Tom Toles perfectly sums up both the present economic environment, and the problem with economists:

Category: Earnings, Economy, Employment, Psychology, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

88 Responses to “Brilliant Economists Can’t Figure It Out”

  1. A picture is worth 1,000 words.

  2. spongetoddsquarepants says:

    If you keep posting cartoons like that some folks may start calling you a communist.

  3. brion says:

    and a million laughs….
    this cartoon and hundreds of others like it are 6 years too late….

  4. scorpio says:

    as the S&P 500 and the top 1% inexorably drain money from the rest of the participants in the economy we will soon have reason to recall Keynes’ point about “the marginal propensity to consume”.

    ~~~

    BR: Hey! Some of my best friends are in the top 1%!

  5. Mr. X says:

    So let me get this straight, companies are making record profits and the American consumer is somehow suffering and unable to buy any of the goods and services corporate America is selling them?

    How are the corporations making these profits if workers are faring so poorly? I walk into Best Buy and see people everywhere buying stuff. I look around and see people out shopping, bags bursting with new items they just purchased. If you go to any Starbucks cafe on Saturday morning you have to wait in a long line to get your gourmet latte.

    If these are bad times, what do the good ones look like?

    ~~~

    BR: While 70% of the US economy is driven by the consumer, don’t forget about the rest of the world: US companies are selling goods and services to overseas corporate/gov’t customers in Asia, Europe and Latin America, as well as to each other.

  6. AlladinsLamp says:

    “If these are bad times, what do the good ones look like?”

    In the good times, everyone is paying with cash.

  7. Florida says:

    Mr. X, you ever heard of credit cards? Equity lines of credit? Stuff like that?

  8. Marcus Aurelius says:

    “How are the corporations making these profits if workers are faring so poorly? I walk into Best Buy and see people everywhere buying stuff. I look around and see people out shopping, bags bursting with new items they just purchased. If you go to any Starbucks cafe on Saturday morning you have to wait in a long line to get your gourmet latte.

    If these are bad times, what do the good ones look like?

    Posted by: Mr. X | Aug 22, 2007 11:55:03 AM”

    __________________________

    Uh…I’m going to go out on a limb here…maybe it’s credit? Y’know – the debt-driven economy we’ve been hearing about?

    Ignore everything else – just go shopping. The President says so.

    Wages down? Buy a $5 cup of coffee – you’ll feel better.

  9. michael schumacher says:

    Mr X. you are X actly wrong on so many levels I do not even know where to start but I’m sure others will point that out to you..

    Ciao
    MS

  10. Sheeple Investment Co. says:

    Did you see David Kelly of Putnam on CNBC this morning talking about the consumer? His group has calculated a totally rosy figure for disposable income for the near future and when somebody told him that that figure (based on MEW and credit cards, etc) just represents more debt for people he said, “I’m not saying they SHOULD spend it, I am just saying they will spend it.”

    That about sums it up.

  11. michael schumacher says:

    I want to know what news is coming for BSC….all the major financials are up to flat and BSC is down over 2 bucks…or about 2%.

    Someone knows something relating to BSC

    Ciao
    MS

  12. Mr. X says:

    Paying with cash, credit cards, equity lines of credit? Which is it? You guys seem to have all the methods of payment covered, except explaining how somehow these consumers keep on consuming and never seem to scale back their lifestyles. If they did then maybe those evil, profit-laden corporations wouldn’t be raking in record profits. As long as they are, that shows they are supplying the demands of the market, and that people are still willing and able to pay — no matter what method of payment they choose to use.

    10 years ago the economy was supposedly “booming” based on bogus telecom and dot com stocks with zero earnings, false confidence in some ephemeral notion of the economy being in a neverending cycle of productivity gains, IPO’s for sock puppets selling pet food over the internet, “this time it’s different”, NASDAQ-5,100, a fantasy mirage of predicted fiscal budget surpluses based on unsustainable capital gains from the manic stock market, retail investors turning into daytraders, and the lowest savings rate in U.S. history.

    But things were “better” back then, right? They felt good, even though the “new economy” was built on false promises, rampant fraud, and runaway speculation in tech and telecom IPO’s. When the bubble burst, what was left except a bunch of worthless IPO paper, and Time Warner stuck with a nearly worthless AOL unit?

    The good, ole halcyon days of the late 1990′s. The true Gilded Age of America. At least when this bubble finally pops there will be real estate left in its wake. Not worth the price paid for it, but definitely worth more than anything left in the aftermath of the dot com bust.

  13. TraderGirl says:

    MS
    RE: BSC
    Todd Harrison over at Minyanville passed along that there was chatter on Monday that BSC was now having currency issues. Not a fact, probably a rumor, but maybe today’s price action tells all.

  14. Mr. X says:

    michael schumacher: I’m merely relaying purely anecdotal evidence of what I observe every weekend in the real economy. It seems to be backed up when the earnings reports come out every 3 months with companies showing record profits. Somehow people are still able to pay, whether on credit or cash. Home equity withdrawals haven’t been going on so much for quite some time now, yet consumers are still consuming. It’s anecdotal, if you have contrary evidence put it forth, post pictures of the shanty towns springing up across the suburban areas of America, show where the companies are reporting fraudulent profits, provide evidence that workers can’t afford to buy things like iPhones and Coach handbags. So, if I’m wrong on so many levels — prove it.

  15. anon says:

    trickle-up economy in full swing.

  16. Mark says:

    They’re paying with cash, credit cards, and equity lines of credit. It’s not one of the above, it’s all of the above. People are running out of cash (negative savings rate) and have no choice but to turn to credit. Also, consumers have been scaling back their lifestyles since the 1970′s; the fixed costs are taking a much larger chunk now than ever even with two incomes.

    Cue “big screen in every home” fallacy….

