The Economy – please help me understand what I am missing

On the news I hear commentators and administration officials saying the economy is showing signs of stabilization and, in some cases, growth. Several notable economists (Krugman, Roubini) point to the US being pulled back from the bring of the second great depression and, while warning of a possible second dip in the recession, feel the US is on the slow road to recovery.

I am not a U of Chicago economic scholar, I am not an investor (beyond my 401K) and I claim to have no superior understanding of global economics and the intricacies that guide the direction policy makers, but reality does not appear to match what is being said.

Bernanke says:

“From a technical perspective, the recession is very likely over at this point,” Bernanke said in responding to questions at the Brookings Institution. “It’s still going to feel like a very weak economy for some time because many people will still find that their job security and their employment status is not what they wish it was.”

However, the GDP shrank last quarter and has shrunk for 4 consecutive quarters. Seeing that the generally accepted definition of a recession is two quarters of negative growth, how does Bernanke say the recession is over?

From a data perspective it is very scary to me:

• Hotel occupancy is down to 14.6% year over year
  
• Jobs continue to be lost and unemployment is up to 9.8% - 17% if one looks at under employment / eligible workers that gave up looking (yes, it's a lagging indicator but still worth nothing)
  
• Retail expects sales to be flat to down this holiday season
  
• Auto sales are back down to early 2009 sales numbers now that the bubble called “cash for clunkers is over”, only showing there is no demand
  
• Business, tracked by the regional feds, contracted in Chicago and Dallas
  
• Factory order were less than expected
  
• Yields on Treasury notes are narrowing and credit is still contracting
  

I am not suggesting there is a huge conspiracy under way, though there very well may be one, but I sincerely want the perspective of ATS to help me understand if I am missing / misreading the economic conditions in the United States. If I am not misreading the data what do you feel is going on?

It seems as if everyone is saying “Everything will be OK...” when I simply need to look at the information available to see that, no, it won't.

Where am I wrong?

No You are seeing things clearly, but the talking heads on TV are the ones lying to you.

General Electric (GE) owns CNBC & MSNBC as well as the rest of the NBC affiliates. Source

The TV talking heads are paid to shill as they are scripted.

Bernanke is so stuck on his thesis of "Deflation, it won't happen here" that he will never openly admit that his pogrom is failing.

Our economy is in the crapper. That's reality. While many in the .gov & the FED & the banksters keep trying to play simultaneous games of kick the can & hide the toxic sausage, the average joe is trying to figure out how to survive and keep food on the table as more and more jobs vanish.

This will not end well.

I REALLY wish someone would put Bernenke half under the bus,a nd threaten to lay him off too...see how he feels saying thsoe words in the above box...what a cheater and liar of thier ever was one.

Originally posted by redhatty
No You are seeing things clearly, but the talking heads on TV are the ones lying to you.

General Electric (GE) owns CNBC & MSNBC as well as the rest of the NBC affiliates. Source

The TV talking heads are paid to shill as they are scripted.

Bernanke is so stuck on his thesis of "Deflation, it won't happen here" that he will never openly admit that his pogrom is failing.

Our economy is in the crapper. That's reality. While many in the .gov & the FED & the banksters keep trying to play simultaneous games of kick the can & hide the toxic sausage, the average joe is trying to figure out how to survive and keep food on the table as more and more jobs vanish.

This will not end well.

I've been aware that the talking heads are shilling / pay for play when it comes to interviewing and their picks.... I guess I'm surprised to see some noted economists saying "all is not well, but it's ok".

So, I'll take it that I'm not the only one who is reading this and thinking "hmmm...yea, we are screwed".

If we assume that things are flat to getting worse where is it the US economy goes from here?

Yes, you are seeing the picture clearly. Don't under-estimate consumer confidence. While ever the situation is being "talked up" people will feel safe and continue to spend. The flip side would be real ugly.

Cash runs on banks anyone?

I will try to give you the most concise answer I can:

The economy is a psychological concept. That's why they call it a depression. Money does not exist except in your mind (and the mind of everybody of course). If they tell you the economy is bad then you get scared and stop buying. Factories stop to produce because nobody buys. Then people lose jobs because factories can't pay them. It's a vicious circle with no end.

To have a good economy you need happy people, and right now Americans are not happy.

Disneyland is collapsing but if they told you that, it would collapse even faster. Let the big dogs get their capital out while you enjoy one last ride in Space Mountain.

The Fed has worked its magic to make it look like the numbers are fine, but the people people don't believe it

Originally posted by HangingWithMrCrowley
Well i am not an expert either but that wont stop me from adding my 2 cents. A large part of the economy boils down to individual perception. So it is important to give people a feeling that things are getting better with the hopes that it will get them to start buying things, which will then stimulate the economy. I think things are desperate enough that the government will try to convince you things are getting better at the slightest signs of improvement or even the slightest signs of less decay.

