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  #1  
Old 08-27-2005, 01:49 PM
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The truth about the state of the economy

I just read a very informative article about the state of our economy. It's fairly long but a good read. Overall I'm getting the impression that Americans want to have the pie and eat it too and some fiscal discipline, both from the government and the public, is much needed. A few interesting quotes:

Quote:
You owe $145,000. And the bill is rising every day. That's how much it would cost every American man, woman and child to pay the tab for the long-term promises the U.S. government has made to creditors, retirees, veterans and the poor.
Quote:
The AP/Ipsos poll of 1,000 adults taken July 5-7 found that a sweeping majority - 70 percent - worried about the size of the federal deficit either "some" or "a lot."

But only 35 percent were willing to cut government spending and experience a drop in services to balance the budget. Even fewer - 18 percent - were willing to raise taxes to keep current services. Just 1 percent wanted to both raise taxes and cut spending. The poll has a margin of error of 3 percentage points.
Quote:
At the same time, the government provides more services to the public than it can afford to - and goes into debt to cover the cost.

Other nations actually purchase that debt, in the form of U.S. Treasury bonds and notes. Those bonds have increasingly been snapped up not just by private investors but by foreign banks. Japanese investors hold the most U.S. debt, but China has been buying more than any other country in recent months.

The biggest trade deficit is with China, too, at $162 billion. Japan is next, at $75 billion.

In a very real sense, the U.S. economy is dependent on the central banks of Japan, China and other nations to invest in U.S. Treasuries and keep American interest rates down. The low rates here keep American consumers buying imported goods.
To read the whole article:
http://apnews1.iwon.com//article/20050827/D8C88SP80.html?PG=home&SEC=news

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Old 08-28-2005, 07:28 AM
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The governments of other countries will continue to invest in our country because we are the most liquid, safest, most open as far as disclosure is concerned, and least restrictive place to invest in the world. Best of all our government is the among the most pro-business governments on the planet. We are a stable entity.
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  #3  
Old 08-28-2005, 10:00 AM
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Maybe, assuming that the government acts in the best interests of the voters and taxpayers. You want a realistic discussion of related topics?

Maybe what attracts foreign investors is that they can easily find willing partners in crime here at every level of enterprise.
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Old 08-28-2005, 10:55 AM
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Originally Posted by TwitchKitty
Maybe, assuming that the government acts in the best interests of the voters and taxpayers. You want a realistic discussion of related topics?

Maybe what attracts foreign investors is that they can easily find willing partners in crime here at every level of enterprise.
OHYEA! that makes alot more sense than what Larry said. (If your a neurotic, delusional, pessimistic, self hating liberal democrat)
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Old 08-28-2005, 01:51 PM
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Originally Posted by TwitchKitty
Maybe, assuming that the government acts in the best interests of the voters and taxpayers. You want a realistic discussion of related topics?

Maybe what attracts foreign investors is that they can easily find willing partners in crime here at every level of enterprise.
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Old 08-29-2005, 04:26 AM
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Quote:
Originally Posted by Lawrence Coppar
The governments of other countries will continue to invest in our country because we are the most liquid, safest, most open as far as disclosure is concerned, and least restrictive place to invest in the world. Best of all our government is the among the most pro-business governments on the planet. We are a stable entity.
They will also continue to invest in our country because they want a piece of it, and we're only too happy to turn chunks of it over to them....on a regular basis, just so long as it means we can keep consuming more and more stuff.

Keep pushing those rose colored glasses up on your nose.... but they's going to be a reckoning.
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Old 08-29-2005, 01:21 PM
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Remember the story about the natives selling the island of manhattan for some trade beads? We are now reselling the whole country for oil and cheap, inferior, disposable goods made with slave labor in third world countries. History repeats, what goes around...
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Old 08-29-2005, 01:27 PM
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Quote:
Originally Posted by Lawrence Coppar
The governments of other countries will continue to invest in our country because we are the most liquid, safest, most open as far as disclosure is concerned, and least restrictive place to invest in the world. Best of all our government is the among the most pro-business governments on the planet. We are a stable entity.
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Old 08-29-2005, 02:33 PM
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Quote:
Originally Posted by TwitchKitty
Remember the story about the natives selling the island of manhattan for some trade beads? We are now reselling the whole country for oil and cheap, inferior, disposable goods made with slave labor in third world countries. History repeats, what goes around...
I'm curious do you use PC or Apple?
  #10  
Old 08-29-2005, 02:35 PM
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There is a potentially fatal flaw at the heart of the global economy: the strong possibility of financial meltdown following a collapse of confidence in the greenback, Clyde Prestowitz tells Bruce Stannard

August 29, 2005
THE nightmare scenario that haunts global strategist Clyde Prestowitz is an economic September 11 -- a worldwide financial panic triggered by a sudden massive sell-off of US dollars that would lead inexorably to the collapse of economies around the world.