  17. Tom says:

    Looks like the cartoon worker is employed by a big bad cartoon corporation. Looking in his cartoon paycheck I wonder if he sees the real world cost of benefits received or the ‘employer share’ of his fica taxes typical of an employee of an evil corporation. Benefits typically run to about 25% of labor costs and medical costs are increasing at 30-40% clip. Must be the evil corporations in the cartoon healtcare industry. Increasing real world costs of liability insurance and medi-care, medicaid regulations among healthcare providers can’t have anything to do with it since the whole evil, greedy cartoon corprate interests narrative becomes unadulterated bunk. We can’t have that. You guys need that narrative.

    ~~~

    BR Oh, puh-leeze.

    These are the simple facts: Corporate profits are at record highs. At the same time, this post recession recovery has been one of the worst since WWII in terms of job creation, income and wages.

    I don’t make a moral judgment about it — I neeed to know what reality is so as to best protect my clients assets.

  18. Marcus Aurelius says:

    “The good, ole halcyon days of the late 1990′s. The true Gilded Age of America. At least when this bubble finally pops there will be real estate left in its wake. Not worth the price paid for it, but definitely worth more than anything left in the aftermath of the dot com bust.

    Posted by: Mr. X | Aug 22, 2007 12:25:04 PM”

    _____________________________

    You seem to ignore the fundamentals of finance (don’t worry, most people do the same – it’s called delusion). Empty houses that have no buyers are worth nothing. Not to a bank, not to an “investor”, and not to local government in the form of property taxes. The tech bubble was replaced with the housing bubble – the fundmentals remained unchanged. What bubble do you see on the horizon? Medical stocks? I don’t think so.

    Check GWB’s track record regarding investors in his business ventures (as well as those of his Enron buddies). Then look at finance, taxes, and the middle-class wage earner over the pat 6 years. You are GWB’s latest victim, and you have no recourse.

  19. me says:

    “If these are bad times, what do the good ones look like?”

    TROLL ALERT

    You sound like one of the “Brilliant Economists Can’t Figure It Out”

  20. KnotRP says:

    Mr X….they don’t have minimum payments where you come from?

  21. RW says:

    Real estate left? If the current owners are upside down on their mortgages then they are worse off than the dot.com boom left them — instead of an asset worth zero they have an asset worth less than zero net that continues to drain cash — but, sure, the real estate is still worth something to someone, somewhere, at least in principle.

    My own take though is that the credit debacle is going to continue to unwind far more slowly than expected — the peak in ARM resets isn’t due for another year at least — with continuing areas of profit but rising volatility and the possibility of serious reversals means more nimbleness will be required; i.e., it has not been a particularly grand time for buy-and-hold strategies the past 7 years and that’s probably going to hold doubly true for the next 7 IMHO.

  22. michael schumacher says:

    look at consumer credit from March to July….

    You see the big spike in it starting from May.
    I bet you did’nt. We’ve just moved the extraction from the house to the credit card.

    I see you do not have to provide any evidence at all but I do???… It’s all around you…foreclosures at record rates, credit contraction, lending standards raised, corporate profits in question. Add in a consumer that has basically been lied to for over a year as to the state of the mortgage industry, commerce department, and economic growth factors its easy to see how people continue to spend and not have any consequences. Not that it matters to you but that is the very principle of the Bush administration: No CONSEQUENCES.

    Now if they can just put off any consequence for say another year or so….then the charade will continue.

    You are still wrong on way too many levels to even waste bandwidth on….

    Just because we don’t look like Mexico does’nt mean we are not on that path of wealth distribution. We are well on that path….however the financially challenged have no clue as to what is really going on because they get there news from Cramer or Paulsen where everyday everything is contained.

    Wait….

    CiaoMS

  23. Marcus Aurelius says:

    “You guys need that narrative.”

    Posted by: Tom | Aug 22, 2007 12:38:23 PM

    _____________________

    So, Mr. Tom “Bull” – where do you see sound financial practices? What is your narrative? If you aren’t in the Cabal (and, since you’re posting here – I assume you’re not), you’re one of us (middle class taxpayer). The only difference is that when we’re all trying to pick up the pieces, you’ll be getting laughed at.

    I’ll bet you tink Bush has changed America for the better, too. Keep on holding on to the delusion. You are the punch line.

  24. michael schumacher says:

    Marcus-

    The dealings at Arbusto should be required reading for anyone that has a vote. Unfortunately many never exercise that right.

    How he got elected on his business track record is the greatest story never told…and if you are told then they have to kill you…

    Ciao
    MS

  25. michael schumacher says:

    Mr. X-actly wrong

    here’s some evidence that you do not have to collect(based on your own comments) but apparently I do

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aY8m0nta94GA

    let’s talk about fake corporate profits when you finish reading that.

    Ciao
    MS

  26. Tom says:

    Vacant house aren’t worth anything? There will never be any buyers, ever again? Are you trying to tell me that some borrowers should not have qualified for their loans (bring back ‘red-lining’!) and have negative equity? That a fairly large percentage of those loans are bad? That’s a problem for the lender as much as the borrower and lenders don’t want those problems. Did you buy a home in ’88-89, put 20% down and sell in ’91-92 after having it on the market for 8 months at a loss of all of your equity plus 5-10%? We never recovered from that downturn either. Was that you? Thanks for the house!

  27. Sheeple Investment Co. says:

    You know, there is a societal element that is missing from this discussion and that is how difficult it is, and how much stigma is attached to people who admit to struggling.

    We look at pictures from the Dustbowl days with great reverence, but modern-day folks who struggle are treated like lepers and admonished for their failure to engaged in creative financing to improve their lifestyles.

    There is as much as a ponzi scheme going on in “image” as there is in finance. You borrow to keep up with him, he’s borrowing to keep up with the other guy, on and on it goes to the very top…where there is one rich guy who is just so rich, he doesn’t even know other people exist.

  28. Jay says:

    Tom writes:

    “Looks like the cartoon worker is employed by a big bad cartoon corporation. Looking in his cartoon paycheck I wonder if he sees the real world cost of benefits received or the ‘employer share’ of his fica taxes typical of an employee of an evil corporation. Benefits typically run to about 25% of labor costs and medical costs are increasing at 30-40% clip. Must be the evil corporations in the cartoon healtcare industry. ”

    Employers provide health insurance benefits because the Federal Government provides a tax cut for them to do so, otherwise they would not lift a finger. Moreover, the insurance companies oversee these benefits and take a handsome profit, so in effect the government–and taxpayers–are almost directly funding the health care industry as well as its profits. If we had medicare for all citizens it would end the gross overpayment and provide a global market advantage to struggling industries like GM, Ford.