I see the need to do this and dont really faultt them for it. Also, it seems that things improve and then decline in this economy, so its like shooting at a moving target.

Good point there is the perception is reality aspect....and yes, I agree that it's a moving target. There are so many parts, all linked together, it is nearly impossible to say what is going to happen tomorrow let alone 3 months from now but what we are looking at sure seems to point to 3 months from now not being good.

Let me ask you this (it just popped into mind) - while trying to trumpet positive developments in the economy can help perception can (or should) we allow them to lie? Essentially that is what Bernanke is doing, isn't it?

Originally posted by townio
I will try to give you the most concise answer I can:

The economy is a psychological concept. That's why they call it a depression. Money does not exist except in your mind (and the mind of everybody of course). If they tell you the economy is bad then you get scared and stop buying. Factories stop to produce because nobody buys. Then people lose jobs because factories can't pay them. It's a vicious circle with no end.

To have a good economy you need happy people, and right now Americans are not happy.

Outstanding answer, townio.

Hehe thanks.
It's a bit more complex than that but that's the basic mechanism.
I think things will be fine over the next year because economy is tied to geopolitics and nobody wants to get the US mad. However, there will come a time for reassessment of global capital investment and when that day comes you can expect a big blow to the US economy. Investors will be looking at BRICs for money rather than the US, and the days of easy credit will be over.
I think 2012 will be a critical date, partly because I'm a Maya prophecy fanatic , but it will also be the end of Barack "The Pushover" Obama's mandate and the US might be on its knees by then.

Well, the economy is driven somewhat by peoples psychology no doubt - but the problem is people, businesses and the government are in so much debt at this point, or without income, their capability to spend more is severely limited even if they want to.

This is why all the cheer leading in the world will ultimately fail, the only thing that will end this is when the excess debt in the system has been removed. That will be very painful and the worst is yet to come. Hardly any of the consumer and commercial debt has been removed, and a ton of new government debt has been added - so actually we are worse off than when this all began. We are still at the highest level of debt to gdp in our history and it needs to be cut in half to get back to historical norms. Until this happens there will be no true recovery.

This will take years, so any time you hear someone within the next few months say we are in recovery you should know they are either lying or incompetent.

reply to post by tk1967


Should we allow them to lie? Well, here's the rub...

Every single one of our TV channels is viewable all over the world these days. Do we want the rest of the world to hear how bad it really is?

All the pump-monkey garbage on the tellie has kept foreign countries buying our debt for a lot longer than the truth would have.

We are in an unsustainable situation. The amount of debt is too large to be seviced, yet they keep creating more.

People have lost the wealth they thought they had, in their homes & credit cards.

no jobs = no tax income for the .gov

no job = less gas use = less gas tax revenue for the .gov

So now the .gov is forced to pull forward even more to finance today. It's borrowing from 10 yrs in the future to pay today's bills.

This is not sustainable.

As to what happens next, I have my personal thoughts, but let me sum it up in saying, "Why is it so hot in here & what am I doing in this handbasket?"

reply to post by tk1967


All you have to consider is that none of these people saw this coming.

For all of their experience, education and networking, none of them predicted that this was going to happen.

This means one of three things:
1. they cannot be trusted and make decisions based on personal interests rather than public.
2. they are incapable, irresponsible, unqualified, not up to the job.
3. all of the above.

Personally, I think it's option 3 we're looking at here.

The American media is told what to say. They admit that they get data and information handed to them, they practice zero investigative reporting.
The BBC is the same.

We live in a "News culture" now operating as nothing but a mouthpiece for those with political or financial power, this is better known as Propaganda. They'll tell you what they want you to know, or what they need you to think.

People know this deep down, but they still tune in every day, they still accept it as "truth" and "fact" when we can clearly see that it isn't.

The solution?
TURN OFF THE BLOODY NEWS!

Stop giving them the oxygen they need. Show them that being told what the truth is without any investigation is not acceptable to you.

Unfortunately, I know this won't happen. People are mindless and require leadership to tell them that everything is okay, or that it isn't. Depending on their required "public perception".

Just turn off the TV. It will do you no good anymore since you think for yourself now.



[edit on 4-10-2009 by Copernicus]

A lot of the answers you have received are hitting the point. All I would add is that, something can only go down so far and has to bottom out. They just trying to be positive.
With 15Million Jobless(That number could be as high as 20Million) it is a state of mind to a large degree, But one important thing you have to remember is our Monetary system.

What I mean by this is that we’ve created a very complex system of how we can raise cash, and one of those is banks loaning money against assets on their books. I.e your House. So if your house is worth $100,000 our man made system says that the bank can raise about a $1Million against your house. Well when they ran out of “good” house mortgages, they started using “poorer” grade mortgages like the “Balloon” ones where people could not really afford the house in the first place. When the Balloon increase became due, tens of thousands of these began defaulting.

