Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening.
Japan is suffering its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly two decades. Meanwhile, the job market in the United States, at the epicenter of the global downturn, is the worst since World War II. And emerging economies are contracting at a pace few had predicted just months ago. Even China, whose economy still is growing at a 6.8 percent annual pace, is grappling with vast numbers of the unemployed, raising fears of unrest.
Hmm, let’s examine why this is such a surprise.
1. American jobs sent offshore lowering buying power.
2, Usurious credit card companies gouging the public putting everyone in debt.
3. Bankruptcy laws changed so the credit card companies always get their money.
4. Endless nickel-and-dime fees with cascade fees implemented by banks.
5. Sub prime mortgages.
6. Legal loan sharking and no consumer protection.
7. Multi-billion dollar scams thanks to lax or incompetent regulation.
8. H1B Visas rampant when American workers available.
9. Illegal Mexicans working in US, paying no taxes, sending money out of country to Mexico
10. War in Iraq that was supposed to be over in a few weeks at a cost of “a few billion.”
11. More money spent rebuilding Iraq than USA
12. China OEM to the world ruining manufacturing base everywhere else
13. Sarbanes-Oxley hurting the bottom line and restricting public offerings while protecting nobody
Add some of your own!
I think there are valid doubts about whether the stimulus package will help. Of course, you can argue what will happen if there is no stimulus. But with this stimulus the federal deficit is likely to go even higher. I saw an interesting article, I think, on
http://www.recessioninfocenter.com
Worker bees encouraged to invest their retirement savings in 401k’s where their money will safely grow into potential millions. Unfortunately, “financial geniuses” used the influx of cash to prop up the market, then cashed out their own investments before the market crashed. Funny how that worked out.
I think the extreme price of oil (and thus gas and especially diesel) didn’t help things. People has to rack up enormous amounts of cc dept just to buy fuel to get to work and back. Table the “let’s go green” crap for another conversation. People were contracting at all seams because they were running out of money. I’m one of them.
Now I’m paying through the nose to pay back that money owed and at the same time still trying to live.
Gas prices did it to me. Plain and simple.
I really like the views put forth by John. A lot of this started by executives sending jobs overseas and then the banks allowing anyone to buy a home. We should always be aware of such bad decisions because of the way the economy ripples to other economies. I don’t see any other precursors to this problem; just bad decisions. Now we are all suffering because of this. Well, not the banks and the oil companies.
You forgot blame Canada, John. Are you loosing your edge?
Lack of governmental regulation, or more to the point, government complicity in the transfer of even more wealth to the already obscenely rich and greedy is a huge factor. The public have been treated like mug punters and scammed by the government, financial industry and mega corps to the point where there is just no more money to scam and all thats left is debt. Just plain old fashioned greed on apeshit.
I’m from Canada, and my wife is American. We both over the last 10 years shook our heads in disbelief at how people were buying properties in Florida and elsewhere with these crazy mortgages. What moronic country would allow their banks to legally give out mortgages at 100% or more of the value of the property and then allow the person to pay interest only at a balloon rate.
But the other side of it is how stupid do you have to be to actually take out a mortgage like this.
Part of me blames the government for not properly regulating the banking industry, and the other part blames the people for sinking themselves.
All I can say is from our point of view “Real Estate Fire Sale!!!!”, we had been postponing buying our retirement home, but not now, homes we looked at that we we were looking at that was over US$700K are now possible to buy foreclosed for under US$300k.
Thank you!
“A lot of this started by… the banks allowing anyone to buy a home.”
Why do you think banks did this? Do you think banks wanted to loan money to people who they knew were deadbeats? Hint: Look at who is in the White House now and look at what he was doing during the 1990s in the court system.
“11. More money spent rebuilding Iraq than USA”
I say we bring all of our boys back home from everywhere. Europe, Korea and Japan have the money to pay for their own defense. Ron Paul says a lot of good things that I agree with in this regard. Unfortunately he is a racist nutball (I’d be happy to provide evidence upon request but most of you already know what I am talking about) and sooooo many of his supporters are insane 9/11 troofers.
The US economy has been consumer driven for the past twebty years. To feed our insatiable thirst for the newest and best, it was necessary to open the credit markets up to an astonishing, and in retrospect, dangerous degree. When the driving force behind the expansion disappears, so does the expansion.
Forget recession – we are now in a deflationary spiral, which is a defining factor in a depression. The last time we were here, it took WW ii to get us out. The New Deal didn’t do it and neither will this so called stimulus package.
I count myself fortunate I live on 23 acres and can grow much of my own food, fish in the river right behind my house and hunt in the woods around here.
