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08-06-2010, 06:36 AM   #1
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how's that trickle down working for you?

The fear economy: 'Unusual uncertainty' drags on recovery - Jul. 27, 2010
QuoteQuote:
For example, companies are turning in healthy profits, and are sitting on a record-breaking pile of cash -- nearly $1 trillion and growing.

But businesses are reluctant to add jobs or make big investments.

"Companies remain nervous about the economy, their costs, and their products -- not an environment that encourages spending and commitment," said Howard Silverblatt, a senior index analyst with S&P.

Debt problems in Europe and fear of a slowdown in China are just two reasons. And while U.S. inflation is tame, now more economists fear deflation, where falling prices leave businesses worried about whether they'll be able make profits, leading to a downward spiral in staffing and investment.

"Businesses look at the chaotic and uncertain world, I don't think it's all surprising they sit on cash," said Allen Sinai, chief global economist for Decision Economics.

Businesses also are rightly worried about consumers keeping their wallets closed. People are saving more and paying off debt, and while that sounds like a virtuous thing, it could also choke off economic growth. Retail sales, which had shown signs of life earlier in the year, have fallen in the past two months.

"Consumers are clearly worried about the lack job growth and even more about the lack of income growth," said Ken Goldstein, economist with the Conference Board, the business research group.

Stagnating incomes and high unemployment are also problems for state and local governments, which are forced to slash staff and services because of declining tax revenues. They have cut almost 100,000 jobs this year, with deeper cuts expected.
QuoteQuote:
- Shrinking the federal government, possibly including the number of departments. The federal apparatus, he says, is the only major business that has not gone through a "major restructuring" of the type big corporations have accomplished.

- Imposing a tiny tax on financial transactions, such as stock and mutual fund sales and purchases. Depending on details, this could raise US$100 billion a year. According to his computerized model of the economy, such a tax would have only a minimal dampening effect on the economy.

- Using these extra revenues to trim the Social Security tax on payrolls. This, Sinai maintains, would encourage business to hire new employees. By shrinking the number of jobless, it would revive the economy in a way that would gradually boost revenues to offset the lost revenues.

- Ending the "carried interest" tax loophole that enables hedge funds to characterize earnings as low-taxed capital gains rather than regular income. It would raise another US$25 billion to US$40 billion a year.

These suggestions would thread the policy needle: cutting spending without sacrificing growth, says Sinai, whose 1,000-equation model of the economy predicted in 2006 the bursting of the housing bubble and also forecast the Great Recession and subsequent revival.
Boost jobs or cut the deficit? U.S. can do both - Taiwan News Online

08-09-2010, 04:30 AM   #2
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Who cares how the rich spend their money?



Well, perhaps everyone should these days. Consumer spending accounts for roughly two-thirds of U.S. gross domestic product, or the value of all goods and services produced in the nation. And spending by the rich now accounts for the largest share of consumer outlays in at least 20 years.

According to new research from Moody's Analytics, the top 5% of Americans by income account for 37% of all consumer outlays. Outlays include consumer spending, interest payments on installment debt and transfer payments.

By contrast, the bottom 80% by income account for 39.5% of all consumer outlays.

It is no surprise, of course, that the rich spend so much, since they earn a disproportionate share of income. According to economists Emmanuel Saez and Thomas Piketty, the top 10% of earners captured about half of all income as of 2007.

What is surprising is just how much or our consumer economy is now dependent on the rich, and how that share has increased as the U.S. emerges from recession. In the third quarter of 1990, the top 5% accounted for 25% of consumer outlays. That held relatively steady until the mid-1990s, when it started inching up past 30%. It dipped in 2003 and again in 2008, but started surging in 2009 amid the greatest bull market rally in history, with the Dow Jones Industry Average rising nearly 50% in the last nine months of the year.

Mark Zandi, chief economist for Moody's Analytics, cites two main reasons for the increase. First, the wealthy panicked during the financial crisis and stopped spending. When markets rebounded, they came out of their shells and started spending again. "I think that pent-up demand was unleashed," he said. "It was an unusually high rate of spending."

