The US Economy

[Americano]

All the election campaign fallout I read seems to dwell on placing blame with little direction other than 'it'll get better or it'll get worse' assurances by leadership, a failed financial sector and the Fed. That and the paid for scholarly opinions that bore me to tears aside, what is going to happen?

It's a global economy and the US standard of living demands labor costs that are non-competitive in a global marketplace for consumer goods and services. How far is the drop in labor cost (and subsequently cost of living) before those goods and services made by Americans can provide acceptable margins, profit, in a global marketplace?

The US is somewhat screwed by being heavily dependent on imports to facilitate consumption, with an economy being 72% driven by consumer consumption. Unless there's no end to the credit other nations will extend to the US based on our failing currency won't our economy eventually fail unless it becomes labor competitive for consumer goods and services?

[Michael]

It's a global economy and the US standard of living demands labor costs that are non-competitive in a global marketplace for consumer goods and services. How far is the drop in labor cost (and subsequently cost of living) before those goods and services made by Americans can provide acceptable margins, profit, in a global marketplace?
Well, German standards of living are pretty much equal to US standards - and German wages are, on average, higher than the American wages. And Germany still leads as the world's number one export nation. How come the Germans can do this but the Americans can't?

I'm not suggesting that US ought to copy Germany, my point is that the combination of high wages, high taxes, and high standards of living is not necessarily a recipe for economic decline.

Interestingly enough, of all the western nations, USA has the lowest average wages, the lowest minimum wages, the lowest labor-worker safety regulations, the least environmental regulations, yet USA is the one that is sufferring the most massive offshoring of manufacturing jobs. This seems odd.

Canada (and Germany and France, etc) have much higher wages, higher labor/eniviromental regulations and higher taxes than the USA - and also extensive manufacturing interests (often aimed at exporting to the US market).

Fact is, the US economy has lots and lots of problems. High wages is essentially not one of them.

The US is somewhat screwed by being heavily dependent on imports to facilitate consumption, with an economy being 72% driven by consumer consumption. Unless there's no end to the credit other nations will extend to the US based on our failing currency won't our economy eventually fail unless it becomes labor competitive for consumer goods and services?
Yes, this is odd. I can't figure out why the US bleeds jobs unless it can keep industrial wages down to compete with developing nations, but other western nations seem to thrive on export economies with much higher wages. :ummm:

[The Drunk Girl]

Being a student this is where I feel I get hit the most with the economy. From the time we are children we are taught from our parents and other institutions that we MUST attend college and obtain a degree to make it in life. It sounded like an alright idea, until I decided to further my education. I have seen and experienced quite a bit concerning the economy over the past few years.

I blew my free ride to the first university I attended and since then I have been royally fucked! When I decided to return to school, I went to a branch of a community college in the small county I was living in. This is where I started seeing problems.

Due to living at home with my parents (and my mother taking money out of her retirement) I did not qualify for any grants therefore having to take out student loans. FAFSA even sent me a letter stating that my EFC was over $20,000! I about croaked. There was no way my parents could fork out that much money for my college in one year, and if that was the case I sure as hell wouldn't be going to a community college. I found a job, doing what I do now, and started making $7/hr (within a year and half I was making $8.25).

In this small county, the economy itself is in horrible shape. Most people work small jobs, are on government assistance, or drive at least 30 minutes to the next city to work in a factory just to make a little more money. To my surprise when I entered the first day of classes, there were only a few students that were in my age group. Everyone else was 40+. A local factory has been shut down and the jobs shipped out of the country.

These poor people had been given this option: In order for them to gain their unemployment, they had to attend school and obtain a degree in two years. Their school and books were all paid for. Sure this might sound like an alright deal, but most of these students were lucky to have even graduated high school, let alone middle school when they were younger. A majority of them had to start out taking remedial courses just to catch up, which also interfered with them gaining their degree in two years. Most wound up dropping out, because school was "too hard", they had no one to watch their kids/grandkids (yes, I had a class with a 70 year old man), or they could find a job making $8/hr and be alright according to them. This was their standard of life and that was alright.

I stayed there for two years, finishing out my basics before I transferred to another school. Before I was able to work 40 hours a week or more and still attend school. I hate to admit it, but even having worked that many hours and living at home, I was having a hard time supporting myself. I was always boggled at how other people in this county supported whole families on the same amount or less of an income than what I was making.

Now, that I am on my own and living with someone else I still find that I struggle. I am actually making more money an hour that what I was prior, but I am not able to work full-time. I thought I would have it made this year while filling out my FAFSA: I had finally reached the age where I didn't have to include my parent's tax information and I met the requirements in the tax bracket to finally get some assistance. WRONG! I received another nice letter from the state stating that although I did qualify for the Federal Pell Grant, but due to the economy there wasn't enough funding to go around. For the first time, since first enrolling for college I had qualified and wasn't going to get it. Naturally, I was and still am tore up about that. And, once again I am going to have to apply for the subsidized and unsubsidized loans just to attend the university I am at now.

