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Subject: The World Economy and the Coming Recession
Posted by: Matt S
- [45621302] Sat, Sep 09, 2006, 15:21
I have written a short summary of why I feel the US and the world are heading towards a major economic recession (or depression). I don't claim any of it to be groundbreaking, but it is a collection of information I have been researching for the better part of the last year. I intend to use it in an attempt to get some credits for a political economy degree I am starting. I would like to get some feedback as to the content and generate some discussion.
Introduction:
The United States is headed towards a recession. A global recession will follow, as the US economy makes up 1/3 of world GDP, and the growing economies such as China and India will not be able to absorb the difference. The economic boom the world has experienced since 1991 is coming to a close and the turning point is just around the corner. The US Federal Reserve has been printing money at a phenomenal pace to keep up with a growing trade deficit, current account deficits and to allow for foreign governments to support US consumer debt. Yet market analysts continue to disregard such extremes and instead suggest the US may have a ‘soft landing’ or completely avoid the ‘R’ word for the fear of coming across as a pessimist or being “un-American” It is precisely in times of denial like these that we experience the biggest and nastiest of market crashes. As Sir John Templeton famously stated, “the four most dangerous words of investing are ‘it’s different this time’”
US Debt:
US Federal Debt currently stands at $8.5 Trillion dollars. This number, as Lawrence Kotlikoff pointed out in this article, can be very misleading, as when you include the US commitments to Medicare and Social Security for the current generation, their debt is closer to $65 Trillion dollars. A number that is 5 times their current GDP. The UN has a debt threshold level of 60% of GDP before they say correctional hyperinflation will occur.
The US public debt as of the last calendar year is $11.5 Trillion dollars. For the average working man or woman this amounts to about $59,000 each. US Consumer Debt servicing Ratio is approaching 14%. That is the percentage of the average American’s income that goes towards paying their own debt. This is not the percentage of their income paid towards mortgages, car loans, etc. This is just what the banks are taking. And as interest rates rise to combat inflation, this number is also going to rise dramatically.
The US trade deficit stands at around $519 Billion dollars per year. This is $519 Billion US dollars going into foreign banks every year. They hold these dollars in their banks as a reserve currency and it does not re-enter the marketplace unless the holders of these dollars begin to feel nervous about their value. When they do so, these trillions of dollars of debt will be back on the market, diluting the real value of the US dollar and causing inflation. This has begun already as Russia, Italy, Sweden, the UAE, and Qatar have all quietly slashed their US dollar holdings by significant amounts. Numerous oil producing countries have elected to sell their oil in Euros, making the cost of oil more expensive as the US dollar loses strength against the Euro.
Inflation:
The value of a US dollar is not immune to the supply and demand factors of any other commodity such as wheat, copper or oil. When there is more of them, demand will decrease, sending the price lower. Until 1971 this was not the case, as the amount of US dollars circulating was set as a certain ratio to US gold reserves. Effectively, this meant the US dollar was a promise on paper to pay a certain amount of gold to it’s holder. There is currently no such promise, allowing for the US dollar to fluctuate on nothing other than supply and demand factors.
In order to keep up with all of the aforementioned debt and overspending, the US Federal Reserve must, of course, increase the amount of money it prints. For that, it releases monthly indicators M0, M1, M2 and M3 for how much money is out there. The M3 indicator is the most comprehensive of all of them, taking into account almost all forms of money we have (it is still inadequate, leaving out securitizations of mortgages and other debt instruments, the debits and credits of the international carry trade in currencies and the derivative markets, but it is the best we have.) As of February, 2006 the year over year increase in M3 was about 8%. The indicator hasn’t been published since, and the Federal Reserve stated it will not be published again.
The US Federal Reserve instead thinks it is better to judge inflation by it’s Consumer Price Index. This takes in to consideration a basket of goods and services that the average American would buy over the course of a year. I believe this indicator to be massively flawed. It feels the drop in the price of a computer or a toaster can help to even out rising costs of rent, energy and food. Granted, it weights items based on their frequency of use or purchase, however this weighting is done in accordance to a base year that is changed regularly. If this year happens to be one of economic prosperity (or hardship), the entire index becomes useless.
The US government may indeed be trying to hide the fact inflation is growing by about 8%, but the free market laws of supply and demand are not to be fooled. That sound you hear is John Maynard Keynes rolling in his grave. The US dollar is losing it’s purchasing power overseas, and it is doing so at an accelerating pace.
