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(Reuters) - The U.S. recession is shaping up to give Americans their hardest economic times since World War Two. A new assessment of the economy was presented on Wednesday by the Congressional Budget Office, the non-partisan budget analyst for Congress. Here are some of CBO's observations on the impact of the bad economy on the poor, elderly and others, one year into the recession: * More people need food stamps. Government spending on food stamps, designed to help the poor buy basic commodities, will grow by 27 percent this year. CBO said spending will hit $50 billion, from $39 billion last year, mostly because of growing caseloads and benefits as food prices have risen. A record 31.5 million people were signed up for food stamps last September, according to government records. * Unemployment rolls are growing. Washington's spending on jobless benefits will nearly double, to $79 billion this year from $43 billion last year. CBO thinks the jobless rate will rise to 9.2 percent next year, from around 6.7 percent now. The number of unemployed and action by Congress last year that extended benefits during the hard economic times are causing the additional spending. Some Democrats in Congress want to take further steps to expand unemployment benefits, possibly covering part-time workers who lose their jobs. * Medicaid is expanding. The federally backed health insurance program for the poor was growing in cost even before the recession because of rising health care costs generally. But rising unemployment means more people qualify for Medicaid, CBO said. * Retirees won't get a raise in 2010. A contracting global economy means less demand for consumer goods, including oil, which means lower prices. That can help consumers during hard economic times. But it also means lower annual cost-of-living adjustments for seniors collecting Social Security retirement checks. CBO anticipates no Social Security cost-of-living raise next year. This would come as retirees' private savings have been hit hard by the stock market bust and low interest rates paid by banks on savings accounts. * Home foreclosures rise. Mortgage foreclosures stemming from risky adjustable loans jumped to 7 percent by early 2008, from an eight year average of 2 percent. CBO said foreclosure rates are likely to remain high as house prices continue to fall. "Many homeowners have negative equity in their homes ... and will not be able to refinance their mortgage." (Reporting by Richard Cowan; Editing by Eric Walsh)
Originally posted by projectvxn
Reply to redhatty
Our massive debt will be the cause of this. The only thing holding this boat above the waterline is foreign investment in several markets including the massive purchase of government short term and long term bonds.
We don't produce any wealth here we borrow it with the promise of a return + interest later. We've seen t-bills go O to negative, we've seen the amount of government spending in the last 30 years, the worst of which has been the last decade(again this is borrowed money), Fed lowers interest rates to 0 -.25 percent, and they are talking about parking at 0 for an extended period to create "Liquidity" in the market. That is inflation, but we're talking about recaps in the trillions, not billions.
We're digging a much bigger debt hole than anyone could understand. When our foreign creditors see that, they will get out, and they will let us hold green toilet paper if it means not being dragged down with us. You can't have a broke government bailout an over-leveraged America without printing money into the extreme. I love the people that say "This can't happen" when the system is in fact PERFECT for such a collapse.
Our money is backed by other people buying our debt, and they're not stupid enough to keep doing so . If we paid off all of our debt there wouldn't be a damned penny in circulation in the current flow of things. THAT can never happen, but the other can, and likely will. The Fed will make sure of it.
Originally posted by projectvxn
Again to redhatty
To illustrate my point further. Would you keep your investment in California if she defaulted? Became insolvent?
I know I wouldn't.
Expect a collapse of state, muni, and treasury bonds very soon:
[edit on 17-1-2009 by projectvxn]
Originally posted by projectvxn
Cutting interest rates essentially creates cheap money. And floods the market. The whole point of these low interest bailouts is to "Recapitalize banks" in other words, fill them with cash. New cash mind you, it's all printed.