The second reason is that those people in the middle- and lower-income groups are struggling to pay off debt and stay afloat amid rising unemployment, as Friday's data reminds us. That has crimped their spending.

The data may be a further sign that the U.S. is becoming a Plutonomy–an economy dependent on the spending and investing of the wealthy. And Plutonomies are far less stable than economies built on more evenly distributed income and mass consumption. "I don't think it's healthy for the economy to be so dependent on the top 2% of the income distribution," Mr. Zandi said. He added that, "In the near term it highlights the fragility of the recovery."

In fact, the recent spending of the wealthy may be unsustainable. Their savings rate has gone from more than 26% in 2008 to a negative 7% in the first quarter of 2010, according to the Moody's Analytics data. They still have lots of savings. But the massive draw on that in the past two years is unlikely to continue at the same pace.

"I think we're already seeing a slowdown in spending by this group," Mr. Zandi says.

And that should be a worry for all of us.
us-economy-is-increasingly-tied-to-the-rich: Personal Finance News from Yahoo! Finance

I don't know, here in the NYC region, many in the financial industry are still feeling the effects, our stocks are up but still nowhere near where they were 2 or so years ago, etc. So we deserve both a private sector pay increase and a government provided benefits (health care) price reduction, and a nice Republican income tax cut, and a nice Republican real estate tax cut... That way, the bankers may be enticed to spend money, which increases both demand and jobs, and the people who get these jobs will eventually spend as well (after paying down their credit cards) thus providing even greater expansion to the economy.

But plutonomy? I think we've been in one for a while, fuelled by stocks and real estate and debt. Now many people who spent like plutocrats are finding they aren't.
08-09-2010, 06:53 AM   #3
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QuoteQuote:
Now that it has become clear that unlike the 1930s where this historic concentration of wealth was reversed for a good 4 decades post crisis, that this time around a financial crisis is actually serving to concentrate wealth even further, it might be helpful to readers to see how the entrenched money thinks on how to benefit from it. Basically the same way you'd invest in feudal Europe in the 1400s - avoid the peasants, stick with the lords. I don't see this changing anytime soon - as I said in 2007, in time you will not want to have anything to do with the bottom 80% of the country; it won't be a fun place to be. [Dec 8, 2007: Do the Bottom 80% of Americans Stand a Chance?] I think in the nearly 2 years since written, the fissures I spoke about have already begun to widen considerably.
QuoteQuote:
Of course, Kapur says there are risks to the Plutonomy, including war, inflation, financial crises, the end of the technological revolution and populist political pressure. Yet he maintains that the "the rich are likely to keep getting even richer, and enjoy an even greater share of the wealth pie over the coming years."

All of which means that, like it or not, inequality isn't going away and may become even more pronounced in the coming years. The best way for companies and businesspeople to survive in Plutonomies, Kapur implies, is to disregard the "mass" consumer and focus on the increasingly rich market of the rich. A tough message - but one worth considering.
2007:
Fund My Mutual Fund: Do the Bottom 80% of Americans Stand a Chance?
Orig WSJ:
http://blogs.wsj.com/wealth/2007/01/08/plutonomics/
QuoteQuote:
There is no “average” consumer in Plutonomies. There is only the rich “and everyone else.
08-09-2010, 07:17 AM   #4
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...all a part of the pattern since ~1980 of the hollowing out of American corporations, via the application of technology: automation of jobs is only a small part of it all; the mobility of capital and labor globally is made possible by technology. Increasingly, government employment - local through federal - is the last bastion for 'middle class' employment. Once we shrink that, are the Republicans truly expecting a reversal of a 30 year trend in private employment? Why should a large corporation hire thousands of workers in the USA at a large cost disadvantage to offshore hiring? And it's not (just) the tax rate and bureaucratic paper work due to regulation as orthodox Republican economics has us beleive; it is the cost of health insurance and wages. Under the current set up, once our benefit cost + wage is competetive with China or India, say, will there be any large scale corporate hiring in the US. And yes, costs in China and India are going up, but the larger 'market normalization' is in the depression of American wages. This of course is for the worker bees, not the Captains of Capitalism and Industry.

