Sunday, March 1, 2009

Outline of Events-Economic Collapse "2009"

The Liar’s Poker
Where did America’s Economy Go?

I. Intro

II. Order of Issues—aka. How do you balance a checkbook?
-what are the key items that determine the value of the US Dollar?

A. Wealth Inequality

(note: I used the figures that i found from 1994 for this data: seeking citation; 95% of Americans own less than 1% of it’s collective wealth? 1994 census figures )
-if the collective net worth of the U.S. $60 Trillion (see World Factbook) and in 2004, 28.7% of it is owned by 90% of America (roughly under 300 million people), then that amount would be under $14 trillion shared between $300 million people.
(I'm sorry these are ballpark figures)

I'm using 2001 figures to get an estimate of what amount of the assets are in real estate.

So in 2001, over $8.2155 Trillion of these assets were held in Real Estate. This is probably going to be a floating value due to the volatility created by derivative backed ARM loans and low interest rates.

So there's maybe less than $5 trillion left for food, gas (@ $3-4.00/gallon), interest payables and debt for most people.

In 2004, the trade deficit was around $667 billion. Who knows how much we lost through offshoring jobs. Between 300 million people, $700 billion could equal $2300/each person plus a multiplier effect and opportunity costs. The information provided for offshoring production and labor are rather vague.

$700 billion is a lot of mortgages, a lot of salaries, income and sales taxes and savings.

-We cannot support the economic growth of China, which has 1 billion people in it.
-The 95% of Americans with less than $1 trillion is getting killed with a $700 billion deficit.

B. Trade Deficit- imbalance of Current Account (China, Saudi Arabia, Japan)
-NAFTA signed with China during Clinton Administration
-dot com profits cannot replace all of the wealth that is leaving the country.
1. Bureaucracies killing capitalism
a. monopolization, bribes
b. government favoring bureaucracy for bribes
a. bad fiscal management
b. bad legislation
c. badly enforced legislation that would otherwise be useful
d. use of Federal Reserve- interest rates & printing money
c. Consumers buy foreign goods to avoid interruptions in local market (which results in gouging- see auto industry)
d. Most current trade deficit occurs because of China’s protectionism against the US.
a. Enforced through high import tariffs and Yuan valuations
e. $700 Billion (appx) plus interest
a. This is the same amt as the bailout, the electronic run on the banks were roughly $550 billion, and this is exactly how much the US owes China.
f. Offshoring- Eliminates competition (goes against free market capital practice of companies competing for labor).

C. Federal Deficit- TREASONOUS
-too vulnerable to China (threatened to crash US Dollar)
A. War in Iraq (see Halliburton)
B. Bailout taxpayer theft garbage
C. Stimulus
D. Omnibus/Earmark krap
E. Growing demands ie. Boomers
D. Credit-necessary for the economy because of the wealth inequality and the trade deficit.
A. Standard credit (credit cards, auto loans, standard mortgages), marginal increase in demand.
B. Deregulation & the Aftermath-masked wealth leaving the U.S.

-Leach, Graham & Bliley Act was passed in 1998 to remove the Glass Steagall Act of 1933.
-derivatives were created to supply non-bank lenders with money for ARM loans (subprime lending)
-Derivatives were never regulated by the SEC. There was no government backed agency that regulated the trade of derivatives.

-Derivatives were supposed to be backed by bonds, many ($Quadrillion sum) traded without being backed by bonds…aka. “toxic paper”.
-they are really just an arbitrary agreement or money transfer between two parties.
-decreased margins for speculators, inflated real estate bubble post dot com crash with lowered interest rates.
-CRA effects are MARGINAL. This is racist scapegoating (see discrimination in bad economies).