A lower US dollar would mean that imported items would become more expensive to US consumers, making it impossible to buy these items for what we could previously. Considering consumer spending accounts for 70% of the US economy, even a slight reduction in this measure (5%) would send the US economy into recession. A larger reduction in consumer spending of 25-50% (consider how much we buy that we really don’t need for our economic survival) would destroy the economy altogether.
The Housing Boom and Bust:
The United States was heading for a recession 6 years ago. The economy had gotten way ahead of itself, stock market euphoria was sweeping the nation and people were spending beyond their means. People were buying dot com stocks without even knowing what they were. Companies with no profits were trading at $50 on the NASDAQ. The tech bubble burst and millionaires that were made, were lost almost in an instant. But at the time, there was a way out. Interest rates could be dropped to almost nothing, creating almost free credit to Americans, allowing their purchases to buoy the economy.
Ordinary Americans could now afford the cost of a new home, new car or new HD television. “Why pay now when you can pay later?” was the maxim. The amount of Americans rushing to buy new homes created a new euphoria, this time in the real estate market. The ensuing rise in real estate prices created new equity for Americans and gave them even more access to cheap credit. With it they bought more properties for speculation. Condos were pre-sold even before the foundations were laid, their buyers intending to sell once finished for a tidy profit. With real estate, “you couldn’t go wrong.” Sound familiar?
This continues today, but just as the dot com bubble burst, the real estate market will too and the first signs are starting to spring up all over front lawns across North America. Housing inventories are higher than they’ve ever been. Those pre-sold condo units that I mentioned are no longer pre-sold and now completed, their developers are having to give away country club memberships and new cars to entice buyers. The housing shock is coming and it is going to take the average American citizen with it.
Rising Energy Costs:
Energy is to economic growth what oxygen is to life on earth. Undeniably essential. Aristotle used the term as a synonym of ‘activity’ or ‘operation.’ Energy was required to produce everything you see around you. In the recent history of the last 200 years, human energy consumption has grown by a staggering amount, allowing for the production of cheap goods to be transported to more people, allowing for a seven fold increase in world population, a vast increase in the standard of living and the economic growth that continues today. Over these two hundred years we have relied on irreplaceable resources to provide this energy, and as the reality of their scarcity sinks in, the laws of supply and demand take hold and the price of energy, growth, activity or operation rise.
Are we ignorant enough to think that our rate of growth can continue while the price of growth (energy) has gone up between 200 and 600%? The higher oil prices of the 70’s led to a massive recession while the world got used to the higher prices. Those higher prices turned out to be premature, as more production capacity was brought on line, the price came back down.
It has been well documented that there has been no new significant (1 million bpd+) oil discoveries in the last 30 years, the Gulf of Mexico being the last. Much has been talked about ‘peak oil’, the theory put forward by M. King Hubbert, that we will eventually reach peak production capability and will soon after experience a drop in production. There have been some new ways of extracting oil and consuming it (oil sands, increased reliance on natural gas, better efficiency) but this, combined with continuing growth in demand, has done nothing but delay the tipping point a decade or less. We may have reached Hubbert’s Peak, we may not have. We likely won’t know until a few years after the fact.
Additionally, OPEC countries have had no incentive to accurately state the amount of oil they have in their oilfields, as production quotas are linked with reserves. There are substantial claims that Saudi Arabia, Iraq, Iran, UAE, Kuwait and Venezuela may not have nearly as much oil as they claim. They have mysteriously added substantial reserves very rapidly without any evidence of a major oil discovery. Saudi Arabia alone mysteriously added 89 Billion barrels of oil (enough to fuel the world for 3 years at current rates of consumption) in 1990 with no new major oilfields found, and no questions asked. This is factored minimally into the price of oil.
The closure of the Prudhoe Bay oilfield for an “indefinite” period of time is a bit of an eye opener. As old equipment begins to corrode after 30 years or more of use, the cost of replacing this equipment may indeed surpass the financial benefits of extracting the remaining oil estimated to be in the field.
Let’s not forget that inflation is not immune to the price of anything and that includes oil. Using government inflation numbers, we are still far below the 1980 price of oil of around $90 in today’s dollars.
Many analysts would point out that higher oil prices are due to geopolitical factors or commonly refer to the “terror premium.” Although I don’t doubt this to be true (the comings and goings of news regarding oil producing regions has had great effects on the day to day pricing of oil,) I believe it to be very overrated, and only goes to further my belief that oil prices will continue upwards over the long term (if so much of the increase has come from geopolitical factors, less has been made of the real issues of supply and demand and inflation.)
Until the world finds a legitimate source of producing energy cheaply and renewably, these high energy prices are here to stay. And the economic growth that we have become accustomed to is what will pay the price.
