Ka-BOOM!

[dude1394]

http://www.investors.com/editorial/e...6819810&view=1

I guess the jobless rate will have to get to 1 before a "good" economy has occurred.

To Every Season There's A Bias
INVESTOR'S BUSINESS DAILY

Posted 10/23/2006
Public Opinion: You are v-e-r-y tired. . . . You will believe everything I say. . . . Just keep your eye on President Bush's sinking polls. . . . Pay no attention to that low jobless rate . . . or the shrinking budget deficit . . . or the record Dow.

That, it seems, is the spell that's again been cast over a strangely receptive public as the Nov. 7 election nears. Despite an economic boom that's nothing short of amazing, especially given the obstacles it's had to overcome, many Americans still think we're on the verge of recession. Or at least that's what some polls say.

Why the disconnect? We keep scratching our heads. Beyond the grumbling over gas prices and some concern about what lies ahead in the war on terror, the only thing we can come up with is the unremittingly negative coverage the economy gets in the mainstream media.

You'd think that after a while people would put two and two together — that if things are pretty good for them and most people they know, the economy itself must be pretty good, despite what they read in the papers or hear on TV.

How do we know there's a disconnect? Because we see it in our own polling. When we ask Americans about their own financial situations, they're upbeat. When we ask what they think of the economy in general, the response is much less bullish.

In our October survey, the personal finance index stood at 60.6 — well above the 50 level that separates optimism from pessimism. Our overall economic optimism index registered only 52.4.

Some might say: How about the lower-income people who supposedly are falling further and further behind, or the middle class that's forever being "squeezed"? Well, as the accompanying charts show, they too are positive about their own situations but have their doubts about the rest of us.

This "cognitive dissonance" tends to be more pronounced at election time, perhaps because that's when coverage tends to get more biased. Examples from past election cycles abound.

In 2004, when the Bush-Kerry race was heating up, we couldn't help notice all the stories about trouble in the Midwest, and especially in key manufacturing states like Ohio, where the recovery that began two years earlier was said to be a no-show.

That's funny, we thought at the time. Data showed the factory sector expanding for the 12th month in a row and employment at a 31-year high. But with Bush in office and John Kerry polling well, the media weren't about to let facts get in the way of a good woe-is-us tale.

It was just the opposite in 2000, when Bush and Dick Cheney were campaigning to replace Bill Clinton and Al Gore, and had the nerve to point out the economy seemed to be slowing. Never mind the data indicated as much, or that stocks had been signaling a downturn since they topped that spring.

Eight years earlier, when George Bush Sr. was in the White House, and Clinton, Gore and 90% of the national media wanted him out, it was all about "the economy, stupid." Though we were in the 18th month of expansion, and activity in the latest quarter was the strongest in three years, 92% of stories written about the economy in that stretch were negative.

The negative coverage dried up as soon as Clinton and Gore were elected. Only 14% of stories in November 1992 were negative vs. 90% the month before.

In 2006? Once again, there's no shortage of anecdotal evidence. Typical was the one we cited last week, when both CBS and CNN took the best piece of economic news in a long time — the plunge in gas prices — and turned it into an election-year conspiracy of George Bush and Big Oil.

For fresh empirical evidence, the Business & Media Institute, admittedly a right-leaning group that audits coverage of the free enterprise system, just released a study of how the TV networks covered what was a strong economy in the 12 months ended in July. Among its findings:

• More than twice as many stories and briefs focused on negative aspects of the economy (62%) vs. positive (31%). "News broadcasts dwelled on one prospective cataclysm after another, yet each time the economy continued unfazed," BMI said.

• Bad news was stressed on all three networks (CBS, NBC and ABC) and appeared in full-length stories twice as often as in shorter items.

• Ordinary people and businessmen whom reporters used to underscore negative stories outnumbered those telling positive stories by a 3-to-1 ratio.

• CBS' coverage was easily the most slanted. More than 80% of its full-length stories on its "Evening News" delivered a negative view of the economy.

• Generally speaking, "the U.S. economy has been depicted as one major event away from collapse on all three evening news shows."

[dude1394]

NYSlimes recognizes how good it is but they don't give themselves enough credit for talking it down.

http://www.nytimes.com/2006/10/24/bu...erland&emc=rss

In many ways, the economy has not looked so good in a long time.

For many likely voters in the midterm elections, disillusionment over the direction of the country has become the dominant issue.

President Bush Monday with the first lady, Laura Bush. He is campaigning this week on the theme that the economy is doing well.

The price of gas at the pump has tumbled since midsummer. Unemployment has fallen to its lowest level in more than five years. On Wall Street, the Dow Jones industrial average has finally returned to its glory days of the late 1990’s, setting records almost daily.

President Bush, in hopes of winning credit for his party’s stewardship of the economy, is spending two days this week campaigning on the theme that the economy is purring. “No question that a strong economy is going to help our candidates,” Mr. Bush said in a CNBC interview yesterday, “primarily because they have got something to run on, they can say our economy’s good because I voted for tax relief.”

But Republican candidates do not seem to be getting any traction from the glowing economic statistics with midterm elections just two weeks away.

The economy is virtually nowhere to be found among the campaign ads of embattled Republican incumbents fighting to hold onto their House or Senate seats. Nor is it showing up as a strong weapon in the arsenal of Republican governors defending their jobs from Democrats.

“I don’t know of another election cycle in which the economy was so good, yet the election prospects for the incumbent party looked so bad,” said Frank Luntz, a Republican strategist. “If something goes wrong, Republicans are to blame. If something goes right, Republicans don’t get credit.”

[dude1394]

More bad news for the economy. Elect a democrat so we can stop all of this horrible news.

WASHINGTON — The unemployment rate dropped to a five-year low of 4.4 percent in October as employers added 92,000 new jobs _ flashing a picture of a strong labor market as the midterm elections draw near.

The latest report, released Friday by the Labor Department, showed that the civilian unemployment rate fell 0.2 percentage point from 4.6 percent in September. It marked the third month in a row that the politically prominent jobless rate declined.

The tally of new jobs added to the economy in October fell short of economists expectations for an increase of around 125,000 positions, however. Nonetheless, job gains in both August and September turned out to be much stronger than previously estimated _ and that took much of the sting out of October's less-than-expected payroll performance.
.......
Workers' average hourly earnings climbed to $16.91 in October, a sizable 0.4 percent increase from September. That increase was bigger than the 0.3 percent rise economists were expecting. Over the last 12 months, wages grew by 3.9 percent.
......
The hunt for a job got shorter.

The average time that the unemployed spent in their search for work in October was 16.5 weeks, an improvement from the average 17.4 weeks registered in September.
......
The 4.4 percent unemployment rate was the lowest since the spring of 2001.
.........
The jobless rate for blacks fell to 8.6 percent last month, from 9.2 percent in September. The unemployment rate for Hispanics dropped to 4.7 percent, from 5.4 percent. The jobless rate for teenagers declined to 15.4 percent from 16.4 percent.

[Usually Lurkin]

Originally Posted by dude1394

More bad news for the economy. Elect a democrat so we can stop all of this horrible news.

It sounds like you are trying to be sarcastic about this, but it really is bad news. You can trust Reuters to tell it like it is:

"The unemployment rate fell in October to 4.4 percent from 4.6 percent in September. It was the lowest unemployment rate since 4.3 percent in May 2001 and was likely to fan concerns that labor markets are growing tight and could