Essentially, it is "yes, there is a housing bubble, but that bubble gives people jobs and gets money into the local economy. And now that other types of employment are picking up steam, couldn't this just be a nice, safe bridge while most industries other than construction are in the toilet?"
Interesting arguement, but seems a little risky to me. What about the down side to NOT SAVING A DAMN THING? To risking more debt on your HOME than it is WORTH? How about that? How about needing to borrow cash from China and Africa because we can't pay for our own government? Doesn't that leave us a little vulnerable?
The shortcoming in the analysis with this guy is that even with increased US employment in the housing and building industries, we are living beyond our means. The home equity lottery that is funding these jobs is going to dry up. He says that other industries will pick up the slack and hire more Americans. The question is: how is industry going to come up with that kind of money? It is a huge amount of money. How are hurting industries suddenly going to be able to hire as many people as are displaced when home equity spending goes down? They won't.
On top of that, happy homeowners are now going to have to live within their means, the thought of which is terrifying to them, and are expected to SAVE on top of that?
It doesn't add up.
There's no doubt that the pain of the 2000 recession was numbed by the real estate market. And the crazy spending that came out of it. But what will be the cost of delaying the pain? Don't tell me there isn't one. There is.
What does this mean?
Econo-Girl has been reading a book "Boomernomics" that calls for the mass destruction of society as a result of the demographic shift. While that thought appeals to Econo-Girl, it falls a little short in the analysis department.
The book states that Boomers will remove all their monies from the stock market, causing stock prices to plunge due to the lower demand for them. Well, isn't the price of a stock supposed to be the present value of future dividends? The removal of cash may put an end to crazy speculative bubbles, but it shouldn't have that adverse an effect on stock prices.
The ones that will really clean up are the professionals just under Boomer age. There will be a vaccuum at the top as all these people leave and not enough people to fill the slots. The same is going to be true in South Africa in about five years. I keep telling Leisure Lad that we should move there, but he won't have it.
Health care and elder care industries will EXPLODE! Econo-Girl herself is thinking of hanging up the old keyboard-for-hire and opening an elder care business. Will she have the courage? Astute readers with their feet on the ground have warned of the pitfalls.
I think it is sad that we provide health insurance for elderly but not for people under age 12. And all the new technologies for elderly instead of taking care of our young. Rather selfish, I think.
Econo-Girl is in favor of universal health care for all under the age of 12. There, I said it. At least start with under six.
So, too, does Econo-Girl get in touch with the big economic picture. There are certain forces at work that are big waves on the shorelines of finance. We need to be in touch with them and to acknowlege their power.
The biggest is oil.
Econo-Girl is about to get a chunk of cash and she is going to bet on oil and gold.
For the oily analysis, please read on:
India, China, Indonesia, South Africa are all looking at huge growth in the near future. Econo-Girl is not the only one who is saying this, it is popular wisdom which she agrees with for once. Their demand for oil and fuel is going to double and then double again in the next ten years.
The problem is oil takes about one million years to make, and no one was aniticipating the surge in demand back then. So the demand side of the equation is going to be off the charts while the supply remains the same. Also - getting the oil out of the ground faster isn't a real option because those rigs take a lot of time to make: 10 years. Not to mention that new sources of oil are not obvious on the horizon.
Some economists believe in the efficiency of the free market (Econo-Girl doesn't). Those are the ones that claim people will find other means of producing electricity and running their machines. And doing so will reduce overall demand for oil.
Let's say they are correct. Are we going to completely retool our factories and cars to accomodate other fuel sources? Isn't that expensive and wouldn't that lead to a recession and unemployment because of all the money business has to spend to kick its oil habit? Not much left for hiring and R&D.
And even if all that happened, growth in demand would come from third world nations that desire a place at the big table, not the little one in the kitchen That demand would be more than the little bit the U.S. would give up. Sure, we'd use less oil. But they would ask for much more than we were replacing and overall, the demand for oil would still skyrocket.
Yes - oil will go to $100 a barrel. Not this year, but it will get there in the next seven years.
Econo-Girl is going to try and convince her spouse, Leisure Lad, to install solar panels in the roof. Wish her luck. She already has a pellet stove which burns wood by-product much more efficiently than a fireplace. Secretly, she has been preparing for the fall of civilization. Shhh. Don't tell.
Another rancid Econo-Girl attack on CNN Money:
"Stocks Cling to Gains" reads their headline. Since when do stocks "cling?"
How do the editors know the stocks are "clinging?" Maybe they are resting.