The Student Loan People are going to get a nice chunk of money once I get my fucking degree. I guess my point in all of this is: The ones that truly need the help, the assistance don't. They beat this idea into our heads, knowing full well that they are going to screw us over good. I guess it's too bad, I don't work for GM or some large ass bank so I can a fucking handout.

[Leprechaun]

The idea that lowering wages is a necessity for a better economy is ludicrous to me for many reasons.
Firstly it makes little economic sense, when wages increase so too does expenditure thus increasing employment as income = expenditure. We only have to look to low wage times eg. the industrial revolution where we had miserably low wages and yet high unemployment. Unions fight for wage increases and consumption increases. Why would someone set up a radio factory if noone can afford radios? The only industries that can survive in a low wage economy is food etc.
Secondly what use is economic growth if the vast majority of people suffer a drop in their standard of living? Any fool can see that keeping a low GDP with a high standard of living is better than a high GDP with a low standard of living. Who does this economic growth go to? Not the workers who suffer pay cuts but the elite who suffer no such cuts.
The idea that low wages are better is an absurd concoction of the neo-liberalist school based on even more bizarre neo-classical elements such as the Iron Law of Wages which was later proved to be wrong in it's entirety. The most worrying thing is however that lower wages = growth has been incorrectly made to seem the natural and proper state of affairs. That is indeed worrying.

[Americano]

The idea that lowering wages is a necessity for a better economy is ludicrous to me for many reasons.
Firstly it makes little economic sense, when wages increase so too does expenditure thus increasing employment as income = expenditure. We only have to look to low wage times eg. the industrial revolution where we had miserably low wages and yet high unemployment. Unions fight for wage increases and consumption increases. Why would someone set up a radio factory if noone can afford radios? The only industries that can survive in a low wage economy is food etc.
Secondly what use is economic growth if the vast majority of people suffer a drop in their standard of living? Any fool can see that keeping a low GDP with a high standard of living is better than a high GDP with a low standard of living. Who does this economic growth go to? Not the workers who suffer pay cuts but the elite who suffer no such cuts.
The idea that low wages are better is an absurd concoction of the neo-liberalist school based on even more bizarre neo-classical elements such as the Iron Law of Wages which was later proved to be wrong in it's entirety. The most worrying thing is however that lower wages = growth has been incorrectly made to seem the natural and proper state of affairs. That is indeed worrying.

As the US dismantled most import tariffs in the 1980s for other than subsidized industries it doesn't have any means to compete with lower foreign labor costs. Reenacting them (tariffs) now to balance trade costs would scream protectionism, not the smartest or even a viable policy for a debtor nation.

[Leprechaun]

Lowering 'labour costs' reduces consumption and that reduces income. The economy would suffer.
Aside from the economic argument let's take a standard of living argument. Why would you want growth if it lowers your living standards?
The real problem is that profits are too high. Why do I say that? because since the 1980's wage costs have been falling as a percentage of profit and so blaming wages is not only damaging but also incorrect.

[Americano]

Lowering 'labour costs' reduces consumption and that reduces income. The economy would suffer.
Aside from the economic argument let's take a standard of living argument. Why would you want growth if it lowers your living standards?
The real problem is that profits are too high. Why do I say that? because since the 1980's wage costs have been falling as a percentage of profit and so blaming wages is not only damaging but also incorrect.

I have no argument with the first part of your post, that's the natural flow of a consumer based economy.

What people desire as a standard of living and what an economy offers are often two entirely different subjects.

Other than the recent financialization bubble and Wall Street I haven't seen profits rising for most US industries. Until the economic collapse their ROIs had been much the same for decades.

[Leprechaun]

I have no argument with the first part of your post, that's the natural flow of a consumer based economy.

What people desire as a standard of living and what an economy offers are often two entirely different subjects.

Other than the recent financialization bubble and Wall Street I haven't seen profits rising for most US industries. Until the economic collapse their ROIs had been much the same for decades.
Wages as a percentage of profits have been falling massively. http://www.politicalaffairs.net/article/articleview/3318/

[Michael]

Wages as a percentage of profits have been falling massively. http://www.politicalaffairs.net/article/articleview/3318/
I think that is due to the massive spike in financial [fake] profits over the last half dozen years.

Overall, average wages in the US have been stagnant, just like average corporate profits.

It is the massive 'bubble' profits in the financial-banking sector over the last 10-20 years that is causing the statistics to shift.

Financial profits have doubled their share of the GDP over the last 20 years.