E. Employment – also OUTSOURCING (McKinsey)
i. anticompetitive behavior in the market
ii. factory workers replaced by real estate agents and workers in the service sector
iii. real wages decline due to market factors
iv. constant market changes without innovation/real wealth creation since dot com
v. Public employment
vi. Opportunity costs
vii. Unions (costly)
Purchasing power—affected by labor market
Lack of savings (and 401k/IRA/529k plans)
Forced to use credit
Can’t afford health care
ECONOMY CAN’T SUPPORT HUMAN CAPITAL (see wealth and income inequality).

F. Real Estate—Cost of Living Index
1. Printing money, it’s supposed to be 3% in a year.
2. Vicious R/E cycle… (aka. GOUGING!)
-ARM loans + Speculators + Equity loans = HOUSING BUBBLE
increased demand and prices
-Housing Bubble + Lower real wages = unaffordable real estate
-Unaffordable housing = renters or those who are forced to get ARM loans to have a house to live in.
***Puts $$ in pockets of derivative investors.
3. Gas prices- oil companies/OPEC/international speculators/China+India increasing demand because both countries have a billion people each.
***Bailout should be for PRIMARY OWNERS who got killed in the volatility***
***Cost of living index for housing was WAY too high. In SD it was over 200. in SF it was almost 300. In NYC it was 400. The standard is.
-the states with the lowest cost of living index experienced the lowest rate of foreclosures (ie. Lousiana)
What’s wrong with speculating in real esatate:
***THERE IS NO GUARANTEED LIQUIDITY IN REAL ESTATE EXCEPT FORECLOSURE (or insurance payout).***(there is no regulatory agency for real estate investment, even as a commodity)
***Realtors are known for and guilty of pump n dump, ponzi scheming market manipulation.
-They speculated in real estate to inflate demand/price
See HUD database. They have a listing of who foreclosed, whether or not it’s a primary/secondary residence, what the owner’s ethnicity/race is & what the owner’s occupation is.
-They get higher commissions for selling more expensive homes.
-Compliance Technologies studies prove that 72% of subprime borrowers are Caucasian. (many are speculators)
-People in the Real Estate/mortgage lending Business had higher incentives to hand out bad loans.

III. Remedies

A. What exactly is the problem? Where is the bottom line? (deficit, energy is an opportunity cost)
-WHY is this happening?

B. BAILOUT=BAD. (politicians disconnect with the American people)
Feinstein said that 95% of Americans opposed the bailout, yet Congress approved it. Both Obama and McCain did.
Congress approved of TARP without an independent audit. ??? That was DUMB!
“All government needed to do was to suspend the mark-to-market rule. This simple act would have removed the solvency threat to financial institutions by allowing them to keep the derivatives at book value until financial institutions could ascertain their true values and write them down over time.”
Paul Craig Roberts, How the Economy was Lost

other solutions
-allow the shareholders sue. BOD can force CEO resignation/management changes, etc.
-allow the banks to fail, let the competition take the business.

1. If the value of the dollar was declining, what gave these forecasters any inclination that the economy was strong? By the derivative inflated GDP? Who did the economic forecasting? What were they smoking?
2. What business models did they use? What info & method did they use to determine inventory? How did they end up with so many inventories?
3. What were the financial engineers smoking when they created the toxic derivatives? Whatever they were smoking when they created the synthetic derivatives is preferable.
4. The lenders knew they were screwing themselves in the end. Exactly why did they keep doing this?
5. We need complete transparency on TARP. We get nothing.
THE TAXPAYERS OWE THE BANKS NOTHING. THIS IS LEGALIZED THEFT. Somebody needs to get a hold of the toxic paper and toss them into the water if the Tea Party is done right.

Why the Stimulus will work well in China and not America
China has a trade surplus. America has a trade deficit.
The idea of a stimulus is a Keynesian one. Keynesians argues against free capitalist market economies because it’s effects are too slow. However, many people don’t fully understand Keynesians because it was Keynes himself who said that a stimulus can’t work when there’s a trade deficit.

Other issues with the stimulus:
We should only buy American. Jobs created by the stimulus should be kept in the country.

Or can you? (the real reason why American mortgage borrowers don’t mind inflation). Hmmmm…

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