AquaVita

http://story.news.yahoo.com/news?tmp...omic_outlook_6


Any thoughts on this?

It's noted that they also said the same thing around 2001 and 2002...but I'm wondering if we really do have a chance at recovery.

phaedrus

Maybe, but as of now there are no indications that the US economy will see a boom. And the risks facing the economy havent gone away...


1. Consumer sentiment fell in May after rising in April. Given that 2/3rds of the US economy is dependent on the loyal consumer who has been spending for the past few years inspite of all the bad news, what the consumer does is critical.

2. Job cuts havent lost pace. While it is a lagging indicator, continuing weakness in the job market might affect consumer sentiment further.

3. Japanese style deflationary spiral doesnt seem to threaten the US economy, but lingering doubts remain. (Recent decline in producer prices a case in point) And monetary pumping by the Fed

4. Although coporate america has undergone great adjustments since the excesses of the stockmarket bubble, there is still lot of extra capacity around, making a sustained investment boom less probable

5. The main concern would the consumer, given that americans traditionally have a VERY low savings rate and are very happy spending tomorrows money today, results in a debt trap that can be only avoided by sustained economic growth, which doesnt seem to be the case now. Credit creates spending power out of nothing. Credit alone can't sustain a growing economy for long. Today's soaring debt load has to be repaid. When most of the debt is used for unproductive purposes like consuming and speculation, it must eventually lead into a debt trap.
Add to this the stupendous trade deficits, doesnt augur well for economic fundmentals.
The fact that the personal income to consumption ratio continues to fall is another indication that the pool of real savings is in trouble. If the consumers get scared, they might start rebuilding their savings, which means less money in the system and will drag down economic growth and profits.

6. And yes, the yet elusive business/capital spending which is a msut for growth. Companies have been able to show profits mainly due to cost cutting, if demand doesnt pick up soon, where will they get their profits from? Rising prosperity and rising living standards do not come from existing factories, but from new factories. It's not productivity that creates wealth. It's investment spending alone and not consumer spending that propels economic growth. The wealth effects of free enterprise have always accrued through the building of factories, not through the stock market or reckless consumer borrowing and spending.

Lets see what happens..............

jp

Kat_Somm_Faen

How long will the senseless drivel about "stumbling recovery" and some such stuff STOP?

Is there no end to the baseless optimism?

I have to say the reasons these guys put forth is really them refusing towake up and smell the roses. Wishfull thinking.

Too bad. They are elitist idelogues and not economists.


And a small matter I would like phaedrus to explain:

"It's not productivity that creates wealth. It's investment spending alone and not consumer spending that propels economic growth."

What is your basis for this? I find this a very untrue and at best, and elitist in its core. Could you expain how is investement spending the only engine for growth? We have seen wave after wave of investment money destroyed. That kind of thinking is the one that leads to this latest Bush tax cut. Its about more investment money. I fear that it only will produce a small bubble where this new money will be left chasing stock market investements without hope for return.

Anyway, consumer spending fueled by lowering rates, housing prices and refinancing boom is THE only thing that has kept this economy afloat so far. What has changed so that we all of a sudden dont need it?

I just need more insight into why do you think investment is the only thing leading to more GDP ie. growth.

phaedrus

What is your basis for this? I find this a very untrue and at best, and elitist in its core. Could you expain how is investement spending the only engine for growth? We have seen wave after wave of investment money destroyed. That kind of thinking is the one that leads to this latest Bush tax cut. Its about more investment money. I fear that it only will produce a small bubble where this new money will be left chasing stock market investements without hope for return.

Umm...what do you think "investment spending" is? And how exactly will increased investment spending create a bubble? (notwithstanding the overcapacity part )

Anyway, consumer spending fueled by lowering rates, housing prices and refinancing boom is THE only thing that has kept this economy afloat so far. What has changed so that we all of a sudden dont need it?