[Michael]

What people desire as a standard of living and what an economy offers are often two entirely different subjects.
Yes, this is a very important and relevant point regarding the US economy.

There are many indications that the US citizenry demands an average standard of living that is not sustainable or supportable by the US economy.

[Leprechaun]

I think that is due to the massive spike in financial [fake] profits over the last half dozen years.

Overall, average wages in the US have been stagnant, just like average corporate profits.

It is the massive 'bubble' profits in the financial-banking sector over the last 10-20 years that is causing the statistics to shift.

Financial profits have doubled their share of the GDP over the last 20 years.
While I must confess ignorance with regard to the American situation, the article I posted (after two seconds of googling) seems to concur with the idea of wage vs. profit trends. I am more familiar with the Irish situation where we see the same thing. Here are two reasonably wealthy but 'friendly' articles regarding the situation in Ireland:
http://www.unitetheunion.com/pdf/The%20Truth%20About%20Irish%20Profits.pdf
http://www.unitetheunion.com/pdf/UNITE%20-%20The%20Truth%20About%20Irish%20Wages%20(April%20 2008).pdf (http://www.unitetheunion.com/pdf/UNITE%20-%20The%20Truth%20About%20Irish%20Wages%20%28April% 202008%29.pdf)

The fact is that wages have been declining in real terms since the 80s while profits are either rising or at the very least stagnant. This has lead to a reduction in purchasing power leading to consumers to replace real income with credit, the easy availability of which has lessened the impact of low real wages. This credit bubble is essentially the cause of our problems. From credit cards to mortgages. If worker income was higher (and consumers were not reliant on easy credit) then mortgage repayments would be easier for those involved etc. The availability of credit has hidden the lack of real wages.

[Leprechaun]

Yes, this is a very important and relevant point regarding the US economy.

There are many indications that the US citizenry demands an average standard of living that is not sustainable or supportable by the US economy.
Ah but it is. In America like most economies in the world the wealth (and income) is massively concentrated.
http://mailman1.u.washington.edu/pipermail/pophealth/2006-April/001241.html (Again another two second google but this confirms with all other articles I have read, some of which are quite lenghty, in fact these figures are somewhat moderate compared to some I have read),

[Michael]

While I must confess ignorance with regard to the American situation, the article I posted (after two seconds of googling) seems to concur with the idea of wage vs. profit trends. I am more familiar with the Irish situation where we see the same thing. Here are two reasonably wealthy but 'friendly' articles regarding the situation in Ireland:
http://www.unitetheunion.com/pdf/The%20Truth%20About%20Irish%20Profits.pdf
http://www.unitetheunion.com/pdf/UNITE%20-%20The%20Truth%20About%20Irish%20Wages%20(April%20 2008).pdf (http://www.unitetheunion.com/pdf/UNITE%20-%20The%20Truth%20About%20Irish%20Wages%20%28April% 202008%29.pdf)

First of all, I haven't had time to read these two pdf's yet, but I certainly will.

I do believe that the general trend in Ireland is similar to the general trend in Iceland, Estonia, Latvia, Poland, Australia, Britain and the USA. All of these countries have been pursuing a very similar 'neoliberal' economic policy for the last twenty years or so (with varying degrees of success and application).

These policies are what made Ireland the "Celtic Tiger" of the 1990's and a basket case now. Very similar process as found in the USA with rising overall corporate profits and stagnant average wages.

But the 'rising overall corporate profits' tends to hide the fact that corporate profits really only rose in one sector - the financial-banking sector.

The fact is that wages have been declining in real terms since the 80s while profits are either rising or at the very least stagnant. This has lead to a reduction in purchasing power leading to consumers to replace real income with credit, the easy availability of which has lessened the impact of low real wages. This credit bubble is essentially the cause of our problems. From credit cards to mortgages. If worker income was higher (and consumers were not reliant on easy credit) then mortgage repayments would be easier for those involved etc. The availability of credit has hidden the lack of real wages.
Yes, this is very true and is at the heart of the US financial crisis.

I've not been following Ireland's problems as closely, but it would be interesting to see what is the average consumer debt level over there - has that spiked up over the last ten years the way it has in the USA? I suspect so given the housing bubble that was going over there.

[Leprechaun]

First of all, I haven't had time to read these two pdf's yet, but I certainly will.
They are about the Irish economy but I believe many of the figures were complied by the US Labour Bureau of Statistics, the OECD etc.


I do believe that the general trend in Ireland is similar to the general trend in Iceland, Estonia, Latvia, Poland, Australia, Britain and the USA. All of these countries have been pursuing a very similar 'neoliberal' economic policy for the last twenty years or so (with varying degrees of success and application).
That is most certainly true, that's why I was fairly certain that my comment on American wealth distribution and wages would hold to be true.