    In addition to the FICA deductions on his paycheck, the worker ought to see the CEO’s compensation package in wages and stock options–whether or not it is stated on the company’s ledger and/or exercised–and how that affects the company’s bottom line and stock price. I can almost certainly guarantee that CEOs have negotiated ever-higher compensation (I guess bargaining is okay as long as it’s not collective) while paying their employees less and giving them more work.

    There gets to be a point where the average worker just can’t afford their environment, and without movement in the economy, the wealthy are not gong to be able to get wealthier. They’ve bled their work-oxen dry. We’re going down in bankruptcy and default, and we’re going to take them down with us.

  29. techy2468 says:

    guys take it easy on MR. X

    even i dont see any problems right now….neither with consumer spending nor with business spending.

    i have been hearing that consumer are neck deep in debt since the last two years….but damn it…they are still buying stuff….how??

    so please some one explain in plain english….what is the current status of consumers??…..on average how much are they in debt??…how much interest and minimum payment are they making on an average??

    i have seen that Debt servicing ratio (DSR) is 14% or something….can some one explain if this 14% means consumer have 14% debt payment wrt to their disposable income??

  30. karen says:

    Can someone please explain to me how/why Wachovia announced a dividend increase yesterday,

    “(WB) boosted its quarterly dividend 14% to 64 cents from 56 cents.
    The Charlotte, N.C.-based financial services company said the new dividend is payable Sept. 17 to shareholders of record as of Aug. 31.”

    yet, borrows $500 mil from the Fed today?

  31. Mr. X says:

    Marcus Aurelius: Empty houses don’t remain empty for long. They either get resold or become rentals. Sold for less, the buyers’ credit screwed up, yeah, probably. I think if you gave the average person the choice between living in a house they couldn’t afford for a few years, getting their credit messed up (which many will challenge anyway on the grounds that they were “victims” of unsavory mortgage lenders trickery), and having to relocate when it’s over to rent another person’s foreclosed on home, OR putting all their savings into WorldCom or Pets.com stock in 1999/2000 and losing every penny with absolutely nothing to show for it in the end and nothing to enjoy before then, most folks would take the living in the nice house for a few years. As a result of these ridiculous exotic mortgages, many of these folks got the opportunity to live in a house they never could have dreamed of living in, for about the same monthly payment as renting an apartment or some small old home in a less desirable area. At least when they got “tricked” into a bad deal they got something out of it, unlike the Global Crossing investors who got nothing.

    Funny you bring up Bush and Enron. I don’t know what that has to do with the price of tea in China, let alone Greenspan dropping the FFR to 1% and creating an unsustainable housing bubble to bail out the telecom/dotcom bust. Since you thought it was relevant to this discussion, I’ll be happy to indulge. Most of Enron’s fraud occurred during 1998-2000, that’s when Fastow & Co. set up the maze of phantom off-shore corporations and engaged in the bulk of their deceit. Where was the FTC? Where was Reno and the Justice Dept? Where was the SEC, on that and so many other matters? They were busy making Microsoft miserable, and took their eye off Clinton’s buddy Bernie Ebbers, and McAuliffe’s ATM machine over at Global Crossing.

    I could care less about GWB’s track record with business ventures, newsflash, he’s a politician not a businessman. I’m sure his record is nowhere near Hillary’s success in the cattle futures market or land development deals. If a President’s success in business ventures is the litmus test for the success of the U.S. economy, then we shouldn’t have to worry about where the next bubble on the horizon will come from because Queen Hillary will surely find it for us. Unfortunately, it doesn’t work that way or Jimmy Carter and Herbert Hoover would have presided over great economies. In answer to your example though, no, I don’t see the next bubble coming from medical stocks.

  32. VJ says:

    Mr. X,

    So, if I’m wrong on so many levels — prove it.

    OK. Let’s just take ONE example.

    Explain why nationally, Poverty has risen every year after 2000 and declined every year for eight straight years before 2001.

    Empty houses don’t remain empty for long

    Then why do we currently have the largest inventory of vacant unsold houses in history ?

    Most of Enron’s fraud occurred during 1998-2000, that’s when Fastow & Co. set up the maze of phantom off-shore corporations and engaged in the bulk of their deceit.

    Actually, Enron’s cooking of the books only went back five quarters from when they went bankrupt. They waited until they were no longer any reuglatory cops on the beat.

    As someone famously once said, You do the math.
    .

  33. Mr. X,

    The cartoon is competely accurate, so where’s the beef ? Profits as a share of total income are at all time record highs at 13.4%.

    Right now total income compensation to workers is 57.0% of total income. Since 1968 we have had 158 quarters of data, only in 27 quarters has workers share of income been lower than 57%. Here’s the math. 82% of the time it’s been better for workers than now.

    And people’s opinions are likely flavored with what’s been going on. In the second quarter of 2006 the total compensation number was 56.0%. Only 3 quarters of the past 158 were worse.

    Is it the math you have trouble with or the truth?

  34. michael schumacher says:

    Karen-

    Raise the dividends means that anyone who would have thought of selling on the news they took the discount loan amount will mean that they will HAVE to stay in the stock in order to get that dividend. Neat little trick that should be wholly and without any question illegal as all hell…but not in this environment.

    Mr X-

    Still reading?????