Where we went wrong:
At the turn of the century, when interest rates were dropped to all time lows, the Americans had a window of opportunity to prevent an inevitable recession. They could have raised taxes substantially and focused their attention on developing a cheaper, more efficient and more importantly, easily accessible source of energy.
As we all know, they have elected to do the polar opposite. Taxes were decreased further in an attempt to boost consumer spending past their already unsustainable levels. People are encouraged to spend more.
Additionally, in an effort to secure the steady flow of oil from the Middle Eastern countries, they have entered two wars under the guise of regime change and a threat to national security.
Had they instead appropriated the more than $400 billion spent on the two wars and the money spent on security programs towards developing a renewable source of energy production (wind or solar), we would not be nearly as dependant on this foreign source and would be well on our way to energy independence.
What the future holds:
I don’t claim to be a crystal ball reader, however it helps to look at past recessions when trying to figure out what we are headed for. In times of crisis, recession, uncertainty or even economic depression, the precious metals (gold, silver, platinum, palladium) have been what people turn to as a ‘safe haven.’ The historical use of gold as money has been the driving factor behind this. It’s physical properties such as not corroding over time and it’s scarcity and difficulty of production are the causes of that.
If we look at a few examples, we will find that gold is unbelievably undervalued compared to it’s value over the course of modern history. In 1959, before the Bretton Woods monetary system (gold standard) was abolished, the price of gold was $518 per troy oz of reserve (M3 money supply of $288.8 billion divided by 557,336,000 oz). Today we have an M3 of $9.873 Trillion and 251,500,000 oz to give a gold price in relation to M3 of $37,831.
A more realistic comparison would be the price of gold during the spike of the 1980 recession ($850), when concerns over the supply of energy ruled the international markets as two of the world’s biggest oil producing countries warred (Iran, Iraq). In order to correctly gauge the price of gold 25 years ago, we need to consider inflationary pressures on the US dollar. I have seen estimates between 2 and 9 times [I would like to discuss this further to find a reliable figure, for example a new truck in the early ‘80s was $6000, now it‘s $24,000 (yeah, yeah, new bells and whistles don‘t improve my quality of life that much)] putting the price of gold in 1980 at anywhere between $1900 and $7650 in today‘s dollars.
But does the US or other central banks have as much gold as they say they do? GATA(Gold Anti-Trust Action Committee) doesn’t seem to think so, and they have pretty good evidence to back themselves up. There is evidence of a small number of investors or central banks having obscene short positions on the price of gold and silver to keep the prices down. How far short will they be willing to go before abandoning a losing strategy?
An even more bullish sentiment can be made for silver, as it is currently trading at one quarter it’s $48 high of 1980 without taking into account inflation. Additionally, silver has the added benefit of acting as a currency and an industrial metal, being used in electronics, tools, medications, photography in addition to jewellery. Typically, over the course of history, silver has traded at a 16:1 ratio to gold. It is currently trading at a 48:1 ratio.
I believe that the only safe place for money, while we approach this recession, is tangible and liquid assets. Real Estate, as explained earlier is overbought, and will again sometime be oversold. It is a tangible, but illiquid asset. Stocks and mutual funds are liquid (most of the time) but not tangible. Cash is liquid, but without a promise to pay a certain amount of something tangible, is prone to be worth nothing more than the paper it’s printed on.
The commodities markets have seen an incredible run up in the prices of other industrial metals such as copper, nickel, zinc, lead and energy goods such as oil, natural gas and uranium. Many look at this and draw an incorrect conclusion that this is therefore correlated with silver and gold prices. However, in a time of an economic recession, demand for these items will decrease, sending the price lower, or at least leaving them unchanged until supply levels catch up with demand. They are a safe place to put your money, but are at the mercy of positive growth.
I hear much about how China and India’s growth will help to ease the pressure of the US recession on the world markets. When looking at the growth in China’s economy, you will seen that of late, exports have been increasing at a rate of 30% per year. Exports also make up 30% of their total economy. That puts the rate of export growth responsible for total GDP growth at about 9% - China’s current rate of GDP growth. There is very little internal demand in China to produce positive growth. They have an additional employment problem as they have developed higher efficiency methods of production, resulting in a lower need for workers. As their export sector slows, this employment problem will continue to grow. This year alone, China needed to create 25 million jobs to accommodate migrating workers to the cities. They were able to create only 11 million.
India has a large proportion of it’s population under the age of 20. It will need to improve it’s infrastructure massively in order to accommodate the skyrocketing working population. If they cannot, millions will be unemployed and millions will starve. A revolution could set India back decades.