These policies are what made Ireland the "Celtic Tiger" of the 1990's and a basket case now. Very similar process as found in the USA with rising overall corporate profits and stagnant average wages.
Yes, the manipulation of capital became an industry and due to the fact it is artificial growth (ie. nothing more is produced, no more utility is provided etc.) it was inevitable that it would collapse, in fact much of the discussion in my last two years of economic classes was a question of when.


But the 'rising overall corporate profits' tends to hide the fact that corporate profits really only rose in one sector - the financial-banking sector.
In Ireland, the construction industry boomed as did all other industries due to the increased consumer demand and so profits rose across the board but I'll concede that most were made in the financial/construction industry.



Yes, this is very true and is at the heart of the US financial crisis.

I've not been following Ireland's problems as closely, but it would be interesting to see what is the average consumer debt level over there - has that spiked up over the last ten years the way it has in the USA? I suspect so given the housing bubble that was going over there.
I don't think consumer debt is a major issue but negative equity on mortgages is a major one as houses have collapsed in value.

[Americano]

Even though Ireland's economy is suffering from the same bubble effects as the US and UK, you do have the Euro. We individuals in the US (and UK) suffer not only from targeted asset inflation failure, our PPP is on a runaway decline from our deficit spending and subsequent Fed purchases of treasury bills, in effect printing more money to pay the bills.

[Michael]

This is an interesting chart...

http://yglesias.thinkprogress.org/wp-content/uploads/2009/06/fredgraph-1.png

Of particular interest is the way Greenspan actually lowered rates in 2003 and kept a rate of 1% throughout the whole of 2004.

The drop in rates during 2001 and holding just under 2% through 2002 would be conventional monetary policy as the US was in a recessionary situation.

But there was no recession in 2003 or 2004. These were normal 'growth' years in the usual business cycle. Conventional monetary policy here suggests a rise in rates in 2003, not a reduction.

This particular 1% rate from June 2003 through June 2004 appears to be Greenspan's extreme error that plays a very large role in the creation of the US (and worldwide) housing bubble.

[Americano]

This is an interesting chart...

http://yglesias.thinkprogress.org/wp-content/uploads/2009/06/fredgraph-1.png

Of particular interest is the way Greenspan actually lowered rates in 2003 and kept a rate of 1% throughout the whole of 2004.

The drop in rates during 2001 and holding just under 2% through 2002 would be conventional monetary policy as the US was in a recessionary situation.

But there was no recession in 2003 or 2004. These were normal 'growth' years in the usual business cycle. Conventional monetary policy here suggests a rise in rates in 2003, not a reduction.

As I recall published government statistics excluded energy and food, allowing the Fed to avoid raising their discount rate to counter inflation by reducing the money supply.

This particular 1% rate from June 2003 through June 2004 appears to be Greenspan's extreme error that plays a very large role in the creation of the US (and worldwide) housing bubble.

A point with no indication of future increases means little in financial transactions. The important factor was interest rate at transaction closing time tied to a contractually agreed rate. I'd professionally consider Greenspan's actions driven by political need of monetary expansion. He was an administration dummy. It was, still seems to be, the opinion that ruining the currency will make the debt ignorable. A questionable policy as US debt is currently swinging to a short-term basis.

[Michael]

As I recall published government statistics excluded energy and food, allowing the Fed to avoid raising their discount rate to counter inflation by reducing the money supply.
Yes, that's exactly what they were doing. Pretending not to see things they didn't want to see and pretending to see things they wanted to see.

A point with no indication of future increases means little in financial transactions. The important factor was interest rate at transaction closing time tied to a contractually agreed rate. I'd professionally consider Greenspan's actions driven by political need of monetary expansion. He was an administration dummy. It was, still seems to be, the opinion that ruining the currency will make the debt ignorable. A questionable policy as US debt is currently swinging to a short-term basis.
I take a different interpretation of Greenspan, that of being an Ayn Rand (and Milton Friedman) fanboy desperate to 'prove' the theory was correct.

Greenspan's need to prove (or passion to believe) that markets were rational caused him to 'not-see' the irrationality of the markets.

Of course, it makes no difference if Greenspan made his errors due to his own psychic needs or because of G.W. Bush's political needs. The end result is the same. Policy from the Fed (in 2003/04) was clearly NOT being driven by conventional and generally accepted monetary policy. It was being driven by Greenspan's faith alone.

[Americano]

I still think he was/is a political patsy. When he retired there were rumors he was heavily invested in commercial real property syndication and unloaded everything the minute he was no longer in office. A couple of people I know with excellent resources dug as deep as they could but said trying to find anything out about his personal finances was like hitting a stone wall. There are so many dummy corporations on the equity side of those deals I wasn't surprised.