    Fred called and wants his opinions back…

    Ciao
    MS

  35. Mr. X says:

    michael schumacher: I’ll be happy to talk about fake corporate profits. If you’re right about Wells Fargo and their accounting practices, then the issue is a FASB rule that allows for derivatives to be accounted for differently based on notional values. Sounds similar to what Fannie and Freddie went through the past few years. Could it be another late 1990′s fraud like we saw in the telecom and dot com bust? Possibly. Yet again though, you are trying to predict the future instead of dealing with the reality of the present. That’s why I said prove it that I’m wrong. I can prove corporate profits reports right now, I can prove that the late 1990′s had a lot of stock in tech companies soaring to stratospheric levels with absolutely no earnings to support them. I can prove that consumers are still out spending money. Look at all the lines for the iPhone around the country, they aren’t all full of people wanting to still have telecom/internet access for their new life as a street urchin. Look at all the lines at airports and the airline load factors, they aren’t all the unemployed and downtrodden relocating to search for a job in a new city. Look at hotel occupancy rates, they aren’t all huddled masses who just got kicked out of their foreclosed on home. They are all real, average, middle class folks who are out spending money to buy things they WANT, not need. That tells me the economy isn’t quite staring into the abyss, yet. Maybe things change by late 2009 when the market figures out that their beloved 2003 capital gains and dividend tax cuts won’t be renewed. Then all bets are off.

  36. donna says:

    I think people are spending now since soon they may not have jobs. These are what the really bad times are going to look like, Mr X:

    http://www.marketwatch.com/news/story/story.aspx?guid=%7B025A4902%2DE960%2D46C0%2D95D5%2D2B949497807A%7D&siteid=rss

    According to Challenger’s data, the financial industry has announced 87,962 cuts so far this year. That’s 164% more than had been tallied up through the end of August in 2006, the firm said. Forty-one percent of the cuts this year were related to mortgage and subprime lending markets, the data showed.
    “There are two big issues behind the cuts,” CEO John A. Challenger said in a news release. “First, demand for new mortgages and home-equity loans and other forms of credit have fallen off dramatically. The other issue is the increasing rate of defaults and foreclosures, which is leaving the lending institutions unable to meet their own financial obligations.”
    Other financial institutions that have invested billions in mortgage-backed securities also are vulnerable to the current turmoil in the lending market, he added.
    According to Challenger, job cuts in real estate and construction have climbed in 2007 as well. Real-estate companies have announced 1,950 cuts so far this year, not including self-employed agents. Construction firms have cut 19,670 jobs in 2007, not including independent contractors.
    Cuts are also being seen from companies providing home-building equipment, materials and supplies, the firm said.
    In the release, Challenger said that the end of housing-related job cuts is “by no means in sight,” and that the peak of the job cuts could be months away. End of Story

  37. karen says:

    If you asked me, I would tell you that those corporate earnings are nothing more than paper profits… or worse, balance sheet transgressions.

  38. Tom says:

    Barry- Most recessions bottom with unemployment in the 8-10% range. What was the peak unemployment during the 91-92 recession?The 2001 recession? 5% unemployment used to be considered full-employment or optimum economic performance. The current number according to the feds is what 4.9%? Independent contractors used to numbered among the ‘unemployed’ particularly during the start up year. The class of workers now considered independent contractors is growing rapidly for a number of reasons the most important being the initial investment companies must undertake to hire a worker without any guaranteees of a return on that investment during the first year. What were the costs associated with employee benefits coming out of past recessions? Did they amount to the current 30-40% of the cost of labor?

  39. KirkH says:

    I think the point is Bush goes on TV, along with the Kudlows of the world, talking about Goldilocks when 66% of the citizens think we’re headed for recession.

  40. michael schumacher says:

    Oh and I suppose that all these big banks tapping LOC’s are another indicator of the health of the consumer.

    Mr. X

    You are so far from getting anything that I just throw my hands up at ya.

    Lines for buying iphones and purchases of coach handbags?…that’s how you determine if the consumer is ok?? what a barometer???

    Can’t compete with that mentality. Somebody else can waste time.

    Ciao
    MS

  41. kharris says:

    Lessee,

    Corporations are rolling in it. Workers are up to their necks in debt, getting nudged further from hope of a secure retirement. That I get. Toles concludes the problem is…economists. OK, not every cartoon reveals a universal truth, but then Barry stands up and claps?

    So tell me, did an economist push you off the swing set when you were a kid?

  42. techy2468 says:

    Off Topic:

    look at the maestros running the orchestra in such symphony…no wonder we may never have a crash for a long time..

    http://biz.yahoo.com/ap/070822/banks_fed_window.html?.v=4

  43. Mr. X says:

    VJ:

    “OK. Let’s just take ONE example. Explain why nationally, Poverty has risen every year after 2000 and declined every year for eight straight years before 2001.”

    Where do you get your stats, VJ? ACORN? MoveOn.org? The government? Do you trust the government’s CPI and PPI statistics too?

    “Then why do we currently have the largest inventory of vacant unsold houses in history ?”

    Because of the homebuilders not scaling back their production of new homes to keep supply and demand in balance. They erroneously believed that they were experiencing a blip in the boom, and that they could simply throw in new appliances or upgrades to other amenities as sweetners to bring the buyers back while they kept on building more McMansions. The housing correction is also only 24 months in, so supply of vacant unsold homes should be high because the builders didn’t stop building at such high rates until recently and the inventories have to be repriced to clear the market.

    “Actually, Enron’s cooking of the books only went back five quarters from when they went bankrupt. They waited until they were no longer any reuglatory cops on the beat.”

    Factually incorrect. Here’s the facts:

    http://www.enronfraud.com/enr-cgi-bin/mil?templ=qa.html

    From the site:

    Q: I own Enron stock. Am I part of the securities class-action lawsuit?
    A: If you purchased Enron securities between October 19, 1998 and November 27, 2001 (the “Class Period”), then you are an investor for whom we are trying to seek additional recoveries. If we are successful, you will be eligible to share in the recovery.

    Q: What is a class period?
    A: A class period is a specific time frame during which a company is alleged to have been improperly conducting its business. The Class Period is specified in both the complaint and the notice. There is always the possibility that a class period may be extended or shortened.

    So yeah, 11 months in 2001 vs. over 2 years between October 1998 and January 2001. Sounds like the regulators who were on the beat must have been chasing interns or asleep at the switch from late 98 on, while the current Administration came in, cleaned thing up, and secured convictions against the executives responsible for the improper conduct. That would be the Justice Dept. in power from 2001 to 2006.

