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Toro! Or Others Seriously Keyed Into Economics

Annie

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Do you agree with this analysis? If so, what is the ultimate outcome?

Real Private Investment Flat Vs. 1998 - Investors.com

Real Private Investment Flat Vs. 1998

By JED GRAHAM, INVESTOR'S BUSINESS DAILY Posted 06:54 PM ET

The root of the economy's ills is often said to be a lack of demand or elevated debt levels. While both explanations have merit, the underlying problem is depressed business investment.

Despite a healthy rebound in software and equipment spending over the past 18 months, real U.S. private investment has only reached 1999 levels.

That is critical because private investment is closely correlated with private employment.

Back To 1999

Private payrolls also have recovered only to 1999 levels, Labor Department data show. So have total hours worked by private rank-and-file employees.

Every dollar of GDP growth in the past dozen years has been driven by personal consumption and deficit-fueled government spending. Why is that? Because private investment has tumbled from its peak in early 2006.

This points to the real growth conundrum: Outside of a completely unexpected housing rebound, private investment can't possibly grow fast enough to spur a healthy jobs recovery on its own. But the two horses that the U.S. economy has been riding for the last several years are exhausted and unlikely to be refreshed as Washington enters an age of budget austerity.

In Q2, consumer and government spending subtracted 0.16 percentage point from GDP, becoming a drag on the economy for the first time since the recession ended.

Private business "is the only sector with the means to spend" to lift the employment picture, said Harm Bandholz, chief U.S. economist at UniCredit Research.

But to a significant extent, "companies are not willing to spend in the U.S.," he said.

A central problem has been the bursting of the real estate bubble. In 1998, business software and equipment outlays accounted for about 42% of private investment. Now it's 62% because of the sharp decline in spending on residential and nonresidential structures.

Over the past decade, cheap capital was plowed into nonproductive residential investment. Since the bust, nothing has come along to fill that gap.

U.S. A Risky Bet For Business

The combination of high household debt, a cloudy fiscal outlook and the prospect of sluggish growth — especially vs. emerging markets — has dampened the appetite for investment in the U.S., Bandholz said.

Whether it's hiring a worker or buying a new piece of equipment, companies consider "the risk-adjusted return," said Mark Vitner, senior economist at Wells Fargo Securities.

Given increasing economic, tax and regulatory uncertainty — including sweeping rules from new health care and financial reform laws still to be finalized — companies are setting a higher bar for spending.
 

eots

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Do you agree with this analysis? If so, what is the ultimate outcome?

Real Private Investment Flat Vs. 1998 - Investors.com


yes and the result will be this....

[ame=http://www.youtube.com/watch?v=23SVHUPrUJ4]The Tell of Captain Walker - YouTube[/ame]
 
OP
Annie

Annie

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No! You will not get this thrown into Conspiracy. Be Gone!
 

Toro

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It appears to the case.

GPDIC96_Max_630_378.png


The problem is not that we don't have enough investment now. The problem is that we've had too much investment in the past. It's the main reason why we are in this mess today.

We had two massive asset bubbles in the last 10 years, first the Tech Bubble, then the Housing Bubble. When we had investors going bananas over the Internet in the 90s, too much capital was diverted to the technology industry, or at least too much for the economy to handle at that time, and we went into a recession. Then, a few years later, people went bananas over housing prices, and we built too many homes. The long-term trend for new housing builds was about 1.2-1.3 million homes a year. Then, in the 00s, we began building 2 million homes a year, which was way too much. Inevitably, the housing bubble collapsed and now we are building 500,000 homes a year. We shouldn't be building any more homes until we rebalance supply and demand, which will occur in a year or two.

So, yeah, a big reason why the economy is doing so poorly is because we are well below the long-term trend in investment. But this is common after we have collapsed from an asset bubble. During a bubble, we have a boom and build too much stuff. But eventually, the economy cannot sustain all the stuff we build and we stop building the stuff, then the economy collapses. This is why the economic recovery was one of the weakest on record after the Tech Bubble collapsed, and why the economy is so lousy now, given that we are still staggering from the Housing Bubble collapse. It was neither Bush's fault nor Obama's fault that the economy has been so bad over the past decade. If you study bubbles and the aftermath, this is what is supposed to happen. And what has to happen is that we have to clear out the excesses of supply and return to a more normal environment, which means below-trend investment for some time. Trying to sustain the level of investment just keeps pushing the can down the road and makes things worse.
 