Ironically, as I've noted before, the claimed 'social and political good' by entities such as Citi and Halliburton et al is the stabilization of developing countries though the creation of middle classes. This was also a major rationale of the Bush administration neocons: we invade Iraq, institute a democracy with American consumerist / middle class market values, which will stabilize the region and entice other Muslim countries to emulate. And then there's the ages old wet dream of a Chinese mass market, again achievable via the creation of a middle class.

These things aren't working out how the Captains of Capitalism and the neocons had dreamt, reality is much messier, and the USA is paying a price. Those dreaded European social policies at least have an effect of retaining a complete society; business adapts and does well as long as the rules are clear.


Last edited by Nesster; 08-09-2010 at 07:23 AM.
08-09-2010, 08:03 AM   #5
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A couple of years ago corporations cut payrolls to the bone in response to the financial crisis. Now, earnings reports are coming in and a lot of them are doing quite well. Will their turnaround result in a spurt in hiring or bigger bonuses for execs?

What the corporations do will be a clear sign of who they are out for.
08-09-2010, 08:35 AM   #6
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One thing that made this recession different from others is that those big bonuses were cut way back, plus a lot of the bonus people lost their jobs. In other recent recessions, this class of employee did not suffer as much or for as long a time, and the joke went that the bosses deserved bigger bonuses for the difficult job of layoffs, and then they deserved bigger bonuses for good financial results when the economy was going good.
08-09-2010, 08:38 AM   #7
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QuoteOriginally posted by johnmflores Quote
Now, earnings reports are coming in and a lot of them are doing quite well. Will their turnaround result in a spurt in hiring ?
That's funny................
For those that look to China.. let's see what there doing now.......
http://www.nytimes.com/2010/08/10/business/energy-environment/10yuan.html?src=busln
QuoteQuote:
HONG KONG — Earlier this summer, Prime Minister Wen Jiabao of China promised to use an “iron hand” to improve his country’s energy efficiency, and a growing number of businesses are now discovering that it feels like a fist.
The Ministry of Industry and Information Technology quietly published a list late Sunday of 2,087 steel mills, cement works and other energy-intensive factories required to close by Sept. 30...............To prevent such local obstruction this time, the ministry said in a statement on its Web site that the factories on its list would be barred from obtaining bank loans, export credits, business licenses and land. The ministry even warned that their electricity would be shut off, if necessary.

The goal of the factory closings is “to enhance the structure of production, heighten the standard of technical capability and international competitiveness and realize a transformation of industry from being big to being strong,” the ministry said.
08-09-2010, 08:40 AM   #8
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To answer the title of the post:

Yeah, it's trickling down on me, but it's warm and smells likes pee.

08-09-2010, 08:45 AM   #9
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QuoteOriginally posted by Ira Quote
To answer the title of the post:

Yeah, it's trickling down on me, but it's warm and smells likes pee.
Should be about up to your neck
now...
08-10-2010, 06:00 AM   #10
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Conservative Republicans must be in heaven, their vision of America is coming true, starting at the local levels appropriately enough.

Due to the cost of asphalt, many municipalities are de-paving roads, bringing us back to the good old '50s.
Economic Crisis Forces Local Governments to Let Asphalt Roads Return to Gravel - WSJ.com
QuoteQuote:
Paved roads, historical emblems of American achievement, are being torn up across rural America and replaced with gravel or other rough surfaces as counties struggle with tight budgets and dwindling state and federal revenue. State money for local roads was cut in many places amid budget shortfalls.

In Michigan, at least 38 of the 83 counties have converted some asphalt roads to gravel in recent years. Last year, South Dakota turned at least 100 miles of asphalt road surfaces to gravel. Counties in Alabama and Pennsylvania have begun downgrading asphalt roads to cheaper chip-and-seal road, also known as "poor man's pavement." Some counties in Ohio are simply letting roads erode to gravel.

The moves have angered some residents because of the choking dust and windshield-cracking stones that gravel roads can kick up, not to mention the jarring "washboard" effect of driving on rutted gravel.

But higher taxes for road maintenance are equally unpopular. In June, Stutsman County residents rejected a measure that would have generated more money for roads by increasing property and sales taxes.