The problems of the world’s two most rapidly growing economies and two largest populations could, in fact do more to hurt the world economy than help it. Aging populations in the western nations and Japan are putting unforeseen burdens on their governments, and birth rates are falling as the added expense of paying for social security programs make raising children too much of a financial burden.
The Federal Reserve was lucky and crafty in orchestrating the avoidance of a major recession 5-6 years ago. However, they are left with no options. Ben Bernanke does not have the same flexibility Alan Greenspan had. If interest rates are lowered, inflation would soar, raised and a housing and credit crisis would emerge immediately.
There is no 100% safe place to put your money and I’m not advocating for everyone to sell all of their assets and buy gold and silver. There is always something that can have long and short term effects on the economic stability of something so complex as our global economy. However, I believe the market signals to be clear and I do not buy the rhetoric of cautiously optimistic market analysts.
Are we going to pay attention to the free market fundamentals of supply and demand that we have profited from, or “is it different this time?” |
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| 80 | boikin
ID: 430211013
Mon, Feb 04, 2013, 10:29
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I think the problem was that schools were not charging enough in tuition and finally reality caught up with them. A college education is still a bargain for the most part in the US. And in reality they should probably be charging even more in order to give out more scholarships to deserving.
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| 81 | Perm Dude
ID: 201027169
Mon, Feb 04, 2013, 10:47
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Tuitions are going up for the same reason health care is: The costs for a vast numbers of the users are paid for by third-parties, and there are very, very few paying full price.
There is no real incentive by the users to demand changes so long as they can cobble together other sources of revenue to pay, and most of the cost is given at deep discounts anyway. That disconnect allows tuition costs to adjust without the natural barrier provided by the users' active interest.
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| 82 | Biliruben
ID: 358252515
Mon, Feb 04, 2013, 11:37
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That may be true some places, particularly private colleges, but it isn't true here. Less than 20% receive scholorships. It's all about the state failing to increase revenue to maintain an adequate level of support for the university system.
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| 83 | Perm Dude
ID: 201027169
Mon, Feb 04, 2013, 11:55
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That certainly might be true that states aren't increasing aid to schools enough, but at least part of that is that schools continue to cost more and more for the revenue (in whatever form) to cover.
I don't think there is any single answer since there are a lot of factors involved and (as you point out) there are probably strong differences between private and public schools. But there are few market forces coming to bear on tuition costs, that I can see.
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| 84 | Boldwin
ID: 8154410
Mon, Feb 04, 2013, 12:08
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Glenn Reynold's Instapundit is all over this story almost daily. He's a law professor as well as the world's greatest blogger.
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| 85 | C1-NRB
ID: 451120913
Mon, Feb 04, 2013, 12:58
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That certainly might be true that states aren't increasing aid to schools enough, but at least part of that is that schools continue to cost more and more for the revenue (in whatever form) to cover.
"aren't increasing" doesn't do the facts justice. Almost ALL states are actively decreasing funding. Colleges are attemtping to make up the differences and tread water by raising tuition. And even at that are slowly falling behind.
The intent of my original comment in [63] was to second the idea that by "drying up" third party loans, the states and feds would need to go back to subsidizing higher education if they truly want an "educated electorate," whatever that means.
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| 86 | Perm Dude
ID: 201027169
Mon, Feb 04, 2013, 13:18
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It doesn't happen in a vaccum, however. States are cutting back in response not only to their own tighter budgets, but on demands by colleges to continue to fund them at rates far above inflation.
More than half of states cut aid to schools (an amount only partially made by increases in federal aid). Admittedly, this mixes up both college and pre-college education, but the point remains that college tuition and fees continue to rise above inflation.
While I have no doubt that some of the current increase costs are attributed to decreases in funding elsewhere, college costs have gone up every single year for a long time, even when state funding was fine. The current excuse strikes me as colleges trying to keep up with the revenue side while never really taking a hard look at their costs.
During the last campaign, Obama made several calls to colleges to control their costs, and told them specifically not to rely on tuition increases only as state aid drops off. I dunno if they got the message.
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| 87 | Frick
ID: 2193319
Mon, Feb 04, 2013, 14:48
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I don't think they have. The Chronicle for Higher Education had an article this summer talking about how the administrative side of University's is increasing, while the number of faculty has been staying (roughly) the same. Most Universities operate much like a government entity where kingdoms increase, and very rarely do lay-offs occur. It happened for the first time at most schools during the last crash as state funding decreased and endowments that schools had also decreased substantially in value.
