The American economy: keeping track of US economic developments.

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Duplex

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What ever happens to the Irish economy in the coming months/years will happen for a reason, and that reason is the state of the American economy. I've started this thread to try and keep track on developments in US economic developments that may impact Ireland.

This article provides a reasoned explanation for the recent actions of the Federal Reserve and the reaction of the money markets.


http://www.lewrockwell.com/north/north471.html
 
Re: The American Economy

Interesting article. So the assumption is that just as the American economy grinds to a halt with a sickening thud, Bernanke will crank up the printing presses and try tp get the American consumer into overdrive again? Even if this comes at the expense of rampant inflation?

It might prevent a housing crash but it could well be the end of the U.S. dollar.

Given Bernanke's dovish actions this month (pausing despite increasing inflation - which a slowing economy will do little to stop) I am inclined to agree.

I think we will see stagflation. I cannot see how any other outcome is possible.
 
Re: The American Economy

Good Article Duplex

Yeah it kinda ties in with What Bernanke was saying before he became the Fed Chairman - that there is a glut of savings in the World Economy at the mo - Well it sure isnt in the states - except among the very very well off and the Republicans ongoing policy over the last decade hasn't given them much of an incentive to spend it. I cant see the Fed , or any central Bank, for that matter allowing inflation to get much higher than 5-7% or so as the rich hate is as it devalues their holdings and the rich, as we know, control our world - the sop to democracy aside.

I think We are entering uncharted territory here - or maybe we have been here before in the first decades of the last century but there is nobody around who remembers. The concentration of so much wealth in the hands of so few was sooner or later going to have an effect. the Average Joe living in American Suburbia has had it hard for decades now. The average wage has been stagnant in real terms since the mid 70's - it now takes 2,3 or 4 jobs to bring in the same standard of living that the US industrial Wage provided then. The major difference between then and now has been the massive expansion of credit which has temporarily masked over this growing inequality and kept wage inflation in check. But how much credit can the average american take on board?

This is a big big question - and not just the American , but the World economy as currently configured is riding on this. Europe is slowly and I mean slowly coming into some form ,but, apart from the credit crazy paddys , Europeans just don't have the same consumeristic passion for the latest fad and are quite conservative economically . Likewise for all the hoohaa over China it will be a long long time before Chinese consumers have anything approaching the US level of consumption on a mass scale (maybe thats a blessing in disguise )

So What do you think Folks? I have a feeling that in the short to medium term Mr Bernanke in Washington as opposed to Mr Trichet in Frankfurt will make decisions that have far more reaching effects on little Irelands economy
 
That period of stagflation is probably here now.

North makes the point in the article that yield curve inversion should never be ignored as a predictive indicator of recession in the US. This chart makes for interesting viewing.


[broken link removed]

edo I don't know why Bush/The Fed/Corporatist government in the States accrue deficits, inflate, consume and generally behave like its the last hurrah apart maybe because it is.

I see the war in Iraq as an attempt to secure scarce oil supplies; the US retains global reach militarily (its paid a lot of money to do so) it might as well use it I suppose. I think the impact of globalisation has come as more of a shock to the US than they would care to admit especially the rapid emergence of China as a fierce competitor.

Inflate or die? but inflate what?, manufacturing industry that continues to contract? Like you mention incomes growth is static in the US in real terms and has no pricing power. Rock and a hard palce.
 
Re: The American Economy

Guys and Girls,

Since I have been following this forum there have been lots of great articles and comments which have helped to enlighten many of us. Is it possible for some to somehow collect these important posts in one place? As one can see from the other threads the number of posts and views are growing at an exponential rate. It will be difficult for someone tuning into the debate say in a couple of months to read through the entire thread. Just a thought.
 