    “As someone famously once said, You do the math.”

    See above.

  44. michael schumacher says:

    oh and one more thing….Those coveted lines at the airport are more a consequence of capacity reduction by the airlines and increase of security procedures than anything remotely resembling a healthy consumer.

    holy crap where do you come up with that?? You can’t even make that up it’s so bad.

    Ciao
    MS

  45. karen says:

    Thank you, MS. A “neat little trick” and “illegal” makes sense to me.

    And, for those wanting to delve into sham earnings reports, let’s write Dell on the chalkboard under Wells Fargo…

  46. DD says:

    Greedy Americans…you want jobs but produce nothing. Let the 3rd world live a little. I will gladly be homeless so that 150 Africans can work in some asbestos infested factory. its not so bad being homeless…apparently you take a shitload of drugs and walk around talking to yourself all day. doesn’t sound so bad, does it? f’ work. If they are not paying you enough sell your children on the black market. If they refuse, eat them. If you have no kids, you have no worries. May the reign of Bush/Clinton’s live forever!

  47. Mr. X says:

    michael schumacher:

    “Lines for buying iphones and purchases of coach handbags?…that’s how you determine if the consumer is ok?? what a barometer???

    Can’t compete with that mentality. Somebody else can waste time.”

    Unless the stores selling those items are donating them to anyone who shows up at certain times of day as a charitable tax write-off, then we have to assume that the people purchasing iPhones and Coach handbags are using some viable means of exchange, some sort of method of payment. That means either they earned it (cash/check/debit card), or anticipate earning it (credit). That is a far better barometer of consumer sentiment than answers given on telephone polls regarding consumer confidence. Not quite like the Days of Unicorns and Rainbows in 1998/99 when middle aged women would line up for hours and pay large sums of money to buy Beanie Babies, but one barometer of consumer sentiment, nonetheless.

  48. michael schumacher says:

    a tad bit over simplified don’t you think??

    but I expected that…..

    and I’m sure you’d know the days of unicorns and rainbows as you seem to live in a world filled with them….or in your world there are airport lines because everyone is rich.

    nice try

    Ciao
    MS

  49. karen says:

    Excellent Martin Wolf article in the FT today, “Why the Federal Reserve has to keep the party going.”

    “Assume, finally that the government pursues a modestly prudent fiscal policy. Then US households must spend more than their incomes. If they fail to do so, the economy will plunge into recession unless something else changes elsewhere.”

    “Today’s credit crisis, then, is far ore than a symptom of a defective financial system. It is also a symptom of an unbalanced global economy. The world economy may no longer be able to depend on the willingness of US households to spend more than they earn. Who will take their place?”

  50. lauteus says:

    “What we have here is a failure to communicate”

    “Nothing is over until we decide it is”

  51. matus says:

    Mr. X,

    Where’s the consumer going to get their free money now? You’ve obviously been insulated from economic realities all your life.

    You wanna know what my mother stood in line for, for hours?

    Fruit…so that her children could get some vitamins during the winter. (obviously, that wasn’t here in the states)

    America is scared to death that it may have to start living within its means. Call it a crisis of confidence if that’s what people want.

    irony is dead.
    UNSUSTAINABLE GROWTH FOREVER OR BUST!!!

    ——
    A quick hello to the board….I’m a long time lurker…first post. Great blog, great humor, interesting array of perspectives, and kooky antics.

    hi.

  52. Mr. X says:

    michael schumacher:

    “oh and one more thing….Those coveted lines at the airport are more a consequence of capacity reduction by the airlines and increase of security procedures than anything remotely resembling a healthy consumer.”

    Yeah, because airports are full of travelers when times are bad, right? Everyone can afford to spend money on plane tickets when they’re out of a job and their house is getting foreclosed on, yeah mike, that makes a lot of sense. None of those could possibly be business travelers, needing to go to another city to, ummmm, well, you know…do business. You’re analysis is way off the mark, the airlines are all out of bankruptcy for the first time in ages. Must be a sign of the apocalypse according to you.

    “holy crap where do you come up with that?? You can’t even make that up it’s so bad.”

    Is it not true? Are the airlines not doing some of the most brisk business in ages? What’s Boeing’s stock doing? Are both Boeing and Airbus experiencing backlogs of orders for new passenger aircraft? Are all the major carriers out of bankruptcy at the moment? You’re right, I can’t make that up, because I don’t have to — it’s facts. Unlike your purely qualitative opinions, that you can’t support with evidence.

  53. LAWMAN says:

    An ancedote for Mr. X:

    My SIL continues to buy junk for her family. Yes, their tv broke down last week, so it was off to Best Buy for a new one.

    How did they afford it? Credit, of course. Just another couple of grand of debt on top of the 5-figure credit card debt they currently have.

    You are probably wondering how I know they have that much CC debt…well, I needed that info when I was working to save their house from foreclosure two months ago….

    BTW, last week my SIL called my wife crying for money because they were going to turn off their electricity. My wife, being the softie, paid the bill (which had not been paid for 3 months).

    Yeah…the economy is solid…LOL

  54. michael schumacher says:

    Were we not talking about Airlines??? and Airports????

    Now all of a sudden it’s Airline manufacturing??

    Damn you sure know how to cherry pick when it suits whatever argument you’re trying to make

    I’ve wasted enough time with you, someone else can.

    Ciao
    MS

  55. lauteus says:

    Averages are way too skewed in such a bifurcated sample… I agree with the fact that our dollar is decreasing in value and costs are increasing faster than wages (obvious), however, the question I would ask is what is the MEDIAN…

    Does that household income figure include the average CEO and HEDGE FUND MANAGER… hell, most of the “upper” wage earners have exploded in the last decade…

    Lets remove the “outliars” and see what the average household income is in the under 1 mil. a year group… much worse I have to presume.

    http://journalism.nyu.edu/pubzone/theoryb/node/409

    So, if the mega-rich are becoming mega-richer… who’s the poor sap and how many are there that have to make lesser than less to get the AVERAGE to go DOWN…

  56. dukeb says:

    Off-Topic Technical Question:

    Are any/all hedge fund redemption requests as submitted this month for end-of-Sept now non-revocable? And either way, is that dictated by the individual funds or regulators?

