Tag Archives: economic downturn

Federal Deficit To Reach $1.5 Trillion – Largest Gap In History

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By Lori Montgomery
Washington Post Staff Writer
Wednesday, January 26, 2011; 10:28 AM

The weak economy and fresh tax cuts approved last month will help drive the federal budget deficit to $1.5 trillion this year, the biggest budget gap in history and one of the largest as a share of the economy since World War II, congressional budget analysts said Wednesday.

“Economic developments, and the government’s responses to them, have – of course – had a big impact on the budget,” the Congressional Budget Office said in its semi-annual budget outlook.

“We estimate that if current laws remain unchanged, the budget deficit this year will be close to $1.5 trillion, or 9.8 percent of [gross domestic product]. That would follow deficits of 10 percent of GDP last year and 8.9 percent in the previous year, the three largest deficits since 1945. As a result, debt held by the public will probably jump from 40 percent of GDP at the end of fiscal year 2008 to nearly 70 percent at the end of fiscal year 2011.”

If current laws remain unchanged, the CBO said, budget deficits “would drop markedly over the next few years as a share of output,” averaging 3.6 percent of GDP from 2012 through 2021 and totaling nearly $7 trillion over the decade. However, that projection assumes all the Bush tax cuts will expire in 2012 and that Congress will make other changes to raise taxes — an uncertain bet.

montgomeryl@washpost.com

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The Great, Great, Great Depression – Lawrence W. Reed

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Introduction

By LAWRENCE W. REED | Jan. 1, 1998

Many volumes have been written about the Great Depression of 1929-1941 and its impact on the lives of millions of Americans. Historians, economists and politicians have all combed the wreckage searching for the “black box” that will reveal the cause of the calamity. Sadly, all too many of them decide to abandon their search, finding it easier perhaps to circulate a host of false and harmful conclusions about the events of seven decades ago. Consequently, many people today continue to accept critiques of free-market capitalism that are unjustified and support government policies that are economically destructive.
How bad was the Great Depression? Over the four years from 1929 to 1933, production at the nation’s factories, mines and utilities fell by more than half. People’s real disposable incomes dropped 28 percent. Stock prices collapsed to one-tenth of their pre-crash height. The number of unemployed Americans rose from 1.6 million in 1929 to 12.8 million in 1933. One of every four workers was out of a job at the Depression’s nadir, and ugly rumors of revolt simmered for the first time since the Civil War.
“The terror of the Great Crash has been the failure to explain it,” writes economist Alan Reynolds. “People were left with the feeling that massive economic contractions could occur at any moment, without warning, without cause. That fear has been exploited ever since as the major justification for virtually unlimited federal intervention in economic affairs.”[1]
Old myths never die; they just keep showing up in economics and political science textbooks. With only an occasional exception, it is there you will find what may be the 20th century’s greatest myth: Capitalism and the free-market economy were responsible for the Great Depression, and only government intervention brought about America’s economic recovery.View Source

Chapters:

A Modern Fairy Tale
The Great, Great, Great Depression
Phase I: The Business Cycle
Central Planners Fail At Monetary Policy
The Bottom Drops Out
Buddy Can You Spare $40 Million?
Phase II: The Disintegration of the World Economy
The Greatest Spending Administration In All Of History
You Tax Me, I Tax You
Free Markets or Free Lunches?
Phase III: The New Deal
Nothing To Fear But Fear Itself
New Dealing From The Bottom Of The Deck
Blue Eagles, Red Ducks
The Alphabet Commissars
An Astonishing Rabble of Impudent Nobodies
Signs Of Life
Phase IV: The Wagner Act
An Unfriendly Climate For Business
Whither Free Enterprise
Postscript: Have We Learned Our Lessons?

A Crash is Coming…

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by Alex Panameno

With the Dow holding above 10,000, investors are beginning to feel more comfortable.

The question is… Is it real or smoke and mirrors?

Let’s take a look at the facts:

Stocks Are Mathematically Over Bought, now trading at approximately 24 times adjusted earnings. The fair value ratio is 16; a clear indication the enter Dow Index is too high.

Inflation and Deflation, indicators are pointing to a deep recession. We are seeing lower prices, better known as deflation in all the wrong sectors. Such as, investment and saving accounts, luxury goods, company revenues and wages. While inflation is rising in food-based commodities, food prices are rising at an alarming rate.

Neck Deep in Debt: The Federal Reserve, Obama and the Treasury Department are creating more debt, all in the effort to keep the U.S. economy from crashing. The scary point that must be made is, China and other overseas buyers of our debt… Just don’t want it any more. We’re having to buy back our own T-Bonds, that go unsold at every auction.

Real Unemployment continues to rise, we all know government reported data leaves out key sectors, such as people who exhaust their claims, part time workers in search of full time work, independent contractors etc. Unfortunately, the trend is not going to stop; U. S. manufacturers simply can’t compete with china’s cost of manufacturing. Every day more and more companies are forced to outsource to stay competitive in the market place.

Housing Market continues to drop; prices are falling due to excess inventories of foreclosures. Tight credit and restrictions by lenders are squeezing the life out of any recovery. What’s rarely talked about, is the “shadow” inventory; banks are holding on to properties, because releasing them would drown the housing market. Homeowners are now able to stay in their home for over 2 years, without an actual foreclosure and without making a single payment. Auction dates are simply pushed forward.