[Michael]

Hotel Loan Defaults Double as Recession Cuts Travel

By Dan Levy and Nadja Brandt

July 1 (Bloomberg) -- As many as one in five U.S. hotel loans may default through 2010 as the recession means companies are spending less on travel and perks, according to University of California economist Kenneth Rosen.

The value of hotel properties in default or foreclosure almost doubled to $17.3 billion in the second quarter through June 24 from $9 billion at the end of the first quarter, data compiled by Real Capital Analytics Inc. show. The New York-based research firm, which began tracking distressed commercial property in November, expects hotel defaults to increase by as much as $2 billion this quarter, said analyst Jessica Ruderman.

“Hotels without question will have the highest foreclosure rate of any commercial real estate sector,” said Rosen, who runs a real estate hedge fund with $310 million in assets and is chairman of the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.

Hotel owners are defaulting as room rates and property values tumble and the securitized mortgage market that fueled an 88 percent gain in U.S. commercial prices from 2001 to late 2008 is dormant. Luxury hotel revenue fell 28 percent in April from a year earlier and has dropped for 12 straight months, according to Smith Travel Research Inc. in Hendersonville, Tennessee. The 29 percent decline in March was the biggest since October 2001.

A third of the $8.6 billion in securities backed by hotel loans due in 2010 are at risk of defaulting, data compiled by credit-rating firm Realpoint LLC in Horsham, Pennsylvania, show.

Source-Bloomberg (http://www.bloomberg.com/apps/news?pid=20601110&sid=aXBWkxayzfpA)

It is also to be noted that this week saw a spike in the number of US banks going bankrupt (10 of them).

A bunch of hotel operators going bankrupt over the course of the summer isn't going to be pretty.

This is further evidence that the US recession still has not hit bottom. All the most important indicators are still negative (and falling).

[Michael]

While I must confess ignorance with regard to the American situation, the article I posted (after two seconds of googling) seems to concur with the idea of wage vs. profit trends. I am more familiar with the Irish situation where we see the same thing. Here are two reasonably wealthy but 'friendly' articles regarding the situation in Ireland:
http://www.unitetheunion.com/pdf/The%20Truth%20About%20Irish%20Profits.pdf
http://www.unitetheunion.com/pdf/UNITE%20-%20The%20Truth%20About%20Irish%20Wages%20(April%20 2008).pdf (http://www.unitetheunion.com/pdf/UNITE%20-%20The%20Truth%20About%20Irish%20Wages%20%28April% 202008%29.pdf)


I've finally read both articles through. :)

I'll note that I'm not a big fan of the source (UNITE), though I have no objections to any of the data presented. Nothing too surprising there and quite interesting.

It is generally agreed that average relative wages have been flat (after adjusting for inflation) over the last twenty years in most western countries.

That's not unique to Ireland - and indeed, I'll bet Ireland is one of the few countries that actually did have some relative wage growth over this time period (comparatively speaking EU-15 - primarily pre-2000).

The key thing to note is that the data set the papers are based on is the 2005 to 2008 period which corresponds with the height of the bubble economy - one to which Ireland was particularly involved in. That is to say, I'm sure Irish corporate profits have fallen quite a bit over the last year, eliminating those strong Irish profit numbers.

And I'm certainly not defending those neoliberal 'reform' policies as they are indeed the source of the severity of this present recession - particularly in the USA, Iceland, Ireland, Spain and the Baltics where these policies were most notably enacted.

Speaking of which, I'd be interested to know if Ireland has enacted any banking/financial regulations/reforms over the last year or so? Or is this an issue at all?

Right now, and for the next year at least, the big economic challenge is to avoid economic contraction.

The fact is that wages have been declining in real terms since the 80s while profits are either rising or at the very least stagnant. This has lead to a reduction in purchasing power leading to consumers to replace real income with credit, the easy availability of which has lessened the impact of low real wages. This credit bubble is essentially the cause of our problems. From credit cards to mortgages. If worker income was higher (and consumers were not reliant on easy credit) then mortgage repayments would be easier for those involved etc. The availability of credit has hidden the lack of real wages.

Yes, that is exactly what describes the 'bubble-economy' of the last twenty years (roughly beginning in the mid-80s). Credit-fueled consumption fueled irrational speculation and in the short term this was VERY profitable. :)

However, I will say that one reason that there hasn't been any 'real' wage gains is because there have been no 'real' profit gains either. Many trillions of the accumulated profits have been wiped out - stock indexes and real estate values are roughly back at 1998 levels now (wiping out a decade's worth of 'asset gain').

I think new numbers based on 2009 will likely show some big swings in international comparison charts!

[Leprechaun]

I've finally read both articles through. :)

I'll note that I'm not a big fan of the source (UNITE), though I have no objections to any of the data presented. Nothing too surprising there and quite interesting.

