PeakTrader.com

[administrator]

PeakTrader said...

It's important to note with 10% unemployment, 90% of the workforce is employed, and a large proportion of them, if not most, are earning more money than ever before (e.g. from raises and overtime).

Anyway, if bubbles, like the housing market or stock market, didn't burst, the result would be too many workers retiring too early.

So, the bursting of asset bubbles help keep future labor supply and demand in equilibrium.

-------

VangelV said...

"It's important to note with 10% unemployment, 90% of the workforce is employed, and a large proportion of them, if not most, are earning more money than ever before (e.g. from raises and overtime)."

BLS reports that U-6 stands at close to 20% and if we used the same methodology to measure unemployment as we used to during the Carter Administration we would be looking at 23% unemployment. With regular hours and overtime down most people are not earning more than ever before because their increases have not managed to keep up with rising taxes and prices.

"Anyway, if bubbles, like the housing market or stock market, didn't burst, the result would be too many workers retiring too early."

The problem is not the bubbles bursting but bubbles being formed in the first place. They have caused resources to be wasted and wealth to be destroyed.

"So, the bursting of asset bubbles help keep future labor supply and demand in equilibrium."

The bubbles destroyed capital. That is a bad thing.

------

PeakTrader said...

VangelV, the 1981-82 recession was much worse. Unemployment, inflation, and interest rates were all much higher. Today, taxes are near historical lows, and there were fears of deflation recently.

Huge amounts of capital flowed into the Nasdaq from 1995-00, in spite of low or negative earnings (for example, Cisco Systems had a P/E of 80, while Amazon.com had huge losses per share). After the bubble burst, surviving Nasdaq firms became stronger.

The result is the U.S. not only leads the world in the Information Revolution (in both revenues and profits), but leads the rest of the world combined (also, today, about two-thirds of the world's biotechs, in revenues and profits, are American).

Were resources really wasted and capital or wealth really destroyed?

Also, the U.S. had a homebuilding boom. Huge amounts of capital flowed into the U.S. housing market, from 1995-06. The result is "too many" houses (Canada didn't have a housing bubble, and Canadians live in much smaller and older houses).

The real destruction of capital is the government spending spree, over the past two years, that mostly "spinned the economy's wheels." However, fortunately, the government has been able to afford the wasteful spending, at least so far, because of the enormous "excess" capital from productive U.S. firms and international trade.

Americans' Tax Burden Near Historic Low
April 16, 2009

"The middle fifth of taxpayers, who earned an average of $60,700 per household in 2006, paid just 3 percent in federal income tax that year, down from a high of 8.3 percent in 1981.

The average family forked over barely 9 percent of its earnings to the IRS in 2006...The effective tax rate hit its all-time low in 2003 and has since crept up only slightly."

-------

VangelV said...

"VangelV, the 1981-82 recession was much worse. Unemployment, inflation, and interest rates were all much higher. Today, taxes are near historical lows, and there were fears of deflation recently."

No it wasn't. At the time the US was the world's largest creditor nation and was the dominant manufacturing power in the world, way ahead of anyone else. People had savings and their debts were far more manageable than they are today. Government was much smaller and regulations did not get in the way of productive activity as much as they do now. Public sector workers were a much smaller drain on the economy and their pensions were not the huge burden that they are now.

"Huge amounts of capital flowed into the Nasdaq from 1995-00, in spite of low or negative earnings (for example, Cisco Systems had a P/E of 80, while Amazon.com had huge losses per share). After the bubble burst, surviving Nasdaq firms became stronger."

There were massive losses in capital as the Fed's liquidity games allowed distortions that diverted scarce capital into companies like Pets.com, Nortel or Groceries.com.

"The result is the U.S. not only leads the world in the Information Revolution (in both revenues and profits), but leads the rest of the world combined (also, today, about two-thirds of the world's biotechs, in revenues and profits, are American)."

Profits? The biotech sector is still consuming capital and bleeding red ink. As for the US IT players that survived the downturn, it is clear that they face a profit margin squeeze and lower revenues as bankrupt state governments cut budgets and reduce capex spending. They are still overvalued and find themselves in a situation where the state of the art products that they make have somehow become commoditized.

"Were resources really wasted and capital or wealth really destroyed??"

Yes they were wasted and destroyed. All that capital that went into companies that used metrics like page views and eyeballs was thoroughly destroyed. And capital depreciation was much faster than the accounting allowed or showed. Each new semiconductor breakthrough made billion dollar plants obsolete and worthless as new product made the older one undesirable. While engine plants could still be productive a decade or more after they were built that was not true for many semiconductor facilities that were shut down a year or two after having been built because they were not capable of making the newest products that hardware manufacturers wanted.

