2004 Democratic Primary

[JNB]

  One mans Doom and Gloom is another mans sobriety. The Bank of Japan has almost single handledly kept long term intrest rates in the US artificially low by buying US bonds non stop for trhe last two years. THis has kept the real estate industry and the connected construction industry stimulated at artificially high levels. Real estate can not continue on its torrid pace forever, there are some serious limitations to botth the purchase and re-fi end of it when long term intrest rates finally do rise.

   In my opinion, the consumer is on barrowed time. The fact that re-fis were pegged from July 2002 to June of this year, along with $100 billion of "tax refunds" is what drove the economy in the third quarter, and will help this qiuarter. After that, the consumer will be somwhat haderd pressed to keep on moving forward.

[JNB]

 Mr Fresh, it is one thing to parrot what the Wall Street Journal prints, it is quite another to get into the details on why the eocnomy is acting the way it is. THis "recovery" is unlike the previous recoveries that came after the 73-74 reccesion, the 82 reccesion and the 91 recession. All of these recoveries started with savings rates around 10%, P/Es on the stock markets in the high single digits, and they were marked by a peak in intrest rates. This "recovery" is opposite. The 2001 reccesion was marked by intrest rates going lower, not peaking, it was marked by auto sales going higher, not lower, and real estate that continued at a artificlaly strong pace due to artifically low intresrt rates, another contrast to the previous recessions.

  The fiscal stimulus given to the economy by artificlaly low intrest rates that sparked a record amount of re finance activity, the $400 a child "tax rebate" and sky high debt levels has resulted in the good numbers that we see today. The question is, is this sustainable. While nothing is ever a perfect repeat, history being used as a guide says its not.

[JNB]

 No contradictions at all, this recovery does not resmble the previous recoveries that ushered in periods of healthy growth, as I went over the differences in my post.

  As for how this will impact the election next year, the economy I believe will slow down next year, but not enough to go into a recession, but back to the slower pace of growth seen in 2002 as the consumers will no longer be able to get anything more out of re-fi their homes. So that said, I do not believe the economy will be bad enough to impact the re election prospects of Bush.

  Even if the economy is a little worse than expected, as 1972 has shown, one does not need a good economy to be re elected, and if the Democratic primary becomes a circular firing squad and Dean gets the nomination, Bush could win a 40 state re election.

[JNB]

   A few things. For one, corporate profits are still below where they were even in 97,  as for productivity, the numbers reflect more a combination of hedonistic accounting methods put in place at the BLS during the Clinton admin and a runaway expansion of the M3 money supply. As for intrest rates, they are set on the short term end by the FED and on the long term end, the 10 year bond yeild that determines the rate for long term bond has been about 1% lower than it should have been because of Japanese central bank intervention, buying US tresuries non stop in a efforts to prevent the yen from getting strong against the dollar.

  As for inflation, inflation is another metric that was changed by the BLS during the Clinton admin, but for basic needs such as housing and medical care, inflation is though the roof.

   Lastly do you want to know why the recession was so mild, because of the artificlaly low intrest rates that enabled many homeowners to re-fi their homes up to 3 times in the last 3 years, this was also certainly a factor not present in the last recession. Again, put down the WSJ, turn off Larry Kudlow and learn about fundamental economics, not spin. The debt burden corporation now experience in relation to their assets is far higher now than it was when the recove4ries from the previous 3 recessions began.

  Like I said, I am not anti Bush, nor do I blame Bush for most of the current economic problems, but I can not tolerate spin that is all glitz and no substance that parrots rags like the WSJ, a rag that is just as biased as the other rag, the NYT is. If one wants to get a better picture of economics, read the Financial Times and the Econiomist, both UK publications.

[JNB]

 Jmc and Mr Fresh, again, look in greater detail not the spin. As for debt service burden figures, where do you get your figures. Companies like GM and IBM have looming problems with their pension plans that they didnt have in the early 90s. As for real estate, thanks to Clinton era changes that dramaticlaly increased the size and scope of GSE such as FNM and FRE, more people who have questionable credit quality own homes, and that has the potential to be a time bomb.