Last edited:

expat_panama

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Do you agree with this analysis? If so, what is the ultimate outcome?
It's in the article; the problem--
Investors.com said:
...Given increasing economic, taxandregulatory uncertainty—including sweeping rules from newhealth care and financial reform laws still to be finalized —companies are setting a higher bar for spending. “The required rate of return from hiring a worker or expanding a plant has increased,” leading to less hiring, Vitner said...
--as well as the solution:
Investors.com said:
...A long-term deficit-reduction strategy, simplifying regulation and more certainty about immigration would help change that equation,he suggests...
Investor's Business Daily is usually spot on, but this piece screwed up with their bogus rant about "high household debt"; their Jed Graham is apparently not the brightest bulb in the light board. High household debt's been falling for several years now but we don't find that out from the Commerce Debt where Graham was looking. The Fed's in charge of monitoring household debt and they post it here: FRB: Statistics and Historical Data .

Now you know more than they do.
 

editec

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Two word answer to why business investments aren't being made in the USA.

IM PORTS
As long as capital can capture the US markets with imported goods made much more cheaply offshore, there is NO ENCENTIVE to invest in this nation.

In fact, as long as we allow free traitorism to reign, that is a DISencentive to investing in the USA.


 

KissMy

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Two word answer to why business investments aren't being made in the USA.

IM PORTS
As long as capital can capture the US markets with imported goods made much more cheaply offshore, there is NO ENCENTIVE to invest in this nation.

In fact, as long as we allow free traitorism to reign, that is a DISencentive to investing in the USA.



The way to cure the IM PORT problem is to make the nation more efficient. We have to compete in the global market place & energy efficiency. Most of the idiots in power only pander to 2 groups. The entitlement thugs or the no tax cronies. Progressives are just entitlement thugs who are progressive in name only.

Toro's & expat_panama's assessment of the article are good. Bottom line is we just went through 2 massive bubbles & only recession, deflation & time will fix it. Good government could have played a role in leapfrogging us over the recession by utilizing cheap idle labor to the countries advantage, but once again it screwed up. Bad government policy caused the bubbles so why should we think it could fix them.
 

Truthmatters

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The housing Glut could have been avoided.

It was instead encouraged to allow profits to continue in spite of the fact that we were headed for a crash.

When the economy is kept more stable the middle class builds.

When the economy is allowed to have booms and bust the wealthy reconcentrate the wealth.

Its why we have not seen the historic boom and bust cycle the country historically had before glass steagal was in place.

Now without glass steagal this is what we will have, a return to a boom bust society.
 

Sallow

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It appears to the case.

GPDIC96_Max_630_378.png


The problem is not that we don't have enough investment now. The problem is that we've had too much investment in the past. It's the main reason why we are in this mess today.

We had two massive asset bubbles in the last 10 years, first the Tech Bubble, then the Housing Bubble. When we had investors going bananas over the Internet in the 90s, too much capital was diverted to the technology industry, or at least too much for the economy to handle at that time, and we went into a recession. Then, a few years later, people went bananas over housing prices, and we built too many homes. The long-term trend for new housing builds was about 1.2-1.3 million homes a year. Then, in the 00s, we began building 2 million homes a year, which was way too much. Inevitably, the housing bubble collapsed and now we are building 500,000 homes a year. We shouldn't be building any more homes until we rebalance supply and demand, which will occur in a year or two.

So, yeah, a big reason why the economy is doing so poorly is because we are well below the long-term trend in investment. But this is common after we have collapsed from an asset bubble. During a bubble, we have a boom and build too much stuff. But eventually, the economy cannot sustain all the stuff we build and we stop building the stuff, then the economy collapses. This is why the economic recovery was one of the weakest on record after the Tech Bubble collapsed, and why the economy is so lousy now, given that we are still staggering from the Housing Bubble collapse. It was neither Bush's fault nor Obama's fault that the economy has been so bad over the past decade. If you study bubbles and the aftermath, this is what is supposed to happen. And what has to happen is that we have to clear out the excesses of supply and return to a more normal environment, which means below-trend investment for some time. Trying to sustain the level of investment just keeps pushing the can down the road and makes things worse.

Well if you are looking at the "Tech bubble" sales of hardware were sluggish for a bit because so many dot com companies went bust..and their second hand gear was available at low cost. That's changed and with the advent of electronic trading..which is high speed, companies like Cisco and Juniper went into overtime to produce hardware and solutions to meet those challenges. And corporations are now in the process of purchasing to upgrade. I'm sure similar things are going on in other sectors, companies like Caterpillar were doing well. The rest of it is cheap money. Corporations can take out loans and either buy back stock or let it sit in interest bearing accounts.