It is generally agreed that average relative wages have been flat (after adjusting for inflation) over the last twenty years in most western countries.

That's not unique to Ireland - and indeed, I'll bet Ireland is one of the few countries that actually did have some relative wage growth over this time period (comparatively speaking EU-15 - primarily pre-2000).

The key thing to note is that the data set the papers are based on is the 2005 to 2008 period which corresponds with the height of the bubble economy - one to which Ireland was particularly involved in. That is to say, I'm sure Irish corporate profits have fallen quite a bit over the last year, eliminating those strong Irish profit numbers.

And I'm certainly not defending those neoliberal 'reform' policies as they are indeed the source of the severity of this present recession - particularly in the USA, Iceland, Ireland, Spain and the Baltics where these policies were most notably enacted.

Speaking of which, I'd be interested to know if Ireland has enacted any banking/financial regulations/reforms over the last year or so? Or is this an issue at all?

Right now, and for the next year at least, the big economic challenge is to avoid economic contraction.

It is true that Ireland did experience a growth in pretty much everything over the tiger period but now we enter a time where the employer's group IBEC is calling for a 10% cut across the board, not in wages but in living standards. They meant wages but said living standards. The reason for this is to increase competitiveness to create growth now my question is what is the use of increased competitiveness and growth if it entails lower living standards/wages? I'm sure some will benefit but the vast majority won't. Isn't the essential point of growth to better living standards? The competitiveness idea is also a joke as the studies highlight that Irish workers are paid 22% less in real terms than their Big-15 counterparts. An interesting event occured not too long ago whereby a major retailer (Tesco) announced that they were making cutbacks in Ireland because it was too expensive, roughly a week later a document was leaked showing that Tesco made a 9% profit in Ireland vs. 6% in Britain (it's headquarters) and this is before we incorprate Ireland's low profit tax.
As for reform, not really. The Irish govt. gave a guarentee on all deposits in Sept. but that failed and Anglo-Irish bank almost went under so they nationalized it, but now the other banks need recapitaisation and so they are going to pump billions into them. Meanwhile the old owners are still making profits and many were given multi-million pensions or bonuses. The average man is crying out for nationalisation (which I believe is the best solution particularly in the Irish context) but the Govt. seems to beleive that this is evil and constantly refers to it as a last resort as if it were hugely undesireable. The govt. clearly intends to leave the upper strata of management in charge of the banks and to reprivatise Anglo and leave the others alone once this blows over with no structural reform.
On the fiscal front the govt. is pursuing idiotic deflationary policies from tax-hikes to expendiute cuts on things like social welfare, this will hugely damage the economy and we need increased expenditure/taxcuts. Not surprisingly the tax intake was below estimates (after the tax hikes) due to these deflationary policies. Ireland is entirely dependent on a German revival and British.



Yes, that is exactly what describes the 'bubble-economy' of the last twenty years (roughly beginning in the mid-80s). Credit-fueled consumption fueled irrational speculation and in the short term this was VERY profitable. :)

However, I will say that one reason that there hasn't been any 'real' wage gains is because there have been no 'real' profit gains either. Many trillions of the accumulated profits have been wiped out - stock indexes and real estate values are roughly back at 1998 levels now (wiping out a decade's worth of 'asset gain').

I think new numbers based on 2009 will likely show some big swings in international comparison charts!

This whole situation shows why we need nationalised banks to avoid specualtion (although this would be aprt of my greater economic theory-roughly market socialism). I used the figures in the studies to show that contrary to popular belief (in Ireland) and IBEC's and the Govt.'s spin wages are not too high, but rather quite low (remember these reports were prior to the crash so profits were still very high). It will be quite interesting to see the new figures but what interests me more is the new paradigm that occur or most probably- don't. If Fianna Fáil stay in power here or if the main opposition Fine Gael get in then we won't see any changes (Fine Gael propose even more cuts) but if Labour (the second opposition) get in then we would see huge changes IMO. I can see many countries remaining but in the...less stable countries the changes will be interesting, Greece for example.

[Michael]

It is true that Ireland did experience a growth in pretty much everything over the tiger period but now we enter a time where the employer's group IBEC is calling for a 10% cut across the board, not in wages but in living standards. They meant wages but said living standards. The reason for this is to increase competitiveness to create growth now my question is what is the use of increased competitiveness and growth if it entails lower living standards/wages? I'm sure some will benefit but the vast majority won't. Isn't the essential point of growth to better living standards?

Its pretty obvious that reduced living standards/wages is an effective way to increase profits when corporations are unable to actually earn real profits.

That's the real game here and representative of the distinction between 'libertarianism' and 'liberalism'. For libertarians and other economic rightwingers, profit itself seems to be the goal or 'end' in itself (good no matter what damage it causes elsewhere). For liberals, profits are only a means to the end of achieving increased living standards. Profits are only good if they are socially beneficial and/or non-harmful.