Err...who stated that we dont need that....the problem is "debt trap", for how long will the cycle of lower interest rates and spending continue. Especially when consumers see people around them continue to be jobless? Credit creates spending power out of nothing. Credit alone can't sustain a growing economy for long. Today's soaring debt load has to be repaid. When most of the debt is used for unproductive purposes like consuming and speculation, it must eventually lead into a debt trap.

Business spending is what drives the economy....creating jobs and distributing wealth

Kat_Somm_Faen

Well you are wrong when you say "Business spending is what drives the economy....creating jobs and distributing wealth."

How? Business spending is not aimed at doing any of these things as create jobs and distribute wealth.

Distributing wealth?? HA! How can you explain that during the best of economic times we had we witnessed, at the same time, incredible wealth concentration? A business is meant to create more money that is inputed for the businessman so please explain by which wonder does it serve to "distribute" wealth! I had never seen or heard from a business owner, regardless of size or type of business, that said "I want to distribute wealth." but rather "I want a bigger part of the wealth than I currently have." ie. "I want MORE money." Which part of "moremoney" is distribution?????

Creating jobs? That one eludes me also. By which mechanism does business investment target job creation? Why are we seing further job losses? The point of a business is, again, to make money. Creation of a job ( if any ) is a side benefit. When a bussines invests, do they go around saying "Whoa, look at that new business software! I bet buying it will make us expand our payroll!" or "This new machine will need 4 people to operate instead of 2. I think I will buy it!"? I assure you it is quite the opposite! Business owners invest into products that increase productivity ie. reduce labor and cost not induce it! Therefore we will put to rest your notion that "It's not productivity that creates wealth." I assure you that wealthy people would wholeheartedly disagree with you! Pruductivity is equivalent to efficiency and I would like for any CEO out there to say "Increased productivity does not create wealth." That would be the day!

phaedrus

kat

Well you are wrong when you say "Business spending is what drives the economy....creating jobs and distributing wealth."

I dont want to go over the basics of economics here......


Distributing wealth?? HA! How can you explain that during the best of economic times we had we witnessed, at the same time, incredible wealth concentration? A business is meant to create more money that is inputed for the businessman so please explain by which wonder does it serve to "distribute" wealth! I had never seen or heard from a business owner, regardless of size or type of business, that said "I want to distribute wealth." but rather "I want a bigger part of the wealth than I currently have." ie. "I want MORE money." Which part of "moremoney" is distribution?????

Ummm..No one has the objective of wealth distribution...that is the economic system at work....as individuals and firms try to produce more and sell more, they create jobs and during the times economic growth more jobs are created and pay scales increase and in turn customers are ready to pay more.....that is economy for you. That is how wealth is distributed

Creating jobs? That one eludes me also. By which mechanism does business investment target job creation? Why are we seing further job losses? The point of a business is, again, to make money. Creation of a job ( if any ) is a side benefit.

Yawn...again....read the statement ....it does not say businesses target job creation....it happens coz as they grown they need people. The reason you are seeing job losses is because business spending has reduced and cost rationalization has taken place which means jobs are cut and new jobs are not being created....*obvious*


When a bussines invests, do they go around saying "Whoa, look at that new business software! I bet buying it will make us expand our payroll!" or "This new machine will need 4 people to operate instead of 2. I think I will buy it!"? I assure you it is quite the opposite! Business owners invest into products that increase productivity ie. reduce labor and cost not induce it! Therefore we will put to rest your notion that "It's not productivity that creates wealth." I assure you that wealthy people would wholeheartedly disagree with you! Pruductivity is equivalent to efficiency and I would like for any CEO out there to say "Increased productivity does not create wealth." That would be the day!

Err....just a cursory reading would make it obvious that increased productivity does not create wealth, because it is not creating wealth, it is just making the factories more efficient thereby results in savings for that particular business. Increased productivity will help a firm only to an extent, after a while without an increase in demand, a firm will not be able to earn. Extrapolate that to the whole economy and you will get the picture.