Failing Banking System, the FDIC website reveals an alarming trend, 2-7 banks fail every week. Mainstream media refuses to report the data.

Americans are suffering, wages are dropping along with quality of life. Personal bankruptcies are 29% higher than last year. Its gets worse… over 36 million American’s, that’s 1 in 8 American’s, now receive food stamps.

Yet, Obama and his wife spend our Tax money on lavish vacations. We’ve even paid for “Bo” (the Obama family dog) to fly in his own private plane to meet the Obama’s in their Maine vacation.

Print more money and create more debt, seems to be the answer to all of our troubles.

With all of the above said, why is the stock market holding above 10,000?

Smoke and Mirrors… It simply won’t hold for too long.

You see, companies’ forecasted “less than positive” earnings. Coincidently, earnings came in better than expected and stocks rallied.

If life was that simple!

Companies were able to squeeze out a profit, because they cut jobs, wages, spending and employee hours.

The recovery and the Dow above 10,000 is not real; it won’t last too long.

We’re walking into Sept, October and November, historically the worst time of the year for the stock market.

It’s not a coincidence that the collapse of 1987, 2008, and 1929 happened the same time every year. The key month being OCTOBER.

Ever heard of the term BLACK OCTOBER?

There’s a lengthy detailed reason, as to why and how this down trend takes place at the same time of the year.

It all has to do with the financial industry’s fiscal year end and the balancing of “books” by money, pension and fund managers.

With all of the “financial reform”,… This year will be the year of all years!

Major financial institutions like J.P. Morgan, Goldman Sachs and Deutsche Bank will have to unwind options they hold, on open stock positions.

It’s going to get really ugly, real fast.

It’s still time to rethink what your holding and look for investment vehicles that profit in economic turmoil.

Not to mention, voice your opinion about “too big to fail” institutions all the handouts/ bailouts Obama gives away.
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Recovery in danger as firms, homebuyers cut back

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By DAN WAGNER and ALAN ZIBEL
Wednesday, August 25, 2010

WASHINGTON — The economic recovery appears to be stalling as companies cut back last month on their investments in equipment and machines and Americans bought new homes at the weakest pace in decades.

Overall orders for big-ticket manufactured goods increased 0.3 percent in July, the Commerce Department said Wednesday. But that was only because of a 76 percent jump in demand for commercial aircraft.

Taking out the volatile transportation category, orders for durable goods fell at the steepest rate since January. And business orders for capital goods took their sharpest drop since January 2009, when the economy was stuck in the deepest recession in decades.

Separately, Commerce said new home sales fell 12.4 percent in July from a month earlier to a seasonally adjusted annual sales pace of 276,600. That was the slowest pace on records dating back to 1963. Collectively, the past three months have been the worst on record for new home sales.

The weak sales mean fewer jobs in the construction industry, which normally powers economic recoveries. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes, according to the National Association of Home Builders.

The two reports are likely to stoke fears that the economy is on the verge of slipping back into a recession. They follow Tuesday’s report that showed sales of previously owned homes fell last month to the lowest level in decades. Unemployment remains near double digits and job growth in the private sector is slowing.

“The rebound in manufacturing was one of the bright spots in an otherwise disappointing recovery,” said Paul Ashworth, senior U.S. economist at Capital Economics. “Take it away, throw in a relapse in housing, and you don’t have much left.”

Factory orders are a key measure of the economic recovery. Manufacturers have helped to lead the rebound. They filled orders for businesses that were building up stocks after whittling them down during the recession.

But many companies are done restocking, cooling demand for factory goods.

Demand for durable goods has mostly risen in recent months. Orders are 15.6 percent higher than they were a year ago. Excluding transportation, demand has increased in all but two months this year.

Overall orders in June declined by a revised 1.0 percent. But excluding transportation, orders rose 0.2 percent. Spending by businesses increased 3.6 percent that month – a rare bright spot.

Durable goods are expected to last three years or more. The full survey of factory orders will be released next week.

Housing has never fully recovered from the recession. Builders have been forced to compete with foreclosed properties offered at significantly lower prices.

New home sales made up only about 7 percent of the housing market last year. That’s down from about 15 percent before the bust.

The industry received a boost this spring when the government offered tax credits to homebuyers. But since they expired in April, the number of people looking to buy homes has dropped, even with bargain prices and the lowest mortgage rates in decades available.

More than 600,000 new homes were sold annually from 1983 through 2007. After the housing bubble popped, sales plunged to 375,000 last year. That was the weakest yearly total on record.

Builders have sharply scaled back construction in the face of weak sales. The number of new homes up for sale at the end of July was unchanged at 210,000, the lowest level in about 40 years.

Due to the sluggish sales pace, it would still take more than nine months to exhaust that supply, above a healthy level of about six months.

New home sales were down nationwide. They fell by more than 25 percent from a month earlier in the West, 14 percent in the Northeast, 9 percent in the South and 8 percent in the Midwest.

The median sales price in July was $204,000. That was down 4.8 percent from a year earlier and down 6 percent from June.

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