Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

Here's my attempt at putting a fine point on what's happening. As usuual, over simplified:

It was IBM punch cards that started me on this, and was followed by a "race" that I had with the fastest comptometer operator in our office in 1969 or 1970... I had the first Casio Handheld LED calculator. Won by a mile.

I then took over preparing budgets for 187 stores... A project usually handled by 5 girls in the accounting department, and usually taking about two weeks on the old spinning numbers electronic calculators. I completed the project alone, in 7 days using my casio.

Long and short?... Productivity.

Productivity... could work two ways.

#1. Reducing the Work week hours. Pay workers the same.

#2. Maintain work week hours, lay off excess workers, profits go to owners.

Simple.

(Casio at the time... $700 discounted to $499... No Kidding)

...central banks have dropped their allocation to U.S. dollars by nearly a full percentage point to 57.3% from 58.1%, and calls this "unexpected given the global environment." She adds, "over time we anticipate that reserve managers may reduce their holdings further."

What is surprising is that the managers of those central banks aren't buying traditional fall-backs like the euro, the British pound or the Japanese yen. Instead, she suggests they're putting their faith in other dollars - the kind that come from Australia and Canada.

The dollar has been in free-fall since 2007....And just last week, the United Nations released a report concluding that the dollar should no longer be the world's reserve currency because it is not stable enough. The dollar is down 5% over the past month, and even currency traders don't see it as a safe haven any more.

Global bond markets are flashing warning signals of a sharp slowdown in growth across the world and a possible slide toward a double-dip recession and outright deflation....The yield on two-year US Treasuries has fallen to a record low of 0.61pc in a flight to safety, a level not seen during the depths of the Great Depression....

Such levels are clearly incompatible with assumptions on Wall Street for 3pc growth in the second half of this year. “If the bond market is correct then this recovery could be dead in the water,” said Jim Reid, credit strategist at Deutsche Bank. The credit markets tend to sniff out trouble first and have acted as an early warning alert at every stage of the financial crisis over the past three years. Mr Reid said deflation has emerged as the dominant risk in the West and will force central banks to renew quantitative easing, the Americans “pre-emptively” and the Europeans “only when their backs are against the world”.

This growing supply of lender-owned properties could set back the nation's housing recovery but probably won't sink it completely if the nation's employment situation doesn't deteriorate further and the economy begins to pick up steam, experts said. Sales of homes have faltered nationally in recent months with the expiration of government tax incentives for buyers.

U.S. bank repossessions increased 38% in the second quarter from the same period a year earlier for a record total of 269,952, according to Irvine research firm RealtyTrac. That was also a jump of 5% from the previous quarter. If that pace continues through the year, the number of homes taken by banks is likely to top 1 million by the end of 2010, said Rick Sharga, RealtyTrac senior vice president.This growing supply of lender-owned properties could set back the nation's housing recovery but probably won't sink it completely if the nation's employment situation doesn't deteriorate further and the economy begins to pick up steam, experts said. Sales of homes have faltered nationally in recent months with the expiration of government tax incentives for buyers.

U.S. bank repossessions increased 38% in the second quarter from the same period a year earlier for a record total of 269,952, according to Irvine research firm RealtyTrac. That was also a jump of 5% from the previous quarter. If that pace continues through the year, the number of homes taken by banks is likely to top 1 million by the end of 2010, said Rick Sharga, RealtyTrac senior vice president.

Or alternatively, admit that full employment is no longer plausible, so we will build a strong social contract -- of training, guaranteed income, health care -- for those discarded from the workforce. Let's have the debate -- for the one choice that is socially ruinous is the one we seem to be drifting towards -- mass unemployment without a safety net.

Reality Check

I think this article belongs here.
It's very wise, and brings together:

The Republican "trickle down"
The Democratic "create jobs"
The continued Bank stranglehold
The long term lower job levels
The need for safety nets

Unless and until there is a recognition of the macro, The "solutions" will come piecemeal, and will likely be doomed to failure.

I don't know if there is anyone in government with enough vision to skip the politics and offer a comprehensive resolution. Moving five years ahead, will we be a third rate nation, looking back to denounce the greed and intransigence of egoistic leaders, lost in their own tiny worlds?

The last paragraph:

America has underinvested in the public goods that support job growth

The last paragraph:

if you’re a Wall Street bank and you engineer a “synthetic rate swap” deal.