As far as I'm concerned, without sufficient potential and actual social benefits, private profits are not justified. Private profit requires social capital to support it. Without the support of the social capital system (i.e. the law, the courts, banking regulations, currency regulations, the police and armed forces, the roads, the fire department, etc.), private profits become quite difficult to achieve. Individual private interest is insufficient justification for public action.

The competitiveness idea is also a joke as the studies highlight that Irish workers are paid 22% less in real terms than their Big-15 counterparts. An interesting event occured not too long ago whereby a major retailer (Tesco) announced that they were making cutbacks in Ireland because it was too expensive, roughly a week later a document was leaked showing that Tesco made a 9% profit in Ireland vs. 6% in Britain (it's headquarters) and this is before we incorprate Ireland's low profit tax.
Ireland's corporate tax level is pretty much average for western countries. And comparative tax rates is always a very tricky subject.

US corporate tax rate (for example) looks fairly high on paper, surprisingly higher than most western nations - Ireland's is much lower. But in reality, the US tax code includes several million loopholes and allowable deductions, and thus, when it comes to the actual tax money paid to the government, the actual US corporate tax rate is much lower than Ireland's (for example).

Please see the attached chart showing "actual" or "net" corporate tax rates using the measure of actual revenues as a percentage of GDP. Data is 2006.

As for reform, not really. The Irish govt. gave a guarentee on all deposits in Sept. but that failed and Anglo-Irish bank almost went under so they nationalized it, but now the other banks need recapitaisation and so they are going to pump billions into them. Meanwhile the old owners are still making profits and many were given multi-million pensions or bonuses. The average man is crying out for nationalisation (which I believe is the best solution particularly in the Irish context) but the Govt. seems to beleive that this is evil and constantly refers to it as a last resort as if it were hugely undesireable. The govt. clearly intends to leave the upper strata of management in charge of the banks and to reprivatise Anglo and leave the others alone once this blows over with no structural reform.
No surprises here. The 'status quo' rules everywhere.

Everyone just seems to believe that all we have to do is just wait for 'Humpty Dumpty' to be re-assembled and we can all go back to having booming-growth economies again. :ummm:

I don't think that's a very good plan at all. I don't think it will work either. We just can't pretend that bubbles don't pop. One needs at least a half-decade or so before you can sell that idea again...

(My reference is to the fact that there is endless amounts of evidence from 2006 of senior public economic experts asserting that an asset bubble did not exist in 2005 or 2006 - in effect, cheering on the bubble through 2007).

On the fiscal front the govt. is pursuing idiotic deflationary policies from tax-hikes to expendiute cuts on things like social welfare, this will hugely damage the economy and we need increased expenditure/taxcuts. Not surprisingly the tax intake was below estimates (after the tax hikes) due to these deflationary policies. Ireland is entirely dependent on a German revival and British.

Sounds like the crazy neoliberal agenda still rules there. That's unfortunate. Canada got lucky - our crazy neoliberal idiots didn't get into power until it was too late (2006) for them to try and play 'catchup' to the US here.

This whole situation shows why we need nationalised banks to avoid specualtion (although this would be aprt of my greater economic theory-roughly market socialism). I used the figures in the studies to show that contrary to popular belief (in Ireland) and IBEC's and the Govt.'s spin wages are not too high, but rather quite low (remember these reports were prior to the crash so profits were still very high). It will be quite interesting to see the new figures but what interests me more is the new paradigm that occur or most probably- don't. If Fianna Fáil stay in power here or if the main opposition Fine Gael get in then we won't see any changes (Fine Gael propose even more cuts) but if Labour (the second opposition) get in then we would see huge changes IMO. I can see many countries remaining but in the...less stable countries the changes will be interesting, Greece for example.
I disagree about the nationalized banks being better. That often just produce different but equally bad problems with corruption and crony-capitalism.

And Canada (for example) managed to avoid the whole banking silliness by having a good banking regulatory system that did not allowing most of the rule changes necessary for all the fancy mortgage-games that brought down everyone else's banks.

Though of course, Canada is sucked into the same recession as everyone else because we are so dependent upon export trade with the USA.

[Michael]

I just noticed that I didn't actually attach the chart to my last post...

Here is a good international comparison of actual corporate tax rates paid in 2006... (expressed as a percentage of GDP).

[Leprechaun]

I just noticed that I didn't actually attach the chart to my last post...

Here is a good international comparison of actual corporate tax rates paid in 2006... (expressed as a percentage of GDP).

That chart shows the amount of Corporation tax revenue as a percentage of GDP, it doesn't in anyway show the rates of corporation tax. Germany's low figure could be due to having a large GDP in comparison to total profits made.

