Current Events

[[AK]Choozoo]

Fiscal Collapse
National Debt
Civil Unrest
Gun Control
North Korea
QE Unlimited
Devaluation of the USD
USD loss as World Reserve Currency

All of this stuff, where do you think we are headed?

[[AK]Hylander]

Fiscal Collapse
National Debt
Civil Unrest
Gun Control
North Korea
QE Unlimited
Devaluation of the USD
USD loss as World Reserve Currency

All of this stuff, where do you think we are headed?

As an economist, I don't see a 'real' fiscal collapse happening. However, I do see the National Debt growth as a huge drain on the economy moving forward. More of our resources are being used to pay debt, and as you know, the government rarely cuts spending significantly which means taxes will be the primary means of raising the funds to continue paying for all of the government's activity. Of which, arguably, only about 40% produce any beneficial economic activity. I'd actually put that number lower at about 30%, maybe even 25% under Obummer. That will result in less economic activity, which results in less tax revenue, which results in the cycle continuing until you end up like California.

Gun Control - It will mostly be a state level fight now. I don't see anything getting through the Federal level unless the Republicans completely screw their base, and thus themselves. There might be some items the Libs can do on an Executive level to make it painful to be a gun owner, but I don't see them getting much done in that capacity either as it won't get them much credit with their far left base, but it will be enough to further piss off and get the right to show up at the voting booth in 2014 and beyond. A vast majority of States are fairly gun friendly, despite what the media will portray on TV. Here in PA, which voted for Obama but has the largest number of NRA members of any State, some Democrat Politicians are shaking mightily at the consequences of even being remotely tied to Obama's gun control objectives. It will be interesting to see if NY and Connecticut actions stand up in court.

North Korea - Nothing. They might be ridiculous, but I highly doubt they have a suicide wish. The people who are blinded by the control of the Communist Party might not see it, but the government sure as hell knows that they will come to an end if they try anything remotely aggressive.

QE Unlimited - This is the biggest danger to our economy. The average Joe doesn't understand it, but as someone who manages our financial institution's portfolio and is a member of the ALM (Asset-Liability Management) Committee - I know the dangers all too well. Right now, we can't make any money. We are paying .02% on savings, and we've grown $5 over the last 12 months. People have no confidence in the government, they aren't spending money, they aren't borrowing, and we have no place to invest it. Right now, the 10% U.S. Treasury Agency is paying 1.64%. We need to earn about 2.6% on our assets just to pay the bills. If we go increasingly long on these securities, we increase our IRR (Interest Rate Risk) greatly. If rates increase, we're stuck with lower rate paying securities which will be greatly devalued. This in itself wouldn't be the big problem if you could just held on to them and still earned your return. However, with bank regulations requiring "mark to market", you have to right down the value of your portfolio periodically. Thus, if rates went up much at all, there would be HUGE losses in all the financial institutions which would trigger massive amounts of capital being needed in their mandated reserve requirements. Thus, credit would dry up quickly and the economy would tank. THEN, we would have another financial crisis on our hands. For example, I just did our quarterly rate "shock" test on our portfolio. Our portfolio face value is exactly $48,000,000. (This is just government agency treasuries since we are limited to those and CDs at other institutions.). If rates went up 300 basis points (3%), our portfolio value would lose $4,699,827. This immediately reduces your level of capital. Now, think of this with the "too big to fail" institutions where it amounts to BILLIONS of dollars. Not. Good. Bernanke has painted us into a tough corner, but to be fair, he didn't have much choice. The government and treasury pretty much trapped the Fed into the course of action they are in.

The U.S. Dollar has actually been increasing in value slightly, but it's still by far the most stable currency available on the scale needed to be the world reserve currency.

As far as economic outlook, I haven't a clue. I think we're probably in for more of the same for the next 3+ years. I don't see businesses increasing investment when this administration continues to build barriers and demonize capitalism's successes. We have a fairly resilient economy for the most part, but that's hard to say when you have so many friends and family either unemployed or vastly underemployed. Some will argue we are in a significant paradigm shift where businesses are moving forward even further into contract and temporary employees as technology helps in this arena, and government policy punishes you for having employees through taxation (direct and in-direct like Obamacare) and bureaucratic red tape costs. I truly feel sorry for the vast number of college students who are graduating with student loans and will end up working as a waiter, waitress, pizza delivery, or retail clerk for the foreseeable future. Today's graduates need to be creative and somehow demonstrate they have something to offer that the other candidates don't. Considering I had two students ask me last week what "prudent" meant during an exam I was giving, they better hope emoticons and text messaging are high demand job requirements.

Sorry for the essay length post.

[[AK]Choozoo]

Essay? that's what I expected. So I am going to stretch, and say you see a status quo, or a slow death for the foreseeable future.

[[AK]Hylander]

Yeah, I just don't see much of a reason to think much is going to change in the near term unless something happens. I don't know what 'something' might be, but people can't spend what they don't have and credit utilization is at the lowest it has been in several years. You'd think that would be a 'good' thing, but not when you're economy depends on consumer spending.