Tuesday, August 04, 2009

bottoming out in the recession

This is a continuation of my monthly economic outlook summary. Previous economic discussion can be found by looking down the right hand side of your screen until you see "economics" and clicking on that link.

The interest rate the "fed" charges banks for overnight borrowing is so close to zero, that it is almost impossible to measure.

One of the few things Obama has done right in this stimulus stuff (and I will give credit where credit is due) is the "cash for clunkers." While it was in the Senate, both parties backed it. It has done pretty well in the first few days, and of course, now the Republicans want to kill it. Politics.

We seem to have hit bottom on this economic collapse. Maybe.

Leading indicators, such as the Baltic Shipping (global) Rail Shipping (US) and Short term interest rates all give a pretty good picture of reaching the bottom.

The road back up will be long, slow, arduous, and fraught with danger of setbacks (just as this collapse was a setback on the road to recovery from the dot-com bust. Also, I heard this morning that Japan is having trouble recovering because their industry has been hollowed out by outsourcing. (On the flip side, China Manufacturing index is way up - you do the math).

However, both oil and gas are up, not to mention the rise in the minimum wage. These will be a headwind for the economy to overcome. The stock market, the housing market (except in a few places) and the price of gold are all up slightly - but these could all go up and down two or three times in the next few months. Remember "the market can stay irrational longer than you can remain solvent (John Maynard Keys). If you want to win at the stock market, I am not your teacher.

One note on the markets that may make gold look a little more useful as a hedge against inflation, Two to five years from now, we should be looking at a pretty massive inflation rate. If the inflation rate is as high as I think it will be, it will make the current bond interest rate negative (less than inflation). This could make gold look pretty good, but you still have to get around the exchange, storage and security costs - therefore I still cannot recommend it.

A final note:
I just heard Robert Crandall (Jul 3rd, on the Kudlow report) say that "consumers are 70% of the US economy."

Folks, this is just plain wrong. We would be better off if we didn't even look at the consumption side of the economy at all. All it is is funny money.

UPDATE: Well, the one bright spot in the stimulus programs has been tarnished. Seems the government can't get even the simple things right. Worse than "offsetting some of the benefits," these delays will cause the burden to fall on small independant dealerships - a critical part of the backbone of our econmy. I have written more on Combat Effective.


Pilgrim said...

What do you like about Cash-for-Clunkers?

TRex said...

Don't get me wrong, the program is not perfect and there likely will be some fraud somewhere, but overall, it works - as it was intended and does have some safeguards against abuse built in.

If you read the articles on the program's benifits (and just scratch out the parts about the environment and safety, since those are mostly scams anyway) you will see that it puts a lot of Americans to work, puts money in the pockets of average citizens (as opposed to millionaire bankerswho shouldn't be getting it anyway - see note below). And the car they buy will likely (not assuridly, but likely) take less money to operate and for upkeep, so it won't turn around and drain their resources later.

Right now the biggest problem identified is that they only put just under $1B into it, knowing (see "as intended," above) that it would eat up $2B to $3B, and the Republicans are trying to stop it from getting any more money.

I can't find the source right now, but I heard it put this way: The Bailout is the government taking your money by force, and giving it to banks so they can lend it back to you. (With interest, I will add. And it WAS your money, now it is theirs, with interest.)

TRex said...

I just heard someone take Kudlow (I have him on as background noise in the living room, where no one is hanging out right now) to task for saying (and I don't even know if he said it) that the Cash for Clunkers program is a free lunch - and there IS NO FREE LUNCH.

Well, right, there is no free lunch. This is more like a kick in the ass. Much as we dislike it, some things must be kick started by govenment action. In the same vain, we should not have a standing army. We each should own a couple of weapons and a few hundred rounds of ammo. We each should take a turn over in Iraq and Afghanistan - say a six month rotation for each of us. See the US constitution Article 1 Section 8 para 12, and then look at this (correct) explanation of the second amendment
Especially look closely at the definitions of militia. What it doesn't mention is at one time the US law made it a civil responsibility to keep a weapon and ammo.
(actually I would advocate something close to that, but no one would listen to me)
and (OK, now you have seen the "warrior" side of me, which is actually retired)

Anonymous said...


No time to read and link this but here is a You Tube link about Cars.gov and cash for clunkers. You need to see this Rex.

basically when you log on your computer becomes the property of the US government. That is in the disclaimer. You are then warned that your computers contents can be used anyway the Fed wants and it's info is for any intended use foreign or domestic.
I didn't believe it but a trusted friend also said it true.


Anonymous said...

Now I can't smog my Explorer and have to junk it. Meantime I may be the only serviceman in town on a bicycle till I can find another vehicle asap. I will not be asking the fed for anything. I'll make do on my own and not be compromised by taking a bribe form the Fed on your dime. And programns like this DO COMPROMISE ones attitude weather they know it of not.