"I'd rather my kids drive on a gravel road than stick them with a big tax bill," said Bob Baumann, as he sipped a bottle of Coors Light at the Sportsman's Bar Café and Gas in Spiritwood.
In a further move to bring back the good old days, many municipalities are removing street lights, and turning off the remaining ones...

Reduction in street lighting follows adoption of municipal budget, new street-lighting policy
QuoteQuote:
Nearly one in four street lights will be removed following adoption of the municipal budget for 2009-10, and a new street lighting policy adopted by the Town Council April 30, 2009.

Police Chief Neil Williams has identified 123 street lights to be removed at town request by Central Maine Power Company. In addition, the wattage of 13 lights will be reduced by 50 watts each. Cape Elizabeth currently has 485 street lights which have an annual budget cost of $70,368. The lights to be removed will save $11,465 in fixture rental costs and about $5,000 in electricity supply charges, said Town Manager Michael McGovern.
http://ci.santa-rosa.ca.us/DEPARTMENTS/PUBLICWORKS/STREETLIGHTREDUCTION/Pages/default.aspx

QuoteQuote:
The City of Santa Rosa is implementing a citywide Street Light Reduction Program to cut energy costs and lower green house gas emissions. This program does not involve traffic signals—only street lights are being affected. The Street Light Reduction Program will be implemented over a four year period from 2009- 2012.

Cost Savings and Environmental Benefits
We estimate the Street Light Reduction Program will result in an annual energy cost savings of $400,000. The savings will be acheived by turning off some street lights, equipping some with programmable photocell timers, and leaving some lights to operate throughout the night.

Reducing energy consumption from street lights will result in a significant reduction to the City’s carbon footprint. An estimated 1,000 tons of greenhouse gas emissions will be reduced annually through this program. Additionally, ambient light levels will be reduced allowing for greater visibility of the night sky.
These are just 2 examples of a growing trend.

Also, as Republicans have long argued, school districts have long over-hired teachers. Municipalities under budget pressure are downsizing in many ways, including the firing of teachers, or the elimination of school days (e.g. a 4 day school week)...

Larger class sizes are a good thing, as are fewer teachers, as teachers are known liberal sympathisers. Even so, a filibuster was broken in the Senate, and as we know, the House is being called back to vote on a measure that would retain some 140,000 teachers...

washingtonpost.com

The elimination of municipal and teacher jobs of course is a good thing - we are shrinking the size of government, reducing the socialist coddling insisted on by the liberals, and reducing the influence of known liberal-socialist teachers on our young.

Of course, left open is what a right-wing market would do with these displaced teachers and bureaucrats - obviously they are not fit for productive labor - so, short of political re-education, these parasites grown fat at the public trough will simply have to starve.
08-10-2010, 06:34 AM   #11
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A bit more in the same vein.....
6 Curious Displays of How the Struggling Economy Is Hitting the Middle Class - It's Your Money - TIME.com
My personal favorite....
QuoteQuote:
There might be a bar at your workplace. How could this be a sign of economic struggle? Well, per the Baltimore Sun, booze-filled employee lounges, employee-only farmers markets, free food, and other employee perks are being used to keep morale up while staffers are asked to work more hours—without overtime or pay increases.
Read more: 6 Curious Displays of How the Struggling Economy Is Hitting the Middle Class - It's Your Money - TIME.com
OR
QuoteQuote:
Nascar just isn't what it used to be. The NY Times reports that Nascar—"a barometer of Middle American tastes" that in the 2000s was "a money-printing juggernaut"—is now struggling with lower fan attendance, lower spending fans attending races, and even lower TV ratings. In an attempt to lure back race car fans, track owners have cut ticket prices and rolled out promotions such as 99˘ gallons of gas at stations near the track.
08-11-2010, 10:44 AM   #12
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U.S. Is Bankrupt and We Don't Even Know: Laurence Kotlikoff
U.S. Is Bankrupt and We Don't Even Know It: Laurence Kotlikoff - Bloomberg

QuoteQuote:
Let’s get real. The U.S. is bankrupt. Neither spending more nor taxing less will help the country pay its bills.