    Thanks in advance.

  57. Eddie says:

    Yawn.. Yet another thread where anyone who is in any way bullish on anything is simply shouted down by the masses (bears).

    At some point, these forums will only be visited by you bears, and you can circle-jerk each other every time the market goes down a few percent.

  58. Eddie,

    I don’t get it. The cartoon says earnings are at all time highs and the data backs that up, isn’t that something bulls should like ?

  59. michael schumacher says:

    eddie-

    Please provide some antidote to what “us” bears see as unfolding right in front of all of us.

    Also please provide some form of discussion topic as to why “we bears” are all wrong and you (along with your perma bull view) are correct.

    I fail to see how all these banks tapping LOC’s and now the created money (via the Fed) is somehow bullish. It’s bullish all right…biggest bunch of…..FTM

    Ciao
    MS

    Ciao
    MS

  60. lauteus says:

    Question in line with dukeb-

    45 days (calendar) from last wednesday is Sept. 29th (Saturday). Is this when these funds need to meet their client obligations?

    Would that imply that we are currently treading water, keeping the crap off the books (give to FED for 30 days), injecting liquidity to boost share prices hoping that the Chapter 11 talk will be, at a minimum, quelled through borrowing for borrowers to borrow some more to pay what they previously borrowed, whilst we wait to see what develops internationally?

  61. Mr. X says:

    michael schumacher:

    “Were we not talking about Airlines??? and Airports????”

    Yes, and I would suggest that everyone in line at the airport has either paid for or is about to pay for an airplane ticket. People don’t wait on queues at airports just for fun, they actually have an intention of travelling somewhere, and paying hundreds, sometimes many hundreds of dollars to do so. They give their money to the airlines, the airlines give them a ticket, and then they wait in line to go where they need to go. It really is that simple. During economically desperate times people don’t tend to travel this way in such large numbers, they either go by car or bus, and the carriers are often in bankruptcy and not offering as many routes then either. This means people are spending a lot of money on travel, whether for personal reasons, or for business. Neither indicates economic armageddon. The major airlines are also all out of bankruptcy for the first time in ages as a result.

    “Now all of a sudden it’s Airline manufacturing??”

    Yeah, all of a sudden, amazing how that works. Airplanes crowded with passengers paying for travel = more revenue and ideally more aggregate profits for the airlines = airlines demand more aircraft from manufacturers to expand service = more jobs in Seattle and Chicago at Boeing = economic growth = higher compensation in union contracts/collective bargaining = higher wages.

    “Damn you sure know how to cherry pick when it suits whatever argument you’re trying to make”

    As opposed to, say, nitpicking and only trying to shoot holes in economic discussions, which is of course far, far easier when you don’t have to support your claims at all, only hurl insults.

    “I’ve wasted enough time with you, someone else can.”

    Thanks michael schumacher, I take you at your word on this one. Have a nice day.

  62. michael schumacher says:

    good luck in that airport full of rich people……you do know that the unicorns and rainbows will have to be checked through to your destination of:

    Inside your anal cavity

    Which is where your over simplified and painfully unaware opinion has come from. But do take care as you’ll most likely be able to hit up some of those “rich” people (packed full on southwest airlines) for some extra spending money to buy that iphone and coach handbag that seems to be (based on your thorough yet highly anecdotal evidence) what will save our economy from the very excesses it is trying to remove.

    Ignore you?? No problem you’re in your own private hell anyway.

    mr. X is what is wrong with consumers, banks and lenders. They have yet to see or feel ANY lasting consequences. Just wait…..

    Ciao
    MS

  63. Red Pill says:

    Along similar amusing lines, the credit card song…

    http://www.youtube.com/watch?v=2JwdIWjVHaU

  64. lurker says:

    I think a picture is now worth 1,000 backdated options…

  65. Sheeple Investment Co. says:

    Mr. X has worked awfully hard at convincing people everything is OK when, if everything were OK, there wouldn’t be any need to reframe it all in such a glorious light.

    What next, you dangle a pocket watch?

  66. michael schumacher says:

    Wow… on to the high’s of the day and all these banks just got a shit load of cash for handing over the title on your neighbor’s boat-I think that’s how third world countries operate.

    Great system….just give them more money to attempt to take out those stratospheric valuations all the loans are (still) sitting at.

    but as someone else posted:

    “you can throw one hell of a party with a trillion dollars”

    Ciao
    MS

  67. techy2468 says:

    nobody answered my question about real data about consumer debt situation.

    but thats all right…i have another question.

    lets say the FED buys all the worthless paper for now 30 days (but who will stop the 30 days cycle going for ever, you can always rotate the money, right? ).

    so in other words…all the risk now belongs to FED, so no more collapse due to subprime (financed by taxpayers instead of bankers paying for their folly).

    will that lead to inflation….i am feeling it wont…because the money injected is not a new money created…they just stopped money from getting destroyed….in other words asset values would have crashed if not for FED handout…but now Assets will hold their ground.

    means no deflation but also not big inflation….even though FED may be printing 300-500 billions dollars to buy all those garbage and to lend to those guys to play with the market.

  68. scorpio says:

    BR: me too! that’s why i’m pissed.

  69. Quakes says:

    Mr X,
    What you have seen so far around you is less important than trying to figure out what you will see going forward… unless you believe that we will have a continuous momentum of strong/excessive consumer spending going forward.

    According to the BLS (based on 2005 stats), the following are some of the key expenditure categories as a % of pre-tax income of the average U.S. :
    Food (10%)
    Housing (26%)
    Transportation (14%)
    Insurance/Pensions (9%)
    * presumably taxes take up 35%

    This summer we have the perfect storm of elevated transportation costs (gas and energy prices at record highs); food prices now reflect increased input costs on corn, meats, wheat, etc.; weak US$ making imports more expensive; and now we have mortgage rates spiking from re-sets which is only now beginning.