This week, in a speech before the London School of Economics, Fed Chairman Ben Bernanke offered a perverse economic theory in his quest to gather support for never-ending Wall Street bailouts; “This disparate treatment, unappealing as it is, appears unavoidable. Our economic system is critically dependent on the free flow of credit, and the consequences for the broader economy of financial instability are thus powerful and quickly felt.” In other words, credit is the lifeblood of our economy, and the continued operation of credit providers is an issue of national security. In truth, not all economies run on credit. But over the last decade, the United States became a bubble economy that needed unlimited credit to keep from collapsing. In a legitimate economy, it is not credit that fuels spending and investment, but simply income and savings. It’s too bad our Fed chairman does not understand the difference. That American families now routinely rely on credit to make every-day purchases is a habit that needs to be broken and not encouraged. What we need in America is more restraint and less indulgence. For example, Americans in the current economy should not go into debt to buy new cars. Given the level of debt that weighs down the typical family, Americans should defer such purchases until they have paid down existing debt, or replenished their savings to the point where they can afford to pay cash. Until that time, Americans should continue driving their old cars. In the meantime, the untapped savings could be made available to local businesses that would use it to finance badly needed capital investments. But such a drastic reversal in financial culture represents the kind of change that no one in the outgoing or incoming Administrations appears willing to consider. By providing perpetual support to lenders who have bankrupted themselves through bad loans, the government merely guarantees that bad economic behavior will continue. Credit is indeed vital to an economy, but it does not constitute an economy within itself. The important thing to remember is that credit is scarce, and is limited by the stock of savings. Savings loaned to one individual is not available to be loaned to another until it is repaid. If it is never repaid, the savings are lost. Loans to consumers not only crowd out more productive loans that might have been made to business, but they have a far greater likelihood of ending in default. In addition, while business loans increase our capital stock and lead to greater productivity, loans made to consumers are merely spent, and do not create conditions that will make repayment easier. When businesses borrow to fund capital investments, the extra cash flows that result are used to repay the loans. When individuals borrow to spend, loans can only be repaid out of reduced future consumption.
In trying to perpetuate the illusion, the government wants to revive the spending spree that has led us to this disaster. But how can such actions possibly help? How will more debt improve the economy? Wouldn’t our circumstances be vastly improved if we paid off some of our debts and replenished our savings? Wouldn’t we be in better shape if instead of buying more stuff we concentrated on producing it? The unpleasant reality is that years of bad monetary and fiscal policy have over encumbered our economy with debt and undermined our industrial capacity. The sooner we can begin to repair the damages, the sooner we can right the ship. If instead we merely administer more of the same, the ship will sink in a sea of inflation.
1. Tariff the hell out of imported goods and the good produced by American companies overseas. This will give the government the money they need to pay for reinvestment programs without taxing US taxpayers into oblivion. Do this to the point that it becomes cheaper to produce in the US.
2. Return to a sound monetary policy backed by hard valued assets instead of speculated value.
3. ENFORCE MONOPOLY laws. Our anti-trust laws are there for a reason. We cannot allow large conglomerates to corner markets to the point that they drive competition into the ground.
4. Allow failed enterprises to fail instead of giving them a handout that they will just steal from us and never pay back anyway.
5. Foster good employee protections and make sure that production keeps up with wages and vice versa. If we don't do this we will always have to deal with costs out-pacing wages and creating default crises like the one we are seeing now.
6. Eliminate free-trade agreements. Cheap foreign products does not translate into American prosperity, it only eliminates business here in the US that would otherwise be hiring workers to make their products.
7. After all of this get as much foreign investment as possible to finance further growth. The foreign investors will get consistent and REAL returns based on our consistent and REAL production, and every body wins.
8.Shrink government spending and get rid of agencies and departments that do nothing more than drain the people wealth and pass it on to the top of an already imbalanced pyramid.
LONDON, Jan 20 (Reuters) - Gold rose more than 3 percent to an 11-day high of $860.40 an ounce on Tuesday amid market talk of a large order, with firm investment demand for gold as a haven from risk fueling buying of the precious metal. Spot gold was quoted at $854.60/856.60 an ounce at 1525 GMT, up from $834.55 late on Monday. Earlier it touched a low of $822.90, down more than 1 percent. U.S. gold futures for February delivery GCG9 on the COMEX division of the New York Mercantile Exchange rose $17.20 to $857.10 an ounce. Standard Chartered analyst Daniel Smith said strong investor flows into products such as exchange-traded funds, as investors sought more secure assets, were offsetting weaker jewelery demand. "People are slowly building long positions in gold and commodities more generally," he said. Gold shrugged off early weakness linked to a strengthening U.S. dollar and weaker oil prices. The dollar rose to a six-week high against the euro as traders worried about the outlook for the euro zone economy, after the European Commission issued a grim forecast for 2009 and Standard and Poor's cut Spain's debt ratings. [ID:nN20402332]
Gold tends to move in line with crude, as it is often used as a hedge against oil-led inflation. Moves in the oil price are also an indicator of interest in commodities as an asset class.
Overall, fears over the outlook for the global economy and the financial system are boosting interest in products like exchange-traded funds -- which issue securities backed by actual stocks of gold. These are seen as less risky than paper assets.