I've been involved in a project that is trying to determine if Universities as a whole pay more for construction projects then similar commercial projects. It doesn't appear that way, but some of the factors that lead to higher costs are not strictly necessary, but are wanted and appear reasonable. Universities also tend buildings with a longer term usage plan then commercial buildings.
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| 88 | Biliruben
ID: 358252515
Mon, Feb 04, 2013, 15:28
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PD- can you show some support for your contention college costs are rising much faster than inflation ? Clearly, simply showing tuition increases misses half the story. If, like Washington, states are cutting their support in half, costs could be continuing to decline, yet 20% tuition increases annually are still essential just to keep the doors open.
UW has had salary freezes in place for the last 5 years.
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| 89 | C1-NRB
ID: 451120913
Mon, Feb 04, 2013, 15:46
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...fund them at rates far above inflation.
That depends. In my state, tuition was "degregulated" in the late '90s. Tuition rates skyrocketed (but are still among the lowest in the nation.) The reasoning (if I may use that term loosely), was that the state was freeing up funds for other purposes with the understanding that students would be expected to "take up the slack." Which they did through increased unforgiveable student loan debt.
several calls to colleges to control their costs, and told them specifically not to rely on tuition increases only as state aid drops off. I dunno if they got the message.
Is there administrative bloat? Yes. Can much of it be contributed to "strings attached" funding from "We're here to help" government sources? Yes. So the government is saying, "Stop creating jobs with the money we gave you because it costs too much for you to continue these programs once we stop giving you money for them"? (Full disclosure: I had a government-funded grant job. When the grant stopped, so did the job. I knew what I was getting into and there are no hard feelings. In fact, I respect that college for NOT keeping the position around, unlike others I have experience with. Ahem.)
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| 90 | Perm Dude
ID: 201027169
Mon, Feb 04, 2013, 21:31
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Good point about the student loan debt. That's driving a lot of this in ways that are difficult to get around.
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| 91 | Building 7
Leader
ID: 171572711
Tue, Feb 05, 2013, 07:41
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The federal governnment took over the student loan program.
They also changed the bankruptcy rules so that one can not get rid of a student loan by going bankrupt.
The feds do not scrutinze loan applications as much as a bank would.
A C average with a major of women's gender studies.... You get a loan. Especially if you don't have any money. Whereas a prudent bank would reject it, or charge higher interest, or monitor progress.
.............
Another source of revenue for colleges is research. Most of this emanates from the federal government. There has been no shortage of money from that source.
I think they raise tuition because.....they can. And it's not just tuition. It's also fees. Those have gone up even more.
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| 92 | Khahan
ID: 39432178
Tue, Feb 05, 2013, 09:11
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I think they raise tuition because.....they can
This says a mouthful. They do it because they can. I believe that is the major driving force behind the bulk of the increases. Yes, higher teacher salary, higher cost of everything contributes. But they 'can' is the main reason.
It is the nature of capitalism. I do think capitalism is great. But I think it needs controls in place.
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| 93 | C1-NRB
ID: 451120913
Tue, Feb 05, 2013, 09:25
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I think they raise tuition because.....they can.
For private schools, yes. But, at least where B7 and I are, sign o' the times in the '90s was deregulation. See 89 above.
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| 94 | sarge33rd
ID: 4609710
Tue, Feb 05, 2013, 09:41
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A C average with a major of women's gender studies.... You get a loan. Especially if you don't have any money. Whereas a prudent bank would reject it, or charge higher interest, or monitor progress.
I dont think this is entirely true. Doctors and Lawyers, have amongst the highest student loan default rates from what I have read over the years.
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| 95 | biliruben
ID: 59551120
Tue, Feb 05, 2013, 09:57
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If you think private banks pay attention, you haven't taken a loan with them. They let me sister run up over 100K getting her acupuncture degree. If led to a job, but not one that could ever pay back 100K and 8 1/2 percent.
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| 96 | boikin
ID: 430211013
Tue, Feb 05, 2013, 11:30
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I think they raise tuition because.....they can
I disagree for the most part raises in tuition are out of necessity. There are some exception especially in the online business grad degrees they raise the price there because they can.
It's also fees. Those have gone up even more.
This is where they get you and nobody talks about this. They defiantly do this because they can and the real kicker is that most of the time the fees don't go to the actual education program. At some state schools fees are almost as much at tuition itself.
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| 97 | C1-NRB
ID: 451120913
Tue, Feb 05, 2013, 12:25
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This is where they get you and nobody talks about this. They defiantly do this because they can and the real kicker is that most of the time the fees don't go to the actual education program.
