$ against the Euro, and that situation is long term, not temporary. The US$ won't fall below $0.42 = 1 Euro because Canada, Mexico, obviously the US and many other countries still trade in US$ and hold US$ currency reserves, but don't expect $1 to = 1 Euro again in your life-time, unless the US invades Russia.

Supply and Demand issues for oil, and other commodities, like food crops will be persistent too from this point on, and that will drive prices. The solution is reduced consumption, but for the US that means recession and permanent job loss. In my opinion, that's inevitable and people are just going to learn how to deal with it.

I wouldn't be surprised at all if 10 years from now you find families sharing apartments and houses. Two couples and their children rent a three bedroom apartment, the adults get the two bedrooms and the kids share the 3rd. That'll be the only way they can have things like cable/satellite, internet connection, cell-phones and be able to eat out once in a while and go clubbing every now and then, in large part because the job losses will limit households to one wage earner instead of two wage earners like many households have now. Think of the savings on child-care, since at least one adult will be home all day.

[Magnulus]

Originally Posted by Mircea

Two couples and their children rent a three bedroom apartment, the adults get the two bedrooms and the kids share the 3rd.

That's a trend that's started for some time- especially with young people living at home with their parents- 1/3 of all adult men under 32 live at home with their parents for an extended period of time. Some of it is due to structural changes in the labor market, such as women entering the workforce. But it's also due to more service jobs and fewer higher paying, low- to medium-skill jobs like manufacturing.

I don't think the economy has ever really recovered since 2001 for ordinary people. It's been better but the trend has been downward. And I think often times the "Roaring 90's" of Clinton's presidency are remembered too fondly. After all, the Clinton years oversaw alot of globalization and the death of alot of American manufacturing jobs. Before Bill Clinton, companies like Zenith made TV's in the US, for instance. People just looked the other way because wages were growing in the replacement jobs, the service jobs.

[vuyo gqoji]

In my opinion the are more than one underlying factors that caused the Global Economic Downturn. firstly the proven... the irregulatory housing markets (mortgages). firms being more debt financed rather than equity, which also ment that firms had little capital and assets. heading for risky run to insolvency.

on the other hand, which is my assumption, the a some sorts of cartells happening with the BIg compaies worldwide. as the saying when elephant bulls fight, the ground detoriates greately.

vuyo gqoji from SOUTH AFRICA DURBAN