US gubmint shutdown + default + subprime sequel?

[Adrian II]

As omens go, this is one very, very bad news indeed.

The year 1995 only saw a US government shutdown, this time round a debt payment default is a distinct possibility. And on top of the debt ceiling stand-off on the Hill, it seems that the US surprime crisis may be far from over and that more major banks may collapse before the year goes out.

Any wild thoughts on how we can grow our way out of this global credit mess? Cause only growth is going to save us.

AII

[Lemur]

Most businesses like stability. I think that's uncontested. So the best possible solution would be for the administration and the congress to reach as long-term of a deal as possible, showing some sort of roadmap for the next ten years or so. Anything less is going to hamper growth. (I.E., I'm not going to invest in a new bottling machine until I know how it will affect my write-offs. Or I'm not going to open a new extension to my factory. Or I'm not going to make that new round of hires. Etcetera.)

As for the subprime mess, what's to say? The bankers really went nuts using bundled mortgages as financial tools, and the risk was spread so broadly that it seems as though every financial institution is in danger. Still. Having spent eight years working with investment bankers, I can say with confidence that they make the average mafia soldier look like a model of ethical long-term thinking. And yes, the government's involvement with low-end lending didn't help, but that had a fractional impact compared with the bundling and selling of mass mortgages. Who thought that was a good idea? Oh, right, investment bankers. 'Nuff said.

I'm moderately worried. The USA has a long-term debt problem and a short-term growth problem. The most recent jobs report, for example, was negative almost entirely due to shrinking county and state payrolls. Things like that indicate that while cutting government down to a more reasonable size is a good goal, timing is everything. I fear we're looking at 1937 all over again.

[Philippus Flavius Homovallumus]

As omens go, this is one very, very bad news indeed.

The year 1995 only saw a US government shutdown, this time round a debt payment default is a distinct possibility. And on top of the debt ceiling stand-off on the Hill, it seems that the US surprime crisis may be far from over and that more major banks may collapse before the year goes out.

Any wild thoughts on how we can grow our way out of this global credit mess? Cause only growth is going to save us.

AII

Well, if the US dives so will China, not to mention Japan and everywhere in between. In developing countries that will lead to massive unrest, as they've only been forstalling political turmoil by raising living standards. A collapse in the US will hurt Britain, as we are a trading nation that is currently mostly moving other people's money around; if our banks fall access to credit internationally becomes even harder and at that point Germany starts to suffer becasue she has an export economy.

My conclusion is that our living standards will fall nationally, the gap between rich and poor will widen and I blumen' well better finish my PhD and get a Fellowship somewhere before it gets too bad. In a glbal depression the countries who come through best will be those with the most stable political institutions, but recent evidence shows that even the US and Europe have problems in that area that we have only just woken up to and begun to fix.

It's going to be an "interesting" time to be alive, and I suggest all adult males on the forum (re)learn how to iron their trousers and polish their boots.

[Vladimir]

Growth isn't the only way out, but it is the best.

My wild thought on growth is, and will always be, the heavens. No, I don't mean horrible clothing and missionary-style sex; I mean Mars. Since we've lost ideological motivations, people are now focused on themselves. The desires to explore and expand are part of human nature. If people can be convinced that there is a reward for it (e.g. cheap energy) we might be more motivated to build and grow.

As silly as it sounds, exploration and colonization of Mars would lead to advances in solar energy, recycling, composites, and etc.

Growth is the answer but why grow? It's poplar to say that growth and consumerism are bad so why do it?

[Lemur]

Here's a pretty good summary of what will probably happen if congress refuses to re-up the debt ceiling. "Bad" doesn't begin to cover it.