With the banks already maxed out on being able to raise more loans(Money) to give to you and me and businesses, then with some of their Underlying ‘security’ collapsing. They could no longer raise any more cash to give to people and hence your “crash”

Because all these entities are listed on the stock exchange their share price devalues and it makes the whole situation even worst.

Why –well we made up this system and when we introduced the word Inflation, we can’t just go print more money and place it in circulation without having an asset to back up the cash. Gold was used a long way back, but it limited “Business’ from growing as we had to have Physical Gold in a safe to back up the cash we printing.

Think about this. If the Gov froze all pricing on goods at their current levels. Housing, food gas, clothing, travel, hotel costs, car prices, etc etc. and electronically transferred a $1Million dollar into every Americans bank account. The problem would be solved.

The recession coming to an end is different then the economy is over. Signs that the economy is improving does not mean everything is hunky dory.

As I always say, this isn't a thermometer with good on one end and bad on the other that goes up and down. It is far more complex. But when several factors start showing improvement, then they know the ball is rolling.

it is like several games of falling dominoes going on at once, one has to fall to knock over another.

Unemployment is going to be high for awhile. Jobs won't make a come back till next year. It is just how it works. The machine has to roll again before it can hire people. Can't hire people till you have security and money.

One of the big signs they are reporting recently is in increase of manufacturing.

The layoffs are declining.
A big indicator is copper, which is used for building, is slowly climbing.
Oil has stabilized.

A lot of things have been increasing in the stockmarket since april 09. John Deere, catepillar, etc.

If you really want an indicator that the economy has turned around, and I don't expect this till next year, watch jewelry sales.

Originally posted by townio

It's a bit more complex than that but that's the basic mechanism.
I think things will be fine over the next year because economy is tied to geopolitics and nobody wants to get the US mad. However, there will come a time for reassessment of global capital investment and when that day comes you can expect a big blow to the US economy. Investors will be looking at BRICs for money rather than the US, and the days of easy credit will be over.
I think 2012 will be a critical date, partly because I'm a Maya prophecy fanatic

, but it will also be the end of Barack "The Pushover" Obama's mandate and the US might be on its knees by then.

The geopolitical tie is important as well. If a large event takes place now (or within the next 6 months) I think the issues facing the economy would accelerate much quicker....

Originally posted by redhatty
reply to post by tk1967

 

Should we allow them to lie? Well, here's the rub...

Every single one of our TV channels is viewable all over the world these days. Do we want the rest of the world to hear how bad it really is?

All the pump-monkey garbage on the tellie has kept foreign countries buying our debt for a lot longer than the truth would have.

We are in an unsustainable situation. The amount of debt is too large to be seviced, yet they keep creating more.

People have lost the wealth they thought they had, in their homes & credit cards.

no jobs = no tax income for the .gov

no job = less gas use = less gas tax revenue for the .gov

So now the .gov is forced to pull forward even more to finance today. It's borrowing from 10 yrs in the future to pay today's bills.

This is not sustainable.

As to what happens next, I have my personal thoughts, but let me sum it up in saying, "Why is it so hot in here & what am I doing in this handbasket?"

LOL!

I didn't even think about it from a global perspective. The psychological impact in the US is one thing, but the rest of the world is also listening.

Originally posted by detachedindividual
reply to post by tk1967

 

All you have to consider is that none of these people saw this coming.

For all of their experience, education and networking, none of them predicted that this was going to happen.

This means one of three things:
1. they cannot be trusted and make decisions based on personal interests rather than public.
2. they are incapable, irresponsible, unqualified, not up to the job.
3. all of the above.

Personally, I think it's option 3 we're looking at here.

When I take that view and apply it to the news / talking heads, I would agree. When I take some of the economists who said "trouble ahead" back a few years that are now saying "we are getting better" that is what makes me ask the question....

That said, I do agree with you about the press and how people simply take it as truth without questioning.

Originally posted by nixie_nox
The recession coming to an end is different then the economy is over. Signs that the economy is improving does not mean everything is hunky dory.

...

One of the big signs they are reporting recently is in increase of manufacturing.

...

A lot of things have been increasing in the stockmarket since april 09. John Deere, catepillar, etc.

If you really want an indicator that the economy has turned around, and I don't expect this till next year, watch jewelry sales.

No, I don't think the economy is over - I just things are significantly worse that is being said.

Can you point of some other things that are growing? Here is why I ask. The increase of manufacturing seems to be VERY sporadic from region to region (or simply contradictory). Sure, the PMI measure was above 50%, as noted here, but the 'growth' isn't what was expected.

On another note, I don't really look at the stock market as an indicator of the economy. (different discussion for a different time).

Cheers.