Maybe it is time for high tea. Maybe the editors themselves are desparate
with worry caused by ill-advised investments. But I assure you the stocks
are not "clinging."
Econo-Girl was inspired by the Lazy Iguana's post about the economic effect of wars. You can see her long-winded comment at the end of his post.
Generally speaking, when people wage war they want to win. Even if that means borrowing. What government, after all, has a rainy-day war fund just for moments like these? None. When they can scratch the backs of supporters, who cares about preparing for tomorrow's conflict? No politician I've ever seen.
One piece that I'd like to examine is the military-industrial complex and its role in our armed conflicts. That is NOT TO EVEN REMOTELY suggest they seek and encourage war, but as a significant economic force they must be included as part of the picture.
The Federal Government is the largest employer in the U.S. The military accounts for billions of dollars in spending on manufacturing and research. That's a lot of jobs. So the whole concept of 'who wins the military contract' has big political implications. Where is the military base going
to be located? Who voted for the winning candidate? Where are the jobs going to be? In what industry? How much did that major defense contractor give the Senator?
Who's back is getting scratched in all this spending?
The lobbying pressure applied when one type of defense weapon is being scrapped is phenomenal. There's a lot of people invested in keeping it. So they lobby and pay for ads and whine to their Congressman about how their equipment is really the best one out there. "You can't get rid of it! The other thing doesn't work!"
So the decision on the best weapon for our boys becomes linked to who voted for whom and how good their lobbyists are.
The general rule is higher hemlines on the fashionable female indicate higher economic hopes of the American public. And why not? Don't you feel like strutting your stuff when things are looking up? Econo-Girl does, even though those vile people on 'What Not To Wear" tell her she is too old for the higher hemline. Phooey!
My Grandmother, may she rest in peace, prided herself on wearing sequins and miniskirts until her mid-seventies, and I don't need to tell you she was hot. Econo-Girl, for one, deeply appreciates her sacrifices on behalf of the Dow Jones Industrial Average, and pledges to continue the tradition.
Aside from all that, hemlines are decidedly down. Even to the floor. The Economist printed a dire article on impending disaster in real estate markets across the world. I just think those people need anti-depressants, or something. Econo-Girl herself predicts some downturn, and maybe a recession following it, but come now. Especially after the rejection of the EU Constitution, people will want to put their money in the U.S.
I do predict a slowdown, even a recession, but this is not another Depression for God's sake. For that, keep your eyes open for corsets and layered petticoats.
What country boasts political stability and economic reliability such that your wealth would be reasonably safe from erosion?
The United States.
Given that change in international capital dynamics, Econo-Girl revises her opinion about the U.S. economy heading for a brick wall. I mean, how long can we live debting like this? As a nation? Hmmm. A bit longer, I think. Now, everyone has a vested interest in floating us loans. This is not a permanent strategy and reminds Econo-Girl of mercantilism. But instead of goods, it is cash. Let's review.
In mercantilism, the raw materials were brought from colonies to be processed in the imperialist one in the center of that system. Those were the high-paying jobs, making the raw material into usable goods. Then those goods were shipped back to the colonies and sold to the colonists. The cash would go back to the center country.
Today, the goods and raw materials are brought into the center nation, the U.S., who buys them. Those exported dollars are lent back to the U.S. by the 'colony' countries to buy more goods. If we follow the cash flow, it mirrors the flow of raw materials and goods in mercantilism.
Again, the U.S. imports goods, transforms them into U.S. dollars and exports those dollars. The exported dollars are then sent back to the U.S. to be used to buy more foreign goods. The high paying jobs are staying in the center nation. The low-paying jobs are in the periphery.
So what is the U.S. really exporting with these dollars? A sense of security and stability. Low-paying jobs. Economic life support for other nations whose domestic demand for goods has shrunk, which is many of them. Reinforcing the sense of security exported by the insatiable U.S. consumer.
Econo-Girl has said before that the entire system has to end. She is reminded of the Hitchhiker's Guide to the Galaxy, where the economy of an entire planet was based on shoes. But now that Europeans have rejected a constitution, there is hope that the air can be let out of that balloon slowly, and yes, painfully. But what an improved scenario! Thanks, Europe!
Because if you just pay off the card, then when something goes wrong, you will have to debt again. It is a cycle, and the credit card companies know it. Impulsively paying off debt leads to impulsively getting it back again. They don't want you to escape that debting cycle.