Re: The American Economy

The worst hit areas of the US slowdown so far seem to be Florida, Nevada and New Mexico. I notice Daft have linked up with an American web site selling Florida condos which might reflect on the difficulty developers are having shifting these things.
Bonita Springs-based WCI Communities said Wednesday that orders for its condominium towers have screeched almost to a halt — and businessmen across Lee County said the residential construction industry as a whole is slowing dramatically.
We are backing down on the tower business, we can't offer the incentives or financially motivate people" to buy, said Jerry Starkey, president and CEO, in a conference call Wednesday on the publicly traded luxury home builder's second-quarter earnings.
For the three months ending June 30, WCI reported a 69.9 percent decrease in net income from the same period last year. Revenues were down 21.1 percent to $529.4 million. Total new orders were down 62.4 percent to $238.4 million, but towers were down 82.6 percent to $57 million — and the number of units ordered fell 88.8 percent to 36.
"The sellers of property are in denial right now that they're not going to lose money on their deals, and they will. The main thrust is the speculators: They have completely disappeared off the face of the Earth."
Condominiums will be the worst hit, as they were in the last downturn in the early '90s, Bonkowski predicted.
Click to expand...
[broken link removed]
 
Re: The American Economy

That is really interesting Duplex

I must keep a closer eye on that kind of thing - As you probably have seen from my previous posts Im pretty much a macro econ , long term overall picture person - but that post was really interesting.

I have a mate of mine who went back to the States 2 years ago - hes a yank - He had been over in here for about 8 years or so - it was time to stop arsing around Europe, go home and get a real life - He did and caught the property bug the moment he went back to San Francisco - spent a half a mill on a 2 bedroom fixer-upper in the Oaklands hills.

I visted him this time last year - fixer upper would be the operative word - man if you ran a truck into the back of it - it would completely collapse and you'd be lucky to get 100 bucks off a scrap merchant for the woodworm eaten remains. But He was convinced that if he did it up and made it a bit respectable he would get his capital plus 50% for it in 2 years. To be honest I was stunned - the location isnt great - yeah sure its got a great view over the bay ,perched as it was precariously on the side of a steep hill - good handbrake on car essential - if not 100% guarantee of at least one homicide within 5 minutes - but it was at least 40 minutes with no traffic to the centre of Oakland - a good hour and half to 2 to San Fran. In previous years this would have been , how shall I put it , on the wrong side of the tracks. You would have got this house for about 50-60 grand in 1995/96 when I lived in the area - yet he had paid 500,000 dollars for same in 2005 and its 2 miles from the San Andreas Fault and The next big one is overdue - Property Fever! - that glint in the eye - fully convinced this was the start of the empire. That said he's gone very quiet recently - must give him a buzz to see how things are going - if Duplex's post is replicating itself all over the lower 48 he could be back writing software manuals sooner than he thinks.

Because salary and wage stagnation is so widespread in the States at the mo and so many people got burned during the Dotcom meltdown they all rushed to throw their money into property with high and unrealistic hopes - kinda like gambling really at the end of the day - and as everybody knows - the house (xuse the pun) always wins - in this case the Banks,financial institutions and large developers.

I'll definitely be keeping an eye on this one for the next while - I've got a feeling this could be a rough one - seeing as US employment figures always underestimate unemployment figures - once your benefit runs out (which is anything from 6 months to 2 years) unless you rejoin the workforce , in the eyes of staticians you just disappear - I would say US rates are closer to 12% - interesting that - In Europe because of the welfare state you never "disappear"(well actually you can - but the option is there) you either go from one to other until retirement age - Maybe M Harney should stop lecturing the Germans and the French about the benefits of US style Capitalism.

The Fed and The Gov are between a rock and hard place on this - The US is as exposed as Ireland to the reprocussions of property slowdown/crash - seeing as they are normally a year or two ahead of us - are we getting a sneak preview?
 
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Re: The American Economy

I posted this in another thread, but it's probably more relevant here.

As we all know, one of the main reasons that Ireland attracted so many US multinationals is due to our low corporate tax regime. They set up office here, declare that they produced X Euro of revenue in Ireland and then pay pretty low tax on this sum of X Euro. I'm sure most people would also imagine that much of the X Euro of revenue declared in Ireland is actually generated in other countries with higher tax rates. Sometimes, especially in software, it's hard to quantify exactly in what location the "value was added" to the products which ultimatly produce the X Euro of revenue.