What it can and must do is radically simplify its tax, health-care, retirement and financial systems, each of which is a complete mess. But this is the good news. It means they can each be redesigned to achieve their legitimate purposes at much lower cost and, in the process, revitalize the economy.

Last month, the International Monetary Fund released its annual review of U.S. economic policy. Its summary contained these bland words about U.S. fiscal policy: “Directors welcomed the authorities’ commitment to fiscal stabilization, but noted that a larger than budgeted adjustment would be required to stabilize debt-to-GDP.”

But delve deeper, and you will find that the IMF has effectively pronounced the U.S. bankrupt. Section 6 of the July 2010 Selected Issues Paper says: “The U.S. fiscal gap associated with today’s federal fiscal policy is huge for plausible discount rates.” It adds that “closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of U.S. GDP.”

The fiscal gap is the value today (the present value) of the difference between projected spending (including servicing official debt) and projected revenue in all future years.

Double Our Taxes

To put 14 percent of gross domestic product in perspective, current federal revenue totals 14.9 percent of GDP. So the IMF is saying that closing the U.S. fiscal gap, from the revenue side, requires, roughly speaking, an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act.

Such a tax hike would leave the U.S. running a surplus equal to 5 percent of GDP this year, rather than a 9 percent deficit. So the IMF is really saying the U.S. needs to run a huge surplus now and for many years to come to pay for the spending that is scheduled. It’s also saying the longer the country waits to make tough fiscal adjustments, the more painful they will be.

Is the IMF bonkers?

No. It has done its homework. So has the Congressional Budget Office whose Long-Term Budget Outlook, released in June, shows an even larger problem.

‘Unofficial’ Liabilities

Based on the CBO’s data, I calculate a fiscal gap of $202 trillion, which is more than 15 times the official debt. This gargantuan discrepancy between our “official” debt and our actual net indebtedness isn’t surprising. It reflects what economists call the labeling problem. Congress has been very careful over the years to label most of its liabilities “unofficial” to keep them off the books and far in the future.

For example, our Social Security FICA contributions are called taxes and our future Social Security benefits are called transfer payments. The government could equally well have labeled our contributions “loans” and called our future benefits “repayment of these loans less an old age tax,” with the old age tax making up for any difference between the benefits promised and principal plus interest on the contributions.

The fiscal gap isn’t affected by fiscal labeling. It’s the only theoretically correct measure of our long-run fiscal condition because it considers all spending, no matter how labeled, and incorporates long-term and short-term policy.

$4 Trillion Bill

How can the fiscal gap be so enormous?

Simple. We have 78 million baby boomers who, when fully retired, will collect benefits from Social Security, Medicare, and Medicaid that, on average, exceed per-capita GDP. The annual costs of these entitlements will total about $4 trillion in today’s dollars. Yes, our economy will be bigger in 20 years, but not big enough to handle this size load year after year.

This is what happens when you run a massive Ponzi scheme for six decades straight, taking ever larger resources from the young and giving them to the old while promising the young their eventual turn at passing the generational buck.

Herb Stein, chairman of the Council of Economic Advisers under U.S. President Richard Nixon, coined an oft-repeated phrase: “Something that can’t go on, will stop.” True enough. Uncle Sam’s Ponzi scheme will stop. But it will stop too late.

And it will stop in a very nasty manner. The first possibility is massive benefit cuts visited on the baby boomers in retirement. The second is astronomical tax increases that leave the young with little incentive to work and save. And the third is the government simply printing vast quantities of money to cover its bills.

Worse Than Greece

Most likely we will see a combination of all three responses with dramatic increases in poverty, tax, interest rates and consumer prices. This is an awful, downhill road to follow, but it’s the one we are on. And bond traders will kick us miles down our road once they wake up and realize the U.S. is in worse fiscal shape than Greece.

Some doctrinaire Keynesian economists would say any stimulus over the next few years won’t affect our ability to deal with deficits in the long run.

This is wrong as a simple matter of arithmetic. The fiscal gap is the government’s credit-card bill and each year’s 14 percent of GDP is the interest on that bill. If it doesn’t pay this year’s interest, it will be added to the balance.