[O]ne thing that can’t be ignored will be the economic shock that will result from the immediate need to cut federal spending by 44%:

• The US government is the largest purchaser of goods and services on planet earth.
• The government buys everything from equipment for cancer research to metal for warships to toothpicks for federal cafeterias. Suppose the governmetn had to cut 44% from its budget on 2 weeks notice? How sharp a shock would that be to the world economy?
• Here’s a comparative. In the worst quarter of 2009, American consumers cut their spending by … not 44%, not even 4.4%, but 1.2%. That 1.2% drop in consumer spending helped tumble the US economy into the worst collapse since the 1930s.
• The US consumer sector is even larger than the federal government sector. But it’s not unimaginably larger. US consumers spend about about $10 trillion a year. The federal government spends about $3.4 trillion.
• If a cut of 1.2% from $10 trillion was an economic shock, a cut of 44% from $3.4 trillion will be a much, much, much bigger shock.

So at the very least we are talking about Recession Part Deux, if not a slide into Depression. Doubtless the aftershocks will be felt around the world. I find it very hard to believe our Congress could be that irresponsible.

[Major Robert Dump]

As long as they don't cancel Jersey Shore and we can still laugh at homeless people, America will be okay

[Vladimir]

I find it very hard to believe our Congress could be that irresponsible.

The problem is that they have been for a very long time, and it was the President who stormed out of the most recent negotiations.

I haven't read your article yet but I assume it's alarmist. Truth is that we have plenty of money to cover our discretionary expenses (social security, debt interest, medicare) so the resulting cuts would be discretionary (this always means military).

Read it.

Thought so; a lawyer from NOVA offering more opinion than news. Yes, there will be pain, which is why I hope all parties involved come to an acceptable solution.

[gaelic cowboy]

I not too sure what the problem is really here Obama says 3-1 cut to taxes and thats usually the way most people like it despite what they tell the news.

Do the Rep people really want to push this when there is a solution on the table, crashing the government is hardly likely to endear them to voters.

[Lemur]

I haven't read your article yet but I assume it's alarmist. [...] Thought so; a lawyer from NOVA offering more opinion than news.

Yeah, the blogger is a lawyer, not sure how that disqualifies him from looking at numbers. Didn't see any reference to NOVA; are you talking about the PBS show or something else?

Furthermore, the bulk of bullet points were cross-referenced from here. Frum is what conservatives used to be, and I rarely find him to be alarmist or hyperbolic.

[Adrian II]

As silly as it sounds, exploration and colonization of Mars would lead to advances in solar energy, recycling, composites, and etc.

And we don't have to wait till we get there, we can start right now.

Sadly, habit is a real bitch. I remember doing an article about a difficult transport project in the Neds some years back. One of the engineers suggested that instead of building bridges and fly-overs and stuff over some soft grounds, they should build a giant tunnel right underneath. You're out of your mind, they all said, it's too costly, we've never even done that. He said: Sure, it's gonna cost ten times the budget we have now, but over the next 25 years anybody in the whole wide world who wants a tunnel underneath a swamp, be they Scottish, Russian or Japanese, is gonna call us. Because nobody has ever done it. And we're gonna make a lot of money.

So they went and build the bridges and crap. And they still went over their budget.

Growth is the answer but why grow?

I think lemur's remarks about investment bankers go some way toward explaining why growth is in disrepute. The article I referred shows a similar reason why. But in the main it's environmentalism and sustainability what did it. They gave us guilt and disinvestment and pandaworship. Oh, and luke-warm soda's.

AII

[TinCow]

Didn't see any reference to NOVA; are you talking about the PBS show or something else?

I believe he's referring to Northern Virginia, which is known as NoVa in the DC area. It is the most prosperous of the three DC areas (the other two being DC proper and southern Maryland). If that is what he is referring to, he is using it as a disparaging term to indicate that the writer is the equivalent of a 'Washington elite' who is (1) a Democrat, (2) overpaid, and (3) so highly educated he's become stupid.

[drone]

I believe he's referring to Northern Virginia, which is known as NoVa in the DC area. It is the most prosperous of the three DC areas (the other two being DC proper and southern Maryland). If that is what he is referring to, he is using it as a disparaging term to indicate that the writer is the equivalent of a 'Washington elite' who is (1) a Democrat, (2) overpaid, and (3) so highly educated he's become stupid.