If that happens, Prestowitz predicts: "It would make the Great Depression of the 1930s look like a walk in the park."
Australia would be sucked into the vortex of such a recession, which would cause great hardship throughout the world, he warns.
Prestowitz is not a doomsayer, neither is he alone in his views. As president of the Economic Strategy Institute, a Washington think tank, he is in regular contact with the most influential US business leaders, several of whom -- Warren Buffet and George Soros included -- have taken steps to hedge their currency positions against the possibility of a cataclysmic plunge in the greenback.
"Right now," he says, "we have a situation in which the US is running huge trade deficits -- about $US650 billion ($766 billion) in 2004 -- which are financed by borrowings from the central banks of Asia -- mainly the Chinese and the Japanese. All the world's central banks are chock-full of US dollars -- they're holding many more dollars than they really want. They're holding those dollars because at the moment there's no great alternative and also because the global economy depends on US consumption. If they dump the dollar and the dollar collapses, then the whole global economy is in trouble.
"However, some countries have a bigger stake than others in maintaining the status quo. China and Japan have a big stake in maintaining the flow of their exports to the US and keeping the US economy humming. Russia, on the other hand, does not export much to the US. India doesn't export much to the US. Yet Russia and India are also big dollar-holders. They hold many more dollars than they really want or need.
"It doesn't take any great stretch of the imagination to see what could happen if one of these central bank managers decides to dump dollars. We had a situation recently when a mid-level official at the Central Bank of Korea used the word 'diversification'. It was a throwaway remark at some obscure lunch, but there was instantaneous overreaction. The US stock market fell by 100 points in 15 minutes because the implication was that South Korea might be shifting out of US dollars.
"So picture this: you have a quiet day in the market and maybe some smart MBA at the Central Bank of Chile or someplace looks at his portfolio and says, 'I got too many dollars here. I'm gonna dump $10 billion'. So he dumps his dollars and suddenly the market thinks, 'My god, this is it!' Of course, the first guy out is OK, but you sure as hell can't afford to be the last guy out.
"You would then see an immediate cascade effect -- a world financial panic on a scale that would dwarf the Great Depression of the 1930s."
Prestowitz says the panic could be started by something as simple as a hedge-fund miscalculation.
"We had exactly that scenario in the US recently," he points out, "when a big hedge fund called Long Term Capital Management went belly-up. These guys were pros. They had two Nobel prize-winning economists writing their trading algorithms, and their traders were the creme de la creme among New York bond traders.
"They made a big bet -- a trillion dollars leveraged 20 to one, and they blew it. They went belly-up. That threatened to bring down the whole system so US Federal Reserve chairman Alan Greenspan had to organise a bail-out through the Federal Reserve Bank of New York.
"Now consider this: there are currently 8000 hedge funds in the US alone. Every day $6 trillion of derivative instruments trade on international markets. If there are four people in the world who understand those trades, I'd be surprised. So the potential for another disaster is not insignificant. This is why Warren Buffet, chairman of investment giant Berkshire Hathaway, is betting $US21 billion against the dollar. This is why currency speculator and hedge fund manager George Soros has also made a big bet against the dollar.
"Soros is one of the greatest currency speculators of all time. He was the guy who broke the British pound in the early 1990s by betting $US10 billion it would fall. He made a quick billion when it did. In 2002, he warned that the greenback was in danger of losing a third of its value. Of course, it could be argued that Soros is a professional hedge fund manager whose job is to play the ups and downs of currencies and his remarks could be seen more as manipulation than prophecy. And yet, in conversations with me, Soros has expressed concern about the market fundamentalist view that prevails in Washington and parts of Wall Street.
"This is the belief that markets are self-correcting and best left alone. Soros calls this a dangerous siren song. Far from being self-correcting, he emphasises, markets tend to excess. They over-shoot. Anyone with any experience of markets knows this.
"When markets are going down, all the weaknesses get concentrated, and you need intervention at the right time to stop things from getting out of control. If the dollar started to melt down, the results could be really nasty. A 1930s-style global depression is not out of the question."
To underscore the point that he is not alone in this, Prestowitz cites Paul Volcker, head of the Federal Reserve before Greenspan, who has said publicly there is a 75 per cent chance of a dollar crash in the next five years.
"No wonder people look at this and say, 'Holy cow!'," he says. "No one knows for sure what will happen, but clearly the global markets could implode very quickly. The lack of an alternative to the dollar is the only reason it hasn't taken a big fall already."
Prestowitz, formerly a trade adviser and negotiator for former US president Ronald Reagan, believes the US will continue to be the world's most powerful economy for the foreseeable future. But he foreshadows an inexorable decline, a trend that is likely to continue "depending on the way we play our cards".
"Right now, we're playing them just about as badly as it's possible to play them, and that has geo-political implications." he says. "We've outsourced trying to deal with North Korea to China, we really can't deal with Iran, so we've outsourced that to the EU, which is struggling, and Iran is cozying up to China. Other bad actors like Zimbabwe's Robert Mugabe and Sudan are cozying up to China.
"America's global hegemony is already under challenge, and that challenge is going to become more and more evident as the extent of the relative US economic decline becomes evident. Right now, the US dollar is probably 40 per cent overvalued versus the Japanese yen or the Chinese renminbi. How's the US going to look as a global power when the dollar is at 50 per cent of its current value?"
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Old 08-29-2005, 02:58 PM
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That's a good read, Crash9. Wow, I didn't know it's that bad! I think everybody in the government needs to read this, and do something about that budget deficit. Bush says pulling out of Iraq right now will weaken the US. From an economic standpoint, it would be a step in the right direction as the war is an enormous drain on the economy. That and the tax cuts. I'll keep my fingers crossed that we don't go through another Great Depression. That would really suck.