The US authorities could seriously start forcing these companies to prove that all the revenue they declare in Ireland is actually made in Ireland (and I'm pretty sure it isn't), or at least that the value added to the product/service is taking place in Ireland. They would have to show that they are not just using Ireland to avoid paying their fair share of US corporate tax. Such a scenario is more likely if US tax revenue intakes fall due to a recession there. If the multinationals were forced to admit that some of their revenue should actually be taxed in the US (or any third jurisdiction), then we will have lost one of our key competitive advantages in attracting and keeping these companies.

I gather the US authorities have been looking at a few companies already. Even if they found that there was no US revenue there, they may find that some of the revenue was actually generated in other European countries. I'm sure the German/French/UK tax authorites may then take an interest.
 
Re: The American Economy

i have to agree. With the benefit of hindsight, I think that we will look back upon the second half of Greenspan's tenure as a series of missed opportunities and poor decisions.
 
Re: The American Economy

Isn't a US slowdown part of the playbook for a soft landing in Ireland? Doesn't it go something like this. The US slows down(not a recession mind): US rates have peaked and are now set to decline; This leads to a decline in the dollar: Softening US demand leads to a decline in oil and other commodities: Previous two lead to a decline in euro inflation rates:
Result euro rate rises slow and top out around 4 to 4.5% next year.
result much fabled "soft landing" happens in late 07!
I'm not saying I think it will happen that way, but isn't that the idea?
With all that floating rate debt around THE SINGLE MOST IMPORTANT NUMBER for the Irish economy is the shorterm rate set by the ECB. If W2W's prediction of 8% by 08 were to occur? Jeez!
From an Irish standpoint the worst thing that could happen would be that the Fed is wrong and US growth continues strong! Then, in the face of rising oil and inflation, the Fed would be forced to acknowledge it's mistake and raise rates much higher. Then ECB rates could go much higher.
regards
 
Re: The American Economy

tyoung said:
Isn't a US slowdown part of the playbook for a soft landing in Ireland? Doesn't it go something like this. The US slows down(not a recession mind): US rates have peaked and are now set to decline; This leads to a decline in the dollar: Softening US demand leads to a decline in oil and other commodities: Previous two lead to a decline in euro inflation rates:
Result euro rate rises slow and top out around 4 to 4.5% next year.
result much fabled "soft landing" happens in late 07!
I'm not saying I think it will happen that way, but isn't that the idea?
With all that floating rate debt around THE SINGLE MOST IMPORTANT NUMBER for the Irish economy is the shorterm rate set by the ECB. If W2W's prediction of 8% by 08 were to occur? Jeez!
From an Irish standpoint the worst thing that could happen would be that the Fed is wrong and US growth continues strong! Then, in the face of rising oil and inflation, the Fed would be forced to acknowledge it's mistake and raise rates much higher. Then ECB rates could go much higher.
regards
Click to expand...

I think the soft landing scenario is dependent on a soft landing for the US housing market. The problem is that many Americans have used mortgage equity release to finance their lives since 'emergency' rates were introduced post 9/11, that particular option is disappearing now that HPI has slowed to a stop. Another issue is Japanese, Chinese and Saudi apatite for dollar debt, I read somewhere that the latest offering of 30 year 'T' bills wasn't exactly wolfed down. Whatever happens its the biggest story in town by a long shot and no one in the Irish media is talking about it.

The next shocker might be the $1.5 trillion reset in variable rate and discount rate mortgages that will happen over the next twelve months.

Maybe economic cycles are real?
 
Re: The American Economy

Morgan Stanley's Global Economic Forum is a brilliant (and free) resource. Lots of differing opinions. Today Andy Xie suggests that The Fed have got it wrong. Inflationary pressures are much stronger than current consensus so interest rates will have to go much higher than forcast.
That could be much worse than even a US recession for an interest rate sensitive Irish economy.
Regards
PS can't post link because of pisspoor computer skills
 
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