[Michael]

That chart shows the amount of Corporation tax revenue as a percentage of GDP, it doesn't in anyway show the rates of corporation tax. Germany's low figure could be due to having a large GDP in comparison to total profits made.

That's why official corporate tax rates are so misleading. They don't take account of actual loopholes and deductions.

The official corporate tax rate in the USA is roughly twice as high as it is for Ireland (22% is the official rate) - but as you can see from the chart, actual corporate taxes paid in the USA is comparatively lower than in Ireland.

Thus, the 'real' (or 'net') corporate tax rate in the USA is lower than Ireland. That's the point of the chart. Ireland's 'low' official rate is rather 'average' when looks at 'net' rates.

And yes, Germany has the lowest 'net' corporate tax rate in the western world. Germany comparatively has very high personal and consumption taxes to offset their low corporate tax levels.

[Michael]

In a complete dislocation from reality, my mother informed me last night that the recession was over. She apparently heard it on the news. I heard the same crap first hand in the car on my way to work.

As I predicted six months ago, people were going to be prematurely celebrating the end of this recession around the mid-summer mark.

They are of course wrong, but lets just say that too many people have too much vested interest in pretending the economy is just fine for our media to report the truth of the matter.

I'm not aware of any traditional recessionary marker has bottomed out yet. I am aware that inventories have started to reduce a small bit and this is apparently the shred that they are hanging this 'end of the recession' claim upon. Welcome to the double-dip.

If you think the recession is over, go take out a mortgage and buy a house or invest in bank shares (that's what the bankers desperately want you to do and the media will help push it). Fact is, anyone entering markets right now is only going to be a sucker-patsy for the big boys still trying to unload.

[Americano]

I'm reading the same BS in claims that new housing starts are up. Of course they are, at the starter home level for first-time buyers facilitated by government loan guarantees and generous tax breaks all the way around. The US general public will avoid reality through media efforts for as long as it can as that media requires a positive consumer attitude to sell advertiser products

[Lily]

I'm staying far, far away from the markets. I pulled out in May of 2008. Woke up one day and just had a weird feeling. Thank goodness I did. I didn't lose a dime last fall.

Yes, I heard the housing starts numbers yesterday, too. What I haven't heard in the mainstream media in a while is GDP numbers. I'm sure someone's announced them, but it I don't remember the story having any teeth.

Wait, wait... here we go. Newly released GDP for first quarter 2009, -5.5%.

Source (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm)

[dannydesiliva]

Unless you're living under a rock, your very much aware of the current disaster facing (according to the bush administration) US tax payers. :(

I know business is looking at trimming down like never before. One of the folks I do business with just today let several consultants go with the intention of bringing those tasks back in-house. Who is actually going to handle their work now is yet to be seen but I can see things starting to fall threw the cracks, ie; loss of quality being one of the first things that will be effected as this happens more and more.

Has this effected your business yet?

[Michael]

Unless you're living under a rock, your very much aware of the current disaster facing (according to the bush administration) US tax payers. :(

I know business is looking at trimming down like never before. One of the folks I do business with just today let several consultants go with the intention of bringing those tasks back in-house. Who is actually going to handle their work now is yet to be seen but I can see things starting to fall threw the cracks, ie; loss of quality being one of the first things that will be effected as this happens more and more.

Has this effected your business yet?
Yes, this is a common practice. When the economy gets slow, companies are very slow to replace people who retire/quit/leave. When the economy picks up, the companies are still slow to replace workers - preferring for existing employees to pickup the added work. This trend has been around for a long time. :)

As for quality, some might argue that 'quality' went out the window when we converted from 'hand-made' to 'machine-made' products. :shrug:

[Americano]

Yes, this is a common practice. When the economy gets slow, companies are very slow to replace people who retire/quit/leave. When the economy picks up, the companies are still slow to replace workers - preferring for existing employees to pickup the added work. This trend has been around for a long time. :)

As for quality, some might argue that 'quality' went out the window when we converted from 'hand-made' to 'machine-made' products. :shrug:

I still remember 'Buy American' advertising in the US and being chastised on forums for preferring the quality of imported products. Hopefully my critics had Chrysler and GM common stock.

[dannydesiliva]

Because people around the world see dollar investments as the safest place to be right now. More demand=higher price.

Thanks
__________________________
Mortgage rates (http://www.ratesupermarket.ca/)

[Americano]

Because people around the world see dollar investments as the safest place to be right now. More demand=higher price.

Thanks
__________________________
Mortgage rates (http://www.ratesupermarket.ca/)

That's only for liquidity, not investment purposes. The last two-year US treasury issue failed miserably due to USD devaluation. In the past year alone USD has lost 12% of its value to the Euro.