It's absolutely true that a free market is not totally self-correcting. A free market is great, but it does need restrictions. The Great Depression is a showcase example why. My fiancee does day trading and she has noticed how the market overreacts to events that are not all that relevant. Part of the free market is the well-known spiral effect of sell off. Real estate comes to mind and many predict it's a bubble that's going to burst.
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Old 08-29-2005, 03:24 PM
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This has all been said before for years, but the way I see it China is holding down our long term interest rates by buyig our long bonds in an effort to suck us into a debt bubble. They realize that at some point our ability to consume their cheap goods will be diminished by debt and by that point their internal economy may be strong enough for them to believe that they can grow much as we did after WWII - on their own internal consumption. By breaking us they will secure the oil they need to outlast us until they're able to develop alternative fuels that they are already putting a huge effort into.
I think we're in a kind of war where they sit back and just let us burn up our capital on military adventures and baubles while they save to buy up the bargins at the bottom.
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Old 08-29-2005, 03:55 PM
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Originally Posted by MedMech
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Old 08-29-2005, 08:30 PM
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Originally Posted by DieselAddict
That's a good read, Crash9. Wow, I didn't know it's that bad! I think everybody in the government needs to read this, and do something about that budget deficit. Bush says pulling out of Iraq right now will weaken the US. From an economic standpoint, it would be a step in the right direction as the war is an enormous drain on the economy. That and the tax cuts. I'll keep my fingers crossed that we don't go through another Great Depression. That would really suck.

It's absolutely true that a free market is not totally self-correcting. A free market is great, but it does need restrictions. The Great Depression is a showcase example why. My fiancee does day trading and she has noticed how the market overreacts to events that are not all that relevant. Part of the free market is the well-known spiral effect of sell off. Real estate comes to mind and many predict it's a bubble that's going to burst.
The "hedge fund problem" is well known. They almost tipped it a few months ago. The fact that the US dollar has become the world's currency may or may not be a good thing long term. A dollar is nothing more than your stock certificate in USA, Inc. We as a country no longer produce a net output of wealth, we produce debt. We have turned into the world's fat and lazy bullying neighborhood drunk. Economies are self-correcting, and as in the case of the Great Depression, mismanagement can lead to catastrophic corrections.
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Old 08-29-2005, 08:34 PM
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Quote:
Originally Posted by crash9
This has all been said before for years, but the way I see it China is holding down our long term interest rates by buyig our long bonds in an effort to suck us into a debt bubble. They realize that at some point our ability to consume their cheap goods will be diminished by debt and by that point their internal economy may be strong enough for them to believe that they can grow much as we did after WWII - on their own internal consumption. By breaking us they will secure the oil they need to outlast us until they're able to develop alternative fuels that they are already putting a huge effort into.
I think we're in a kind of war where they sit back and just let us burn up our capital on military adventures and baubles while they save to buy up the bargins at the bottom.
This goes back to the arguments made by Krugman at the beginning of the Iraq War. Wars of occupation, and military wars in general are obsolete. There are some very, very bright fellows in China, who truly believe China, not the USA, is the natural leaders of the world. They are perfectly capable of carrying out economic war against us, and if they have been planning it out, it does seem to be going perfectly to plan. If you wreck the American middle class, you wreck the United States, because that is where our power comes from.

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