  As for productivity numbers, look at them in relation to the runaway growth the M3 money supply has had untill late August of this year. Much of the productivity gains is due more to runaway M3 money supply growth than anything in the real world, along with the "adjustments" the BLS made in the 90s.

   As for Japanese central bank, what I say stands, the BOJ intervention to prevent the dollar from sinking against the Yen involved buying tresuries, and the BOJ holdings of US tresuries increased by about $200 billion in the last two years, and that does not even inclue the amount of tresuries BOJ proxies such as the Japanese Postal Pension system has done. Again, Japanese, Chinese and to a lessor extent other Asian countries buying of tresuries have pushed intrest rates to a artificlaly low level in order to keep their currecnies depressed against the dollar(in Chinas case, to maintain the Yuans peg to the dollar).  As the US federal budget gap will remain large in the next few years combined with the massive trade gap, there is going to be a far larger supply of 10 year bonds, and a bigger supply means higher yeilds.

  In any event, somthing will give, will it be by Nov 04, probably not, but the US can not maintain the trade deficits and expect intrest rates to remain low and the dollars value not to sink any further.

  As for the bond market, the shorter term instruments are indeed set by the FED.  The 3 months and one year and even 2 year debt insturments are very much so set by the FED, as the FEDs overnight rate is the benchmart that influences short term debt insturments.

  In any event, mo matter where you get your information, though again it seems much like the "information" one would read in t he WSJ, it is not all peaches and cream out there, the economy has moved soley because of the stimulus given to it by tax cuts/rebates and more importantly to the consumer, the massive number of home re-fis. As home re-fis have wound down, and as next year the consumer will not have nearly as impressive as a $400 a child "tax rebate", again I restate, the consumer will be harder pressed to maintain their pace of spending. As for business spending,  reading teh most recent Beige book, it confirmed what I have read elsewhere, a large amount of the business spending is related to the financial and construction indutsry, and they have largely driven the economy.

[JNB]

 Lastly, the real estate prices have risen far in excess of inflation, and even the median monthly payments have risen in excess of inflation despite the fact that intrest rates have sunk in the last 3 years, historically this is not sustainable. Also, along with FNM and FRE enabling very high risk consumers to buy homes, it looks very much so like intrest rates on home loans have bottomed out, so one of the prime drivers of the real estate bubble, and one has to look at it as a bubble is slowly being taken away.

  Like I said, I dont have a crystal ball, I just have the past as a guide, and unlike you, I see many warning signs, you derride it as gloom and doom, I take the authentic conservative view and I prefer honestly and reality. The way the economy has sustained itself in the last 3 years is not sustainable long term. A combination of the stimulus given by the FED loweing its rates 13 times, the long term rates going down(casuing real estate to accelerate its activity and a record shattering re-fi boom) and a record increase of govrenmnet spending, 2 rounds of large tax cuts can not sustain itself forever. Consumers need to increase their amount of savings, large corporations such as GM and IBM need to get more financially solvent considering their looming pension problems, the trade gap needs to narrow dramatically over the long term. The dramatica increase in the M3 money supply has made the numbers seem far better than they would have bene otherwise, but that spigot is slowly drawing to a close.  

  Will the day of that all of this has to be dealt with come before Nov 2004, probably not, but the fact that this recovery does not have any of the factors that previous recoveries had, and I repeat, intrest rates going lower, DOW stocks haveing a low P/E, personal savings rates around 10%, real estate coming off a period of slow or even no growth below inflation and so on, is cause for concern.

[JNB]

 If you did not notice, I said I expect 2004 economic numbers to resemble 2002 numbers, slow growth, once the dual stimulus of tax rebates and the home re-fis run their course. That is my prediction, and if you did not notice that a few replays ago, then that is your problem. During things like calling me a coward and throwing in the LOLs is your porblem, not mine.

[JNB]

 My guess, around 2% growth in 2004, job growth 500K to 1 million, unemployment rate 5.8%-6.3%. I have no idea where you come up with job growth figures of up to 4.5 million, not even in the late 90s was job growth that good, not even in the mid 60s when the economy was at its peak in all areas that job growth adjusted for todays numbers was that good.