So the idea is to change your overall consuming and spending habits. Ask yourself: how long would it take me to save this kind of money? It is a valid question. If you have enough left over to cover six months worth of living expenses, then go for it. Pay that credit card off.
Those who recommend taking all monies and paying off credit cards are not thinking of the human animal. They are thinking instead of some mathematical equation. Just because one interest rate is higher than another, don't throw your nest egg away. Yes, it may cost you. But the goal is to break free of the debting cycle for good, not just for now.
Practice with Econo-Girl the habit of saving for something you want. It gets kind of fun to shop around, compare, and then tell the salesperson "No." But maybe that' s just me.
I want to start off this rant by mentioning a book called "Come the Comrades" by a revolting woman who lived through the Soviet invasion of Hungary. She was an aristocrat married to an aristocrat. They lived in a Manor House with its own private park. Not bad, except the people who lived right next to the park couldn't even enter it.
The author, a snotrag if I ever saw one, always was talking about the stupid, simple peasants and how they didn't have the sophistication to understand how to deal with the Soviet soldiers. Of course, the "stupid, simple" peasants had the sense to bury anything of value so that it wouldn't get stolen. This lady didn't. Despite that, the insults towards her neighbors continued without the curse of self-awareness.
She describes the Ukrainian soldiers: not one of them being "what we Europeans would call a person of breeding." Charming, eh? Then she goes into a diatribe on how even the dullest European could outwit Soviets while being interrogated. She described how startled her family was to see that a peasant soldier was sent to school for engineering. They all stared at him.
After the Soviet Army leaves their house in ruins, they 'get a dozen women from the village' to clean their house. She then complains that they stole everything that the soldiers didn't. Then follow the obligatory laments about how life was no longer the same. At that is when one realizes that she wasn't paying these women to clean the house. My, how life was different then. No wonder she missed it so much.
At this point I am only reading the book to see her ass get kicked. Something rotten has to happen to her. It has to. Communism is dead, and good thing it is, too. Capitalism rules. Not the
hampered Capitalism with the rigid social hierarchy that this horrid woman describes, but the U.S. kind.
The thing about Capitalism is that you really need to own the means of production. Not work for someone else. That is where Econo-Girl is caught in the crosshairs of her mid-life crisis. I am sitting in a cubicle now, working for someone else. Am I a Capitalist, or aren't I?
I want to be a Capitalist. I want to be a small business owner. I want to live and work in the same community. It's just hard to shake off all the programming that says "prestige" and "security" are laudable life goals. Prestige? My dogs think I'm great! And there is no real job security anymore.
That is Econo-Girl's personal crisis. At least for now. The curse of it is that we prepare children to be worker bees in the paperwork factories of our economy. We do nothing to prepare them to be true Capitalists.
And the constant business news cycle makes it worse. Every crack in the sidewalk is seen as a reportable event. And of course, some yoyo is on the screen chatting about its make-believe significance. I've likened the entire process to betting at the track. It has that kind of fervor and temporary relevance.
Could we possibly track down these experts, a la 60 Minutes, outside of their homes working on the yard, and ask them about this? Oooooh. Econo-Girl is dying to.
Another issue with business coverage is the perspective of the reporting. Econo-Girl was a tiny lass when the stock market bouyed on reports of massive layoffs in the Eighties. A little out of touch? Like if no one has money, aren't they going to spend less? Just call me a socialist, but isn't consumer spending an integral part of our economic engine?
Enough. Econo-Girl has touched on all this before.
Today's topic is the effect of the employment numbers on future interest rate decisions. People are now ominously warning Alan Greenspan in print about the dangers of future interest rate hikes. Like he's going to chuck his own opinions aside, smack his forehead, and exclaim, "Wow! Why didn't I think of that? Gosh, I may be the premiere economist on the planet, but I won't miss another day of CNN Money to save my life!"
There is a conflict in economic theory going on here. One says that inflation is when the economy heats up. And that to cool it down, you raise interest rates. Econo-Girl has raised this in previous posts, and believes that a fast-growing economy is only one of the causes of inflation.
Another is that a by-product of an overheated economy is that more labor is being used to fulfill demand. So there is low employment and escalating salaries. We all know that isn't true now.
Where the U.S. is right now: inflation and low employment. So what to do? Raise interest rates or keep them the same until employment catches up? It will be fascinating to see what Alan Greenspan does. And very widely felt. Hang on. If Econo-Girl is right, interest rates are going up again. She doesn't agree with it, but that is what will happen.
You heard it here first.