Not lack of regulation, lack or OVERSITE, government officials and poltroons not doing thier jobs. This is not a surprise to anyone, the government never does a good job at anything without graft or cost overruns.
And we just made government a lot bigger.
“I’m from Canada, and my wife is American. We both over the last 10 years shook our heads in disbelief at how people were buying properties in Florida and elsewhere with these crazy mortgages.”
That’s rich. Tell me, Mr. Canada. How are things in Vancouver and Toronto and “Regina real estate up 300% since 2002 because everyone wants to live here” doing? Don’t bother. I have been blogging about this since 2004 and have seen every excuse in the book. Canada is where California was in 2007, just before the looooooong slide.
No crazy mortgages in Canada? ROFL! Canada was POLLUTED with zero-down 100% loans and 40-year amortizations. 40 years!
“But Canada is an exporter. We provide timber for America’s housing industry and we export oil.” Well, the US housing industry has collapsed and oil is headed down to $25. Where does that leave you?
Having H1B Visas dosen’t hurt the economy of the US. In fact having smart foreigners come to the US help build companies that make money for the US. I’d rather have all the smart people HERE then THERE (where ever THERE is).
As for illegal aliens working in the US, yes they send money away, but they also spend money here by living here. They also fill jobs that nobody would do on the cheap (well, until maybe now). Who benefited the most here? The illegals or the cheap people illegally hiring them?
The big problem with what has happened is that TOO many people only look to the short term for all their answers. “What does it cost me NOW?!?” Well, everyone got their short term savings. Now to pay the long term piper.
We’ve had a steady diet of pundits and reporters telling us what’s fairly obvious – the economy crashed. (Still think the market bottomed in Nov ’08, John?) What I am craving now is the discussion of what we do now, each of us. I’m still employed, paying down debt, cutting corners like crazy. But I have unemployed family members, friends, and business acquaintances. I don’t run in the crowd buying Teslas and $100 bottles of value wine at Costco. I’m buying cans of soup at Costco. What is the next economy going to look like and what parts do we the readers have in it?
1) According to our own treasury, China has over $6 billion US cash reserved on hand as of the end of 2007. Talk about weapons, who needs guns? Just imagine what would happen if China was to drop several billion, in cash, on the world money market overnight. Talk about currency not worth the paper it is written on.
Sorry, it was late when I posted this the figure is $6 trillion not billion.
John, you pretty much summed it up; except, you forgot about computers (better automation) and robots replacing people.
Can’t have a economy dependent on ravenous consumers when they have no income.
The economy is going to keep getting worse as the ratio of people out of work for every job keeps increasing. And of course that will cause more job losses.
It’s ironic unwitting people are so demanding about having computers in the classroom so as to have a world class education. What a bunch of bunk!!!!!!!!!
John, you left a BIG one off your list:
14 Untold Trillions of dollars spent year after year after year on imported oil. This has to be one of the top three things sucking the wealth out of this country, turning our money into $#it and turning the U.S. from the richest nation in the world to the world’s biggest debtor.
(It totally dwarfs the money sent home to Latin America by the illegals. A lot of them do pay taxes anyway, as they are withheld from their wages. How many of them ever file a return or try to get a refund?)
If we had had anything like a sane energy policy for the last 30 years, we wouldn’t be in such a hole now. Heck, even if we had just gotten Clinton’s “BTU tax” we’d be better off. I know this will sound crazy to those with the cheap energy monkey firmly on their backs, but gasoline prices should have been approximately twice what they actually have been since at least 1973, back when we were reminded of just how insecure our supply is. If that had happened, we would probably have cut our imports by at least half and thus the country would be worth approximately 30 Trillion dollars more than it is now.
As it is, it’s looking pretty seedy; I don’t know if I’d buy it for a dollar…
I’d place most of the blame on two types of speculators who were allowed to do their bidding. Base rotten layer have been laid by real estate mass speculation (ex. flip-over houses “business”) while the executing stab was driven by oil speculators who raised oil prices to insane levels at the time when production was at the high and demand dropping. Without the first we wouldn’t have recession. Without the second we wouldn’t be on a doorstep of depression.
And as “conspiracy theorist” I see way too much coincidence between the time when the economy-executing oil prices were blown up and the American elections. Was American economy killed as the Iraq excuse to win election for Democrats wore off and new and better reason was needed? I’d say likely. Waiting for the old age and some deep-throat from Meryl & Friends publishing how they have done it.
#11, despite our problems, in the long run, Canada will be far better off than the US, that’s for sure, for a whole variety of reasons that range to relatively little debt to a better banking system to a schwack of natural resources the US would love to have, including a good portion of the world’s fresh water and oil reserves. We may go down, but over the long term, we’re in good shape.