Kat_Somm_Faen

Keep yawning.

A implies B. "Therefore if B than A" is a fallacy. End of story.

Where there are jobs there is investment. True.

Where there is investment there must be jobs. False.

You fail to reconize the impact of technology. You "obviousness" is stuck at some pre-technological level of undestanding economy. I dont blame you - this missunderstanding of economy is deep-rooted in todays economic theory.

"it happens coz as they grown they need people." is blatantly false! It does not neccesarily follow in modern times. Please review and put it into context of a modern human society. Our level of technological development, in particular.

If you fail to see why this is false, I shall demonstrate with ease.
Please do not be dogmatic about your economics.

phaedrus

You seem to be stuck in some sort of self-induced world....dont try to create what others havent stated

A implies B. "Therefore if B than A" is a fallacy. End of story.

Where there are jobs there is investment. True.

Where there is investment there must be jobs. False.

Who stated this?

You fail to reconize the impact of technology. You "obviousness" is stuck at some pre-technological level of undestanding economy. I dont blame you - this missunderstanding of economy is deep-rooted in todays economic theory.

"it happens coz as they grown they need people." is blatantly false! It does not neccesarily follow in modern times. Please review and put it into context of a modern human society. Our level of technological development, in particular.



He He, the ease with which you seem to show your 'knowledge' of economics and ignorance of basic common sense. Technology's impact on the economy and productivity levels is a well-known fact, but till what extent does technology help a company, can a particular firm keep 'investing' in technology and sacking people as it sees them as useless? That would make all the luddites in the world happy.

Simple fact, as demand grows, companies need more people to execute tasks. And today while consumers are spending, companies are able to meet the demand by utilizing existing capacities (and they still have more from the excesses of 90s). The fact the number of people required to do a particular task has reduced due to technology or improved processes doesnt suddenly make the role of a human being (atleast not today) redundant. Technological leaps help us in doing things better, but there is still 'us' who are required to do the job. If companies didnt need people because of technology then IT spending should have been on the rise during the past 3 years of slowdown right? So do you see any increase in IT spending anywhere? Only signs of a sustained economic recovery will result in the CFOs loosening their purse strings and starting to spend. You can always pick up an economics book or do something which will indicate the importance of business spending for any economy.

If you fail to see why this is false, I shall demonstrate with ease.
Please do not be dogmatic about your economics.

Sure you will demonstrate your version of logical sense. Wasnt it voltaire who said "Le sens commun n'est pas si commun"

Gurdur

What has changed is the level of private savings in the USA.
They are now at their lowest level since the Great Depression.

It's not that you don't need it, it's that you can't afford it.

Ruy Lopez

Though I generally lean towards Pheadrus' viewpoint, the US economy can be an enormous puzzle for laymen to figure out. Listening to economists would tend to generate confusion as most of them probably do not have a good idea or have bosses with conflicting interests.

There is a simpler way. Stock markets are arenas where the most astute and financially qualified observers put their "money where their mouth is". Equity markets are easier to read and tend to tell in advance what the economy would do. Just watch the opinions of pundits, market commentators and general public sentiment.

The last survey I heard said that 59% of observers and participants are bullish, 19% bearish and the balance do not know. Here is the truism that I propose:

The higher bullish sentiments are among market participants, the more bearish the market really is. The opposite is also true. Prevalent pessimism and bearishness means the bottom is near..

Sounds nuts and illogical? Definitely not. It is very logical on the contrary. If one understands thoroughly the meaning of this idea, he /she is way ahead of the vast majority of people.

When participants opine that the market will go up, it means that their funds are committed in the market which means there are less funds to buy up the market. When people say the market will fall and most TV commentators are pessimistic and bearish, it means their funds are out of the market and there is a lot of buying power on standby.

There are far too many bulls in market circles at present and too many people hoping and believing their 401K will recover soon. The market has a long way down to go and the US economy will probably see worse times before getting better.