While there has been a revolution on the software and information content side the gains for those advances have accrued to users far more than they have for the writers of the software and content providers. So when Bill Gates improves his operating system his becoming much richer because of foreign sales is more than offset by the benefits that are gained by the Chinese and German users of his products.

My problem is not with the fact that someone is getting rich from selling products and services, which is absolutely great for the users and producers of those products and services. It is with the fact that the average American is now broke and so is the state, city, and country that s/he lives in. That means that most people will have to make huge adjustments and will have to learn to live much more modestly and to save and invest far more.

There is no way to narrate our way out of that point no matter how much we try to divert attention from reality.

"Also, the U.S. had a homebuilding boom. Huge amounts of capital flowed into the U.S. housing market, from 1995-06. The result is "too many" houses (Canada didn't have a housing bubble, and Canadians live in much smaller and older houses)."

Canada did not go as crazy as the US but it too has a major problem because there are too many people who own homes that should have rented instead. Debt loads are too high and their jobs are tied closely to the fortunes of the US economy.

"The real destruction of capital is the government spending spree, over the past two years, that mostly "spinned the economy's wheels.""

I agree that government spending is a waste of resources. That is why I believe that government needs to become much smaller and fire about 90% of its employees. (That statement applies to all levels of government.)

"However, fortunately, the government has been able to afford the wasteful spending, at least so far, because of the enormous "excess" capital from productive U.S. firms and international trade."

It has? Where do you think that governments get their money from? Any time they 'invest' they use capital that has been confiscated from productive members of society.

"The middle fifth of taxpayers, who earned an average of $60,700 per household in 2006, paid just 3 percent in federal income tax that year, down from a high of 8.3 percent in 1981."

The average family forked over barely 9 percent of its earnings to the IRS in 2006...The effective tax rate hit its all-time low in 2003 and has since crept up only slightly."

You have to look at all of the taxes, fees and charges that individuals pay.

Social Security taxes are higher. Local and property taxes are substantially higher. Gasoline, alcohol, and most sales taxes are higher. Healthcare premiums are much higher. Add license fees, charges, and embedded regulatory costs and consumers and taxpayers are paying far more to the government than ever before.

Whenever you post something like this you better try the smell test first. If people paid far less in taxes how is it that government is several times the size that it was in 1981?

-------

A blog about... said...

The stuff made in the 60's was quality & would last 30+ years. The stuff made today is junk.

-------

Don Culo said...

Then ..... An employed American worker designed and built the T.V.

Now...... An unemployed American worker must decide to buy junk electronics or feed his family.

--------

PeakTrader said...

I wonder how many people would actually buy a microwave that works well and lasts 30 years for $5,300 instead of one that works well and lasts 10 years for $100?

Don, you say: "Now......An unemployed American worker must decide to buy junk electronics or feed his family."

Which would you choose?

The U.S. leads the world in basic necessities, e.g. housing, food, and clothing. So, it seems, America's poor are better off than other country's poor (in absolute rather than relative terms):

U.S. Living Standards Still Tops
December 30, 2008

"In housing, the average U.S. family enjoys nearly twice as much living space as the Germans, French or Brits. Even the 20% of Americans with the lowest incomes tend to have larger residences than is typical for households in Western Europe.

In food affordability, the U.S. shines: Just 5.7% of household spending is dedicated to food. Most European and Canadian households devote between 9% and 14% to feeding their families. For Japanese consumers, food takes nearly 15% of household spending."

And here's what someone from India said about clothing sold in the U.S.:

"You can get good branded clothes in US for relatively less price, depending on sale or time of season….I took out few friends, who came from India few weeks ago, to shopping malls and outlet malls to buy clothes and shoes…they were surprised by the price of clothes and shoes in America….they said US prices were relatively cheap for the good brands they were buying."

-------

A blog about... said...

Peaktrader, you are assuming that the size of a house correlates with high living standards, and that choosing to eat cheap unhealthy food is a mark of wealth. The only thing you are demonstrating is that you are a typical American.

Not only is the author not comparing apples to apples, he is failing to account for externalities such as cheap chinese slave labor, amount of electricity required, etc. Living in a big house full of cheap junk is NOT A SIGN OF PROGRESS.

-------

PeakTrader said...

A blog about, I think, it's logical to assume when someone lives in a big house with a big yard instead of a tiny row house, drives an SUV instead of a subcompact, can buy healthy food at much lower prices, and can purchase brand clothing cheaper than in a Third World country, that person has a higher standard of living.

Americans are not only most productive, they produce valuable new products and trade those goods. Living in newer, bigger, and better houses and being able to afford more goods are signs of "progress."

https://www.blogger.com/comment.g?blogID=28997633&postID=7736607600079818677