I thought the overpaid Democrat Washington elites lived in Montgomery County, MD. Virginia (even NoVa) is too red-state for them.

[TinCow]

I thought the overpaid Democrat Washington elites lived in Montgomery County, MD. Virginia (even NoVa) is too red-state for them.

Too Red State? Virginia went for Obama in 2008, and both of its sitting Senators are Democrats. VA has been a swing-state for the last 10 years, largely due to NoVa and the peninsula.

[Xiahou]

And on top of the debt ceiling stand-off on the Hill, it seems that the US surprime crisis may be far from over and that more major banks may collapse before the year goes out.

Here's why the housing market probably won't be getting better any time soon....

It looks like there's still quite a bit of "correction" that needs to happen in real estate prices.

Any wild thoughts on how we can grow our way out of this global credit mess? Cause only growth is going to save us.

I'd say the government needs to stop "helping" so much and take their boot off the neck of our businesses. More regulations under the guise of consumer protections, Dodd-Frank, a healthcare law that reads like mad-libs, threats of energy cost increasing green-house gas regulations.... I mean, even if you think these are well-intentioned, good changes, it should be obvious that increased regulation and it's accompanying uncertainty will slow growth. Maybe under better economic times you could make the case for some of it, but why now? We're strangling an already tepid recovery.

Also, vis-a-vis the debt ceiling negotiations- I really don't think it'd be wise to raise taxes while we're teetering on the edge of a double-dip recession. Again, you might be able to make a case for higher taxes- but not now for crying out loud.

[drone]

Too Red State? Virginia went for Obama in 2008, and both of its sitting Senators are Democrats. VA has been a swing-state for the last 10 years, largely due to NoVa and the peninsula.

Everything is relative. VA is more of an old-school Southern conservative-type state, the reason we have Democrats as Senators is because the GOP put forth idiots (Allen/ Gilmore) against them. And our Dems could never be mistaken for those pinkos from Maryland!

[Vladimir]

I not too sure what the problem is really here Obama says 3-1 cut to taxes and thats usually the way most people like it despite what they tell the news.

Do the Rep people really want to push this when there is a solution on the table, crashing the government is hardly likely to endear them to voters.

"Read my lips. No new taxes." Similar promises have been made and the cuts never happened. That is the danger here. It looks like one side is willing to deal but it's quicker to raise taxes so the other side doesn't have to follow through with cuts.

Yeah, the blogger is a lawyer, not sure how that disqualifies him from looking at numbers. Didn't see any reference to NOVA; are you talking about the PBS show or something else?

Furthermore, the bulk of bullet points were cross-referenced from here. Frum is what conservatives used to be, and I rarely find him to be alarmist or hyperbolic.

Sorry Lemur; making a reference to Northern Virginia. It's that he's echoing the party line and is trying to set a certain mood.

[Vladimir]

I think lemur's remarks about investment bankers go some way toward explaining why growth is in disrepute. The article I referred shows a similar reason why. But in the main it's environmentalism and sustainability what did it. They gave us guilt and disinvestment and pandaworship. Oh, and luke-warm soda's.

AII

Lemur gave an excellent example of how and illustrates what is holding our economy back. I hate thinking this but one of the good things about the polarized past is that it motivated people to build things, regardless of how destructive those things were.

I believe he's referring to Northern Virginia, which is known as NoVa in the DC area. It is the most prosperous of the three DC areas (the other two being DC proper and southern Maryland). If that is what he is referring to, he is using it as a disparaging term to indicate that the writer is the equivalent of a 'Washington elite' who is (1) a Democrat, (2) overpaid, and (3) so highly educated he's become stupid.

Easy there. It's easy to read too deeply into text.

[Centurion1]

I believe he's referring to Northern Virginia, which is known as NoVa in the DC area. It is the most prosperous of the three DC areas (the other two being DC proper and southern Maryland). If that is what he is referring to, he is using it as a disparaging term to indicate that the writer is the equivalent of a 'Washington elite' who is (1) a Democrat, (2) overpaid, and (3) so highly educated he's become stupid.