I'm also not sure if this is a "kick the can" down the road situation. And I'm reasonably sure many sectors are holding back investments because they want regulations eliminated.
 

CrusaderFrank

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[ame=http://www.youtube.com/watch?v=LTbjcKZzrmM]Steve Wynn Goes On Epic Anti-Obama Rant On Company Conference Call - YouTube[/ame]
 

KissMy

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The housing Glut could have been avoided.

It was instead encouraged to allow profits to continue in spite of the fact that we were headed for a crash.

When the economy is kept more stable the middle class builds.

When the economy is allowed to have booms and bust the wealthy reconcentrate the wealth.

Its why we have not seen the historic boom and bust cycle the country historically had before glass steagal was in place.

Now without glass steagal this is what we will have, a return to a boom bust society.

You are correct. The housing Glut could have been avoided, but instead it was encouraged. Americans started nesting after the 9/11 attacks. Government & business alike helped homeowners tap the equity in their homes to boost the economy & profits.
 

finebead

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I believe Toro has hit the nail on the head, yet AGAIN!!! Thanks Toro!
 

Oddball

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Do you agree with this analysis? If so, what is the ultimate outcome?
It's in the article; the problem--
Investors.com said:
...Given increasing economic, taxandregulatory uncertainty—including sweeping rules from newhealth care and financial reform laws still to be finalized —companies are setting a higher bar for spending. “The required rate of return from hiring a worker or expanding a plant has increased,” leading to less hiring, Vitner said...
--as well as the solution:
Investors.com said:
...A long-term deficit-reduction strategy, simplifying regulation and more certainty about immigration would help change that equation,he suggests...
Investor's Business Daily is usually spot on, but this piece screwed up with their bogus rant about "high household debt"; their Jed Graham is apparently not the brightest bulb in the light board. High household debt's been falling for several years now but we don't find that out from the Commerce Debt where Graham was looking. The Fed's in charge of monitoring household debt and they post it here: FRB: Statistics and Historical Data .

Now you know more than they do.
Indeed....People paying down their credit lines puts the money into the banks, who in turn have drastically raised their lending criteria, if they're lending at all given the current attitude from 1600 Pennsylvania toward the productive.
 

Wiseacre

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Investments in the US private economy are a natural result of the profit motive. Companies will invest more money in assets and labor when they have reason to believe the return on their investment is great enough to offset the risks. Nothing particularly odd or mysterious about it, the present environment is just not conducive to economic growth, nor is the future looking all that great either. That's what investment is all about - the future, not just the next 6-12 months but also longer term.

So when will things change? Probably not before Nov 2012, if a new president is elected and the Congress is controlled by the GOP, and they enact meaningful reforms that are more business friendly, that could help. Getting rid of ObamaCare would be a nice start. And Dodd/Frank probably needs to be reworked or killed too. Gotta be replaced by something better though.
 

uscitizen

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I agree with the OP. It is also proof that tax cuts do not spur job growth.
 

Wiseacre

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I agree with the OP. It is also proof that tax cuts do not spur job growth.


Under better circumstances, tax cuts leave more money in the hands of investors, who invest it and grow the economy which leads to job growth.
 

Wiseacre

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I agree with the OP. It is also proof that tax cuts do not spur job growth.


Under better circumstances, tax cuts leave more money in the hands of investors, who invest it and grow the economy which leads to job growth.

under different circumstances.

Rules have changed since globalization took hold.


Different circumstances would almost have to be better. And rules have changed and will continue to change as the global economy changes. Tax cuts to businesses and capital gains are an incentive to economic growth and creating jobs. Won't work here and now, but hopefully it will eventually.
 

flacaltenn

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Don't disagree with Toro that the tech bubble poisoned the growth of investment. I was at ground zero in Silicon Valley and realized that it was unsustainable AS CONFIGURED.

There was too much exhuberance for "soft goods", sales gimmicks, and the internet -- and not enough on HARD technology, new high tech products, and seeding of new industries in automation, materials, ect. This was spurred on by the technically illiterate political dupes (no names please) selling the idea that the "information superhiway" would be the only needed counterbalance to shedding manufacturing jobs..

That was the right "feeling", but the wrong execution. Money went to the EASY stuff, like selling dog food over the internet. But it didn't go to the long term birthing of new industries that we desperately need for a better MODERN american workforce.

The message needs to be NEW industries that the other 30 Bill people in this world can't tackle. NOT this hokey "green jobs" weatherstipping doors and blowing attic insulation..
 

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