    There are also enough stats to show that Americans are also levered to the hilt in debt – mortgages, loans, credit cards, HELOCs, etc.

    What does this mean? That going forward the consumer will have to make hard choices on what they spend. Even if the avg consumer can cover the higher mortgage rates, increased food costs, the elevated prices at the gas pump, financial obligations on various loans/credit cards and taxes, at the increment they will have less left over to spend on discretionary stuff like those you see in Best Buy and Starbucks. And since consumption makes up 70% of the GDP, and if you take the view that job growth will no longer be strong, then the outcome is a slower economy going forward.

  70. PB3850 says:

    Here is a great you tube vid from a SNL skit..

    http://www.youtube.com/watch?v=MxFx0NzSjWw

  71. Quakes says:

    techy,

    The Fed is NOT buying all the worthless paper. It is merely lending funds to banks via the discount window at a lowered rate to prevent liquidity concerns from freezing up the financial system. In the process of making these loans, the fed is accepting mortgage and asset-backed securities as a form of collateral.

    The goal is not to provide funding to bad and impaired credit. The aim is to prevent the liquidity seizure in the banking system from hindering people and companies with good credit from getting the loans they would otherwise qualify for at the appropriate rates.

    The fallout and risks of outstanding subprime loans and related securities are still out there, and will need to be corrected over time. So real pain is forthcoming.

  72. Johnie says:

    The USA has been deliberately destroyed economically. It all began when the manufacturing sector was dismantled and left to rot, and all those jobs were outsourced to Asia. Now America produces relatively little of value – its economy is about 70% consumer spending and the rest was taken up by the housing boom. Now that bubble is bursting and the consumer is too maxed out to continue propping up the economy, what is going to happen? America has NOTHING to fall back upon. Maybe American corporations will do fine as their balance statements include profits made from overseas manufacturing, but the majority of Americans are in for a very long recession.

  73. Kondratiev says:

    Yadda yadda yadda. It all happened before, it will all happen again.

    Get out your snow shovels.

  74. D. says:

    It’s pretty obvious that mostly everyone is pretty much optimistic. Not many see hard times coming that’s for sure!

  75. Eclectic says:

    Eddie, you kill me, really you do.

    You’re like a virgin boy that’s been dragged to a whorehouse against his will.

    Tell us why you’re bullish.

  76. jds says:

    Anecdotal stories about shoppers with bursting bags does not meet even the laugh test. Perhaps the Best Buy was in one of the more wealthy neighborhoods?

    Real facts trump stories about seeing busy shoppers. Real facts such as WalMart’s guidance for the rest of the year:

    H. Lee Scott Jr., the company’s president and chief executive, said that consumers slowed their spending markedly in the last weeks of the quarter, as rising interest rates and gas prices took a toll on paychecks. “Consumers are under difficult pressure financially,” he said, in an unusually grim conference call, prerecorded for investors and analysts. “Consumers are running out of money by the end of the month.”

  77. not_stephen_colbert (wunsacon) says:

    MS and fellow posters,

    Sorry, but I found evidence to back up Mr. X.’s claims about common people being able to afford relatively luxurious lifestyles:
    http://news.bbc.co.uk/2/hi/uk_news/magazine/6704009.stm

    “Apology accepted.”

  78. VJ says:

    Mr. X,

    Where do you get your stats, VJ?

    For Poverty ? The Census Bureau of course. Where do you get yours ?

    Because of the homebuilders not scaling back their production of new homes to keep supply and demand in balance.

    Did I mention “new” homes anywhere in my posting ? Let’s check:

    Then why do we currently have the largest inventory of vacant unsold houses in history ?

    Nope. I did not.

    Next excuse ?

    Factually incorrect. Here’s the facts

    You’re conflating what was publicly reported, hence available for regulators to act upon, and what was done internally, which regulators would have had no possible way of knowing until after the fact.

    Got any more goal posts you want to carry around ?
    .

  79. Frankie says:

    Posted by karen:
    “Assume, finally that the government pursues a modestly prudent fiscal policy. Then US households must spend more than their incomes. If they fail to do so, the economy will plunge into recession unless something else changes elsewhere.”

    Aaaargh!! This FT journalist is killing me!! The inevitable consequence would be that the American consumer would need to become SMART, a.k.a. stop confounding its wants as being needs. In other words, REDUCE its spending. (gaaaaasp!!)

    If only 20% of all consumers started reading (and applying) the lessons (ok! SOME lessons) from “Living Below Your Means” board at The Motley Fool or the book “America’s Cheapest Family”, no one would be talking about recession.

    Basically, this notion that the FED “must” keep the party going on is the greatest moral hazard of them all.

  80. Ritchie says:

    “Most of Enron’s fraud occurred during 1998-2000, that’s when Fastow & Co. set up the maze of phantom off-shore corporations and engaged in the bulk of their deceit. Where was the FTC? Where was Reno and the Justice Dept? Where was the SEC,

    —–And those Democrats who had complete control of Congress
    —–in those years! Don’t forget to blame them. That’s what
    —–can happen when every branch of the government is controlled
    —–by one party. Let’s not let that happen again, ok?

    on that and so many other matters? They were busy making Microsoft miserable,

    —–But, but, but… how did Bill Gates get to be the richest person
    —–in the world in those years and 100′s of his employees millionaires
    —–during those awful times?

    and took their eye off Clinton’s buddy Bernie Ebbers,

    —–But, but, but… I thought he was Trent Lott’s buddy?

    and McAuliffe’s ATM machine over at Global Crossing.”

    —–But, but, but… what about the Contract With America:

    ———-http://www.house.gov/house/Contract/CONTRACT.html

    —–and the FISCAL RESPONSIBILITY ACT, etc?

  81. lewis says:

    Based on all the above comments, no one can figure it all out. It is curious that we went from an industrial, manufacturing based ecoonomy to one that seems driven mainly by smoke and mirrors. The economists (I watched one on the GMU educational channel espouse this) now tell me that we have a “creativity based” economy, which, to an old timer like me, sounds a lot like smoke and mirrors. And yet, looking at England, they have been getting by on that for decades now, and doing quite well (when was the last time you bought anything “Made in England”?).