“14 Untold Trillions of dollars spent year after year after year on imported oil.”
It’s not trillions each year, but I agree that we should be doing everything possible to bring the true amount down.
A Hope and Change pop quiz as Barry orders 17,000 American soldiers to war: Who was serving on Freddie Mac’s board while they were engaged in the shady business practices that led to their downfall?
Answer: Rahm Emanuel, Barry Obama’s White House Chief of Staff.
Um, you all can stop with the “Chinese debt threat” bullcrap.
The MOST they could probably do is push the market for securities down by 10 or 15 % by starting to sell. Traders are not stupid. They would realize the Chinese are selling out and the markets would dry up completely.
So, the most threat that the Chinese have: freezing all credit markets. Which is already where we are. And if they do so, NO ONE will trade credit with them again, which effectively destroys their economy. Consider it the ‘Nuke’ option, absolutely not going to happen.
Not to mention, they paid quite a bit for those securities, which in a huge sale they would LOSE. Right now they just have to sit and absorb the interest, which, while not inconsiderable, is still not deadly to us.
At the moment, our biggest problem is deflation caused by commodity and real estate bubbles. There is no easy way to deal with it as you cannot force people to be consumers if they don’t want to be or cannot do so.
Without markets to absorb supply everything will just stop dead.
The truth is, I’ve been wondering for years how industries have been able to start pricing “models” at the high end, then discount months later to move stock while pushing more “models” on the consumer. This works in fashion, but they tried to apply it to cars and to pcs/semiconductors.
I never ever buy an intel or amd chipset or system when it first comes out, as the price is guaranteed to drop 15-25% within 6 months. Why has no one ever questioned that business model for durable goods?
Executives sending jobs overseas
seems to equal
Consumers sending $ overseas.
RBG
Here’s my list:
1. The Federal reserve
2. Government
3. Theifs
4. Idiots
Sounds like Reaganomics to me.
How does that explain a global downturn?
If jobs are going overseas, then shouldn’t they be growing?
#19, DusanMal, I’m confused. You said:
“Waiting for the old age and some deep-throat from Meryl & Friends publishing how they have done it.”
Do you mean Meryl Streep? Or Merrill Lynch?
And # 27 MikeN asked:
“If jobs are going overseas, then shouldn’t they be growing?”
A lot of those jobs were making things for us (the U.S.), and since we’re not buying them now, they’re hosed as well.
Don’t forget these companies shoveling money into tax havens in certain Caribbean countries.
I think John was onto something the a few weeks ago in his conversation with Horowitz when he said the 4 day work week is happening just not how we thought. In the past increases in productivity were shared with labor. There’s been a decoupling of that social agreement so a company needs labor for less time and wants to pay them less but then demand drops because no one has any money to buy all this stuff increased productivity is generating.
#27–Mike==”How does that explain a global downturn?
If jobs are going overseas, then shouldn’t they be growing?” /// Yes, and they are. But you know what? 1.3 Billion wage slaves can absorb all .2 Billion jobs in the USA and then burp and say: “May I have more please, Sir?”
The world has an excess of capacity. Machines/Factories are like that==any factory running 24/7 can outstrip demand.
Everything has to be “Managed” for maximum advantage and too many idiots think that management/regulation/government involvement is some sort of affront to their dignity (or power!).
This is a very powerful MINDLESS bias in most peoples minds. I’ll give you an example: “Why is there a sharp downturn in world economics?”===read Marx.
heh, heh.
((PS–yea verily it really is becoming more clear to me that we are screwed. Going into a depression and Obama Economics is worse than inadequate–it is more of the same that brought us to this precipice. He says otherwise, and then gives tax breaks DURING TWO WARS while knowing that they are not stimulative. Why? Exactly – – – – Why?
Economist hardly agree about anything. There is a general accepted rule that a GDP decline of 10% falls into the realm of a depression. We may see that word start popping up by the last quarter of this year.
#11 Canada has the soundest banking systems on the planet. That’s what The World economic form said in Oct 2008. The USA came in 40th.
Canadian banks never offered Arm loans where you don’t even cover intrest payments.
Canadian banks never offered intrest only loans without extra insurance.
Canada does not offer 40 year loans anymore.
They were cut off a year ago.
If you wanted to put less down than 5 percent you would have pay for extra insurance.
Another thing Canadian banks did if you wanted a loan for a house was ask for proof of income.
That is a T4 slip from the last years tax return. Then they would call your Co to see if you still had a job.
So how you can say Canada is like California 2 years ago is just wrong.
Get you facts together. This is not FOX TV.