True, but if you read the fine print you can occasionally get some of those waived, depending on the circumstances and the school. I was able to get a Health Fee waived because I had a full-time job with benefits. You may not have to pay a Building Use Fee if you are taking online classes only. Savvy colleges get you somewhere else, though, with Distance Learning fees, etc.
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| 98 | Perm Dude
ID: 201027169
Tue, Feb 05, 2013, 12:54
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Great suggestions, C1. And too many students haven't a clue that some of those charges are ones that can be challenged.
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| 99 | Building 7
Leader
ID: 171572711
Wed, Feb 06, 2013, 07:34
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They can because the market will bear it. Students will just get a bigger loan, or another loan. Scholarships will have to increase. Higher tuition, no problem. New fees, put it on my tab. Now, they're reaching the point where it may not even be worth it to borrow a bunch of money and leave the workforce for four years, to get a college degree.
IMO college was a big waste of time. I shouldn't say this, since I work for a big University. Your first two years, you just take a bunch of crap unrelated to your major, to fill in your requirements. Or, maybe figure out what you want to do. Junior year, you take a bunch of classes in your college, related to your degree, and some classes in your major. Senior year, you take some classes that may help in what you may actually be doing in real life. But, a lot of employers won't even look at you unless you have a college degree. And the unemployment rate for those with a college degree is like 4%.
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| 100 | biliruben
ID: 59551120
Wed, Feb 06, 2013, 08:46
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Now, they're reaching the point where it may not even be worth it to borrow a bunch of money and leave the workforce for four years, to get a college degree.
That's my impression as well. Unless you are going into finance or engineering, you better have rich parents or bag a rare scholarship. Otherwise you are looking at 20 years of pain.
Does it behoove our country to only have stock brokers and engineers?
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| 101 | Frick
ID: 2193319
Wed, Feb 06, 2013, 09:18
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Not really, but we have set the expectation that everyone should go to college. Increased demand has resulted in increased cost. The education reform movement has puts more and more emphasis on getting kids prepared for college. How about getting them ready for life, including the possibility that college may not be the right choice.
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| 102 | biliruben
ID: 41431323
Wed, Feb 06, 2013, 17:03
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Agreed. We should definitely work on a non-stigmatized path to vocational schools that can lead to a living wage. No doubt.
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| 103 | Frick
ID: 2193319
Thu, Feb 07, 2013, 11:04
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We also need to decide what is a living wage, and what standard minimum living conditions we want. The amount of living space per person that we think of as acceptable has increased dramatically from the past. How many of our parents or grandparents grew up where they didn't share a bedroom with multiple siblings. Maybe it was growing up with large families, but hear stories about putting a baby in a dresser drawer were not uncommon. Radios were rare, let alone TVs. We have a much higher standard of living today, then 50 years ago in general.
What are the basics that a person/family should have? I don't know if we should include health care in this, because while that is a very related subject, also changes the definition substantially.
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| 104 | Perm Dude
ID: 201027169
Thu, Feb 07, 2013, 11:15
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I can't see how we can't include health care in that--it muddies the waters but is surely a necessity.
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| 105 | boikin
ID: 430211013
Thu, Feb 07, 2013, 11:53
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But the same question can be asked about health care, does that mean unlimited? If not what are the limits?
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| 106 | Perm Dude
ID: 201027169
Thu, Feb 07, 2013, 12:20
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Frick is specifically talking about the basics. I think, definitionally, this is limited.
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| 107 | Frick
ID: 2193319
Thu, Feb 07, 2013, 12:43
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If anyone is interested in carrying out this thought experiment, I say that we leave health care out of the equation. Once we have figured out what a living wage is that is sufficient to meet our definition, we can add health care later.
What are the basic necessities? Housing, food, clothing? There are going to be different costs associated with some of these depending on the area, so let's not concentrate on the actual costs, but how we define the minimum need for the necessities? For example, for housing, should every person be able to afford their own home? Or is an apartment sufficient? How much space for each person?
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| 108 | Biliruben
ID: 358252515
Thu, Feb 07, 2013, 15:06
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Definitely an apt. I'd say somewhere between the 1st and 2nd quartile of rent for a 2 bed, for the area 5 miles around where you get a job.
Food - $200/head/mo
Phone/utils - 200
The real expense is a car. We have, as a country, so underfunded infrastructure for transit, walking and biking that a car is almost mandatory for a working person in most places.
And that averages over 10k a year.
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| 109 | boikin
ID: 430211013
Thu, Feb 07, 2013, 15:57
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so what does that add up too?
one car per household or person?
so for a single person, about 2k a month so 24K a year? what does that work out to hourly 11.50 an hour? though I was pretty liberal on the expenses not sure cost of vehicle is 10k a year? maybe on the low side of 8.50, 16k a year.
the math gets more complicated if you are a family.