    So we appear to be in a long term downtrend, where we live on our past glory (Roman empire buffs join in here). Apparently the worker in America is going to take the brunt of the decline, and while no one seens to know the solution to that (slowly raise corporate taxes while slowly decreasing personal taxes?), as long as consumers are lining the Best Buys and Starbucks, no one really seems to care, and everyone is just trying to make the party go on as long as possible as it slowly gets smaller and smaller…

    Lewis

  82. Gary says:

    Mr. X is a lying Republican hack. It is pointless to argue with a liar.

  83. wunsacon says:

    Lewis, speaking of Rome, you might be interested in reading “Nemesis” by Chalmers Johnson.

  84. Juan says:

    Earnings are not profits. ‘Record profits’ may be correct in an absolute sense but not in relation to total national income or GDP where we find records all the way back during the real ‘golden age’ of capitalism in America, an age which had ended by the mid-1970s, i.e. prior to decades of progressively greater financialization and the gloss it placed over long-run deterioration in real median hourly wages, necessity of multi-worker households working multi-jobs, a gini coefficient worthy of third world status, deteriorated physical and social infrastructure, misallocation of funds into production of means of destruction with attendant sectoral disproportionalities and still weaker real economy mismeasured by a GDP accounting which fails to sufficiently differentiate between productive and unproductive…

    We have two generations which have never experienced a truly strong expansionary economy but became infatuated with what is best termed fictitious capital, the hall of mirrors of claims to claims to claims…facilitated through and partially recognized in a progressively untenable accumulation of debt.

  85. Eclectic says:

    I’ve decided to weigh in on this long line of debate.

    I have to say that, to now, Mr. X has carried the day.

    He’s out-flanked the majority and taken the high ground.

  86. Eclectic says:

    Mr. X,

    What’s your take on this story?:

    http://tinyurl.com/2782y2

    Now, I haven’t seen all of the reporting about this, but I already anticipate that the bank in China will likely say that the securities they purchased carried a AAA rating, and that the degree of erosion of confidence and market price of these securities is unforgiveable under the circumstances. I may be wrong but that’s what I expect.

    In making those purchases, the Bank of China and/or its customers provided liquidity to a great many U.S. consumers… by augmenting their ability to expend discretionary dollars to continue their spending that wouldn’t have been available for the flights from airports you mentioned, or for the vast consumerism I witness almost daily… but instead those dollars would have been put in down-payments or principal payments on houses they’ve purchased, and in many instances they overpaid for these purchases because of the sea of easy money for bidding provided by the mortgage industry.

    Where would we be now, economically, if the billions reportedly bought by this bank (and likely other billions, many billions throughout the world) in China had not been purchased by them?

    I’ll remind you that the current U.S. circumstance is that quite a few very large mortgage banks in the U.S. are already either bankrupt or there is at least a threat that they will be bankrupt, all because they either created these securities or carried them in investment portfolios they then had to hedge with derivatives contracts, and now they hold assets they can’t sell or can only sell by significantly discounting them, thus marking off corporate shareholder book value by the tick tock.

    The very issue is that the mortgage banks, and conventional banks, are holding mortgage paper that their otherwise compliant, resourceful and cooperative partners, other banks they borrow from ordinarily, won’t loan them money on for continuing operations based on what they put up as collateral.

    The financial system that you are so optimistic about is in turmoil, to a degree that the Federal Reserve itself has needed to ask banks to do something they ordinarily don’t do because of their reputations… step up to the discount window and borrow at a higher rate than otherwise available to them, simply because they’re short of liquidity they can’t obtain in any other convenient way than by the Fed’s discount window.

    Do you suppose the Bank of China would have bought those securities… thus giving U.S. consumers the liquidity for consumerism mentioned earlier… had they realized that the packages carried Trojan Horses designed to offset the risks from the mortgage banks from making inappropriate loans?

    Now, let’s be honest in this of course. While we may realize that the banks did not really intend or expect that the Trojans would be flops (they were full of the same perpetual optimism you display), nor did they expect them to fuel a liquidity crisis that might yet seriously damage the financial system… they still elected to use techniques to distort the true credit quality of issues packaged for sale. Are you at least capable of accepting this as fact?

    Recently, when China had an issue with its government authority that regulates quality control issues in manufacturing of food items (I think the equivalent would be that it was like their FDA), because an official had taken a bribe for lax control, and as a result some dogfood sent to the U.S. was contaminated, they took the official out back and put a bullet in his medulla oblongata. Bad dogfood exported to the U.S. — Bullet.

    What do you suppose China would ask us to do to make recompense for allowing toxic waste to be sold as AAA-rated paper? You think they’ll be very receptive to Paulson’s next beggar-thy-neighbor trip to China, begging them to float the yuan?… or receptive to other U.S. officials when they encourage the Chinese to continue buying U.S. mortgage paper?

    My next question flows logically to the topic of this discussion… that cartoon that may or may not tell an underlying story. One potential untold story might be that the pile of cash on the desk in a way may represent a kind of phantom profit that wouldn’t be quite as big had China realized the nature of what they were buying and had decided not to buy it… and thus not fueled the U.S. consumer to put on the spectacular floor show that you’ve kindly reviewed in your comments.

    Is there anything about your position, that you’ve stated quite well, that you might ever anticipate could change?… Is it possible that you’ve overlooked anything, anything at all that would give you an expectation that true underlying economic conditions in the U.S. are not fully reflected by what both of us see every day… in the malls… in commercial construction… and in the parking lots of Big Box retailers everywhere?

  87. Jim says:

    While you guys debate the “house of cards” US economy, I’ll drive my BMW to my big home in the suburbs and debate where I’ll vacation next. Face it, the economy works or you wouldn’t be typing away on your little desktops and laptops following this blog. You’re starting to sound like the lame Bill Gross “Bush should save the housing market” and Buffet “I pay too little taxes” and all of the other wealthy liberals who can afford to redistribute both their wealth and blame for anything they can’t make money on.