  There are hopes then there is cold hard reality. Cold hard reality is rooted in facts and history, hopes are based on the best case scenario and peoples dreams. For you numbers to become fact, the re-fi boom needs to be maintained, the intresr rates on long term bonds needs to go down, because as I mentioned on a couple of my posts, much of the business spending is related to housing activity, either on the construction or financial end.

[JNB]

 Must this be a competition? As for the post a few posts back that quotes a bible verse, I myself prefer His Holiness Pope Leo XIII encyclical on economics called Rerum Novarm.

[JNB]

 I stand by what I said, the numbers you put out are what the WSJ and the likes of Kudlow spins, and I stand by what I have said, the problems I have listed. If you are not parroting spin, ok, but to me, it sounds almost identical to a collum Kudlow wrote recently. The serious economists I have read and the people I know who have been invested in 25+ years realise the warning signs of a economy that depends too much on fiscal stimulus, and too little on savings, and I trust these people far more than I trust the hype.

  Bury myself in my own words, are we not laying on a bit thick? I gave my opinion on 2004 twice allready

[JNB]

 You really like talking to yourself in this thread, dont you. Throw in enough fiscal stimulus with a combination of artifically low long term intrest rates due to Japan buying US debt to keep the Yen at depressed levels and China buying US debt to continue its currency peg to the dollar intact, combined with tax cuts that come with spending increases, you get a upward move in the economy.

   The way the economy has been stimulated in the last 3 years can not work forever, a political change in Japan would be enough to throw a wrech in the works as far as intrest rates are concerned. As for Sunshine JMC, I guess as I said before I am a realist, but I guess what passes today as conservatism(as far as the WSJ is concerned) is being blind and happy at what ever GOP propaganda is out there.

[JNB]

  He brought up my name from a post over a hundred posts ago. What I find ironic is those who screem like schoolgirls yelling "Free Market" have been helped by forces that are anything but the free market. From runaway spending by the Bush admin to Asian nations and their currency interventions, the economy is more controlled now that it was in the days of FDR and LBJ.

   In any event, consumers because of the fact their homes have c ontinued to go up in value because of artificlaly low intrest rates will continue to spend. Though, and yes this is off topic, can Bush keep his conservative base intact because of anger over wreckless spending and immigration? Over at Free Republic, a good representation of grass roots conservatism, many are quite angry. But that should be the subject of a new thread.

[JNB]

 You again really like talking to yourself dont you? Before you celebrate, look at the U6 unemployment rate from the BLS, the U6 rate is basiclaly the way Europe calculates its unemployment rate, and it was the way the US tabulated its unemployment rate till the late 80s.

 http://www.bls.gov/news.release/empsit.t12.htm

 In any event, the massive injection of liquidity though the "tax cuts", the massive increases in gov spending and the record number of home re-fis in 2003 did the trick for now.

[JNB]

 Also, it you are the one who made it a contest, again, there is a difference between spouting off the numbers and understanding what is behind the numbers.  In any event, you are a immature twit, like most Neo-Cons are.

[JNB]

  Sadly for me bringing up facts, I am derrided as a "gloom & doomer". The line of though that jmc advocates, saying that those economically dislocated must adapt or be left behind is very simplistic, and politically unworkable. If the GOP alienated all voters except for those who held the views of former Rep. Dick Armey, it would be a very tiny minority indeed.

  One question the Neo-Cons have to ask themselves, why is Bush behind Kerry in the polls at this point? Why despite a imporving economy?

[JNB]

  To most Americans except for the top 15%, how they are doing on the job translates into how well the economy is doing from their point of view. If Bush can not turn this around, the feeling of being uneasy, then his problems will get worse by Nov.

  My own opinion is the Bush admin is lost in a echo chamber convinced the WSJ editorial pages and the Weekly Standard reflect reality.

[JNB]

 The problem is, poltical perception becomes reality. As for overall corporate profits, they still are under their 1997 peak.

  Anyways, at least as things stand now, the Bush admin has a problem, and if 50% of voters feel economically insecure on election day, none of the GDP or profits numbers will help Bush one bit.