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| 110 | Biliruben
ID: 358252515
Thu, Feb 07, 2013, 16:18
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Clothes, retirement, at least money to go on vacation every few years. Some minimal entertainment money - go to a movie or something now the again.
We are humans not robots after all. Our sole purpose isn't (hopefully) to work sleep and die.
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| 111 | Biliruben
ID: 358252515
Thu, Feb 07, 2013, 16:20
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In Seattle I would put around $15/hr.
Rent is tough to find below $1000/mo.
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| 112 | boikin
ID: 430211013
Fri, Feb 08, 2013, 12:32
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It would seem like it is very location dependent number. I know people who survive quite well on $10 an hour though they don't live very extravagantly. They are also paying rent in neighborhood of $300-$350 range, which would save them 7200+ over Seattle.
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| 113 | Frick
ID: 2193319
Fri, Feb 08, 2013, 14:06
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That is why I wanted to leave specific dollar amounts out, cost of living factors could be added to the base amount. Housing would definitely need one, what about transportation. Do urban residents "need" a car, or is public transportation sufficient? Again, we are trying to define what should we consider the minimum needed for the minimum living wage.
For our hypothetical, let's assume a family of 4. What should be the minimum residence they need? One bedroom, 2, 3?
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| 114 | boikin
ID: 430211013
Fri, Feb 08, 2013, 18:05
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maybe SQ ft would be better number then number of bedrooms?
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| 115 | Nerveclinic
ID: 410331010
Thu, Feb 14, 2013, 01:50
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Bili around 50K for a 4 year degree. When you take into living expenses, an out of state degree can end you are 200K in loans when you graduate.
I don't understand your math. 150K in 4 years of living expenses? That's 37K a year? When you are in college you rent a room in a house with 3 other people and you eat a lot of peanut butter and tuna. There's no reason living expenses should be that high. Next you get a job while in school. I delivered pizza, I waited on tables. I always worked in college. Then if the kids poor, there is financial aid. My nephew is middle class and so far he's over $12,000 free aid and counting and he has just started applying. (He is HS Senior)
Maybe some of your math is skewed because you are in Seattle? At UGA in Athens Georgia 4 kids rent an old house and each one gets a room. You don't have a car. You can live really cheaply this way.
They come out of school with good grades and a degree in science, and they work at The Gap because of the economy and no good jobs. Their already huge debt balloons, and their life is pretty well fcuked
We are in the middle of the worst financial crisis since the great depression. Lots of people are screwed, not just recent college grads. Until we are out of this mess this will be the case. But this too will pass. It only feels like the world is coming to an end.
The people with student loans, it's very low interest and you can take a long time to pay it back. The economy will get better and they will get better jobs. Or are you that hopeless?
Frick: Not really, but we have set the expectation that everyone should go to college.
And with good reason. Have you seen the difference in unemployment rates between college grads and non grads? I don't have the exact numbers but the gap is significant every time I see it sited. How much is that worth?
Also how much more does a college grad make then a non grad on average?
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| 116 | biliruben
ID: 41431323
Thu, Feb 14, 2013, 04:09
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The 50K was in-state tuition (12K at UW) vs. out of state (30K) plus living expenses. UW estimates total costs per year at between 43-48K.
Yeah, I delivered pizzas in undergrad too. And washed dishes, painted houses, canvased houses and worked in a computer lab in summer and holidays. Taking into account car repairs and gas, I'm guessing the pizza job was about a wash, though they were fun guys to work with. Of course my tuition was only $700, so who cares.
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| 117 | Frick
ID: 2193319
Thu, Feb 14, 2013, 08:24
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Comparing college grads vs non-college grads is kind of a self-selecting population. Would you agree that people (in general) who go to college are harder working and smarter then people who chose to not go to college, or due to poor HS grades not able to get into college. Is it then surprising that they are able to parlay their hard work and greater intelligence into higher paying jobs? Again, I'm only speaking in generalities.
Do you consider a trade school equal or the same as college? I wasn't equating them, but even then, there are plenty of professions where a college degree is nothing more than 4 years of debt. Could a college degree help the person? Possibly, but I'm not sure it is worth the cost. Going to college and taking some business classes might be useful to any number of people I went to HS with who know have their own businesses. But, the majority of the information they learned would not be useful to them. Most of the information that would be useful to them is available locally or at the state level about how to start and run a small business. Or they will learn from their mistakes in the real world.