Hey I live in Southern Maryland and we are one of the few red voting areas of Maryland. We are wealthy simply because of the military. It is a flying navy town and because it is a majority of flyers you know that there are alot of officers who are decntly paid and also because so many test projects are conducted on that base you have tons of engineers. You also have well paid contractors and plenty of lawyers. This creates the nucleus that allows other wealthy social supports like doctors and luxury businesses. As someone else stated when the government makes quick cuts the first thing it does (rather stupidly especially when in a war) is cut the military. People don't realize that war makes this country quite a bit of money and provides a hell of a lot of jobs both unskilled and skilled. If the base shut down where I lived (while unlikely its the most important testing base on the east coast) the entire county would just die and dry up. And that is thousands of high paing jobs as well as low paying millions upon millions of dollars.

also we arent part of the DC area

[Strike For The South]

Good books always come out during these sorts of times

So there's that

[InsaneApache]

If the US goes tits up it;s nucular.

[Greyblades]

...Why? How does depression = nuclear war

[Samurai Waki]

I think he means global economic meltdown...

[Husar]

No, the US will nuke everybody else becuz there the best and if that is about to change they will have to make everybody else worse real quick.

[Major Robert Dump]

Hey I live in Southern Maryland and we are one of the few red voting areas of Maryland. We are wealthy simply because of the military. It is a flying navy town and because it is a majority of flyers you know that there are alot of officers who are decntly paid and also because so many test projects are conducted on that base you have tons of engineers. You also have well paid contractors and plenty of lawyers. This creates the nucleus that allows other wealthy social supports like doctors and luxury businesses. As someone else stated when the government makes quick cuts the first thing it does (rather stupidly especially when in a war) is cut the military. People don't realize that war makes this country quite a bit of money and provides a hell of a lot of jobs both unskilled and skilled. If the base shut down where I lived (while unlikely its the most important testing base on the east coast) the entire county would just die and dry up. And that is thousands of high paing jobs as well as low paying millions upon millions of dollars.

also we arent part of the DC area

The problem with this is that it is all reliant on the government. It has no application to normal business and commerce, because it is neither.

[rory_20_uk]

If the US goes tits up it;s nucular.

Think it through. Suddenly the world's reserve currency is worthless. Why trust the Euro, pound or yen? Best keep liquid assets... erm. What exactly? And who is going to sell it?

If one relatively small institution can cause market paralysis, the biggst one in the world going belly up with uterly destroy the world as we know it.

[Vladimir]

Think it through. Suddenly the world's reserve currency is worthless. Why trust the Euro, pound or yen? Best keep liquid assets... erm. What exactly? And who is going to sell it?

If one relatively small institution can cause market paralysis, the biggst one in the world going belly up with uterly destroy the world as we know it.

That's an excellent point because as of now, no one, not even China, is in a position to take the dollar's place. I'm sure they'll smarten up though.

[rory_20_uk]

If the dollar went, let's not forget the Rinimbi looses about 1 TRILLION dollars of foreign reserves just like that. It also looses the market for most of its manufactured goods. Perversely, the Rinimbi is strong because the dollar is. Until China's economy grows to be much larger internally it is as vunerable as everyone else.

[ELITEofWARMANGINGERYBREADMEN88]

If you can't stay afloat, go under. Simple Business 101.

[rory_20_uk]

Another one is "don't lend to insolvent people".

The whole point of a "free market" is a system where there is multiple redundancy so if one thing goes there are many others to pick up the slack and systems are corrected early. neither of these have happened.

So, a more appropriate adage is: owe the bank £1000, you're in trouble. Owe the bank £10,000,000 the bank is in trouble.

The system has no redundancy and debt has been given to those who have no realistic way of repaying it for too long. But for "natural selection" to take its course would bring down the system all together.

[Samurai Waki]

Maybe investing in gold wasn't such a bad idea after all...