Demand-siders say forgoing this year’s 14 percent fiscal tightening, and spending even more, will pay for itself, in present value, by expanding the economy and tax revenue.

My reaction? Get real, or go hang out with equally deluded supply-siders. Our country is broke and can no longer afford no- pain, all-gain “solutions.”
08-11-2010, 12:35 PM   #13
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Addendum:

Is The U.S. Already Bankrupt?
QuoteQuote:
The following article was first written in 1998. I am relinking it here not so much as to say "I told you so", but to point out that the long term economic future of the United States was obvious, or should have been obvious, to the people who are awarded lofty degrees and paid huge salaries to comprehend such things. Instead, the economists persisted in explaining away the visible signs of gathering troubles and earned their salaries by justifying why the policies that robbed the poor to give to the rich should continue unabated.
Just food for thought. Odd site.

Last edited by jeffkrol; 08-11-2010 at 12:55 PM.
08-11-2010, 12:57 PM   #14
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If it weren't so scary, it would be funny: the Federal Govt practices the same things Evil Wall Street did, and Evil Enron... but who will bail us out?

The Reagan innovation was this: our dollar is one of our remaining valuable asset internationally, on a large scale, and has the added benefit that unlike Hollywood or Silicon Valley, the Fed has a monopoly on it. So finance feel good tax cuts and continued spending (like there's no tomorrow) by selling our dollars overseas. As long as there are willing buyers looking for the safety of the dollar, we'll be fine. And the feel good feeling will encourage our economy to grow like never before, paying for the defecits.

Unfortunately, of course, save Clinton, the part about paying down debt and buying back our dollars never really happened; defecits grew faster than the economy.

---------- Post added 08-11-10 at 04:12 PM ----------

The news is unrelentingly bad... which is a good contrarian sign for the optimist. And the news is starting to be preponderantly on the cut government end of things.

Here's more bad news:
Is QE2 finally the economic collapse? - Aug. 11, 2010

QuoteQuote:
FORTUNE -- The Great Depression. Wall Street in 1987. Japan in 1997. Points of economic collapse are generally crystal clear in the rear-view mirror. Professional politicians in Japan have been telling stories for 20 years as to why they can prevent economic stagnation. In the US, the storytelling started in 2007. All the while, stock market and real-estate prices have repeatedly rallied to lower-highs, then collapsed again, to lower-lows.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt. And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return.

..

With 40.8 million Americans on food stamps (record high) and 45% of the unemployed having been seeking employment for 27 weeks or more (record high), what's left if (or when) QE2 doesn't kick start GDP growth? Should we start begging for QE3? Should we cancel the bomb of the National Association of Realtors' existing home sales report, scheduled for public release on August 24th? Or should we bite the bullet and accept that current economic policy dictates 0% returns-on-savings, even as Washington continues to lever-up our future to the point of economic collapse?

Before the Fiat Fools -- Hedgeye's name for political actors and bankers who have placed their hopes of economic recovery in printing endless supplies of new cash -- run out campaigning for QE3, maybe they should analyze some real time market results to yesterday's announcement of QE2:

1)The US dollar is battling for resuscitation after 9 consecutive down weeks -- down 9% since June.

2) US Treasury yields are making record lows on the short end of the curve, with 2-year yields striking 0.49%.

3) The yield spread (in this case the difference in return between 10-year and 2-year Treasury bills, which shows a long-term confidence when high) continues to collapse, down another 4 basis point day-over-day to 223 basis points.

4) The S&P 500 is down below its 200-day moving average (a common signpost for the health of a market or stock) of 1115.

5) US Volatility (VIX) is spiking from its recent stability.

6) In Japan, long time quantitative easing specialists found their markets closing down overnight by 2.7%, which makes them down 11.9% for the year to date.

Lest our doom and gloom seem built entirely on technical measurements, what they boil down to is actually quite simple -- an idea about our country which dates back to 1835. Alexis De Tocqueville, author of Democracy in America, which was published that year, seemed to warn of this day when he wrote: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

08-11-2010, 02:45 PM   #15
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Actually, trickle-down is working quite well--for China, India, Vietnam....
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