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| 118 | biliruben
ID: 41431323
Mon, Feb 18, 2013, 19:37
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No doubt. I'm only advocating providing opportunities that don't turn into traps. We want those smart and hard-working enough to benefit from college, and in-turn benefit our nation with innovation and productivity, to have just as much opportunity to do so, whether their parents are rich or poor.
They won't ever have the access and support that will allow them to have exactly the same opportunities, but we have been going backwards, as a nation. It is now significantly harder to pull yourself out of poverty than it was 25 years ago. We compare horribly to those "elitist blue-blood" nations of Europe in providing stepping stones to allow the talented to thrive. We are effectively turning the American dream into the American nightmare. We have to reverse course.
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| 119 | Boldwin
ID: 221322014
Wed, Feb 20, 2013, 18:13
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I am not a goldbug, but if you are, here's a headsup.
I don't trust the goldtrade farther than I can throw a brick, and I don't know how significant that info is in the mid and longterm.
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| 120 | Boldwin
ID: 45151272
Wed, Feb 27, 2013, 19:24
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This really belongs in the 'Silver Linings' thread but someone decided we didn't need a good news thread.The Dollar Gets Stronger, Stumping Our Chattering Classes
There are times when, between fiscal cliffs, sequesters and the ever-growing piles of unfunded entitlement commitments, it looks as if Washington, DC, is doing its best to wreck the economy.
But the dollar is blessed with weak competition. The euro is a disaster, the yen is a mess, and the renminbi isn’t ready for prime time. Compared to the rest of the world’s currency, the dollar looks pretty good; it’s the healthiest patient on the floor.
The people who continually and habitually undersell the United States usually have a point when they note American weaknesses that could cause us trouble down the road. But they forget to weigh in the weaknesses and liabilities of the competition.
Take the Europeans, who spent the last decade dissing America’s economic and political mistakes only to discover that in their vaunted euro they had created one of the truly great policy disasters in the economic history of the human race. Against gold, the dollar has been a disaster, falling from about $350 an ounce in the Clinton years to near $1600 today. But against other fiat currencies, the dollar continues to offer more stability, deeper markets and more competent and predictable stewardship from a better managed central bank. - Philip Ball writing for Prospect Yeah, well I'd love to put my trust in that, but I notice he didn't discuss Russia, and that was where he made his mistake.
Russia has zero national debt, a tax rate of 13% on most income, and pays out very little in socialized benefits. Forget that 'Cadilac health plan'. They don't even have a 'Trabant health plan'. Pensioners without dependents get a monthly pension of 2,522 rubles, or converting that, $82.76.
Give them another decade and they will be blowing our doors off. Probably in less time than that.
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| 121 | biliruben
ID: 41431323
Thu, Feb 28, 2013, 01:18
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So, your elderly eating catfood is a good thing?
Also, what's good about a "strong" dollar again? The word strong sounds macho? We can buy more plastic crap from Malasia to throw in the landfill?
You know our exports boom when the dollar is "weak", right?
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| 122 | Boldwin
ID: 22130283
Thu, Feb 28, 2013, 04:33
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You do have some inkling of how bad losing 'world reserve currency' status would be for us, right?
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| 123 | biliruben
ID: 41431323
Thu, Feb 28, 2013, 08:40
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You seriously think rubles will start being the currency of choice?
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| 124 | Perm Dude
ID: 201027169
Thu, Feb 28, 2013, 08:47
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The Right is doing everything they can to trash the dollar, yet seem genuinely alarmed that the effect of their messing around with the economy here might mean the dollar isn't the solid currency of choice anymore.
A bunch of petulent children they've turned into. "I spilled my milk again! Waah! What do you mean we are almost out of milk? Waah!"
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| 125 | Boldwin
ID: 261462818
Thu, Feb 28, 2013, 20:00
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Actually throwing a temper tantrum whenever the family doesn't spend twice it's annual income buying you what you are bawling for, is your behavior.
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| 126 | sarge33rd
ID: 4609710
Thu, Feb 28, 2013, 21:08
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actually, it is not. That, is yet another boldwin fabrication and projection...aka ...lie.
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| 127 | Boldwin
ID: 8324919
Wed, Apr 10, 2013, 08:35
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Things are booming.
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| 128 | biliruben
ID: 59551120
Wed, Apr 10, 2013, 09:49
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These things are not new. They existed even before the recession hit. They existed during the 90s economic boom.
They only exist for you now because their is a democratic president you are trying to vilify.
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| 129 | Tree
ID: 40328723
Wed, Apr 10, 2013, 10:44
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this book came out in 1995.
as bili said, this is nothing new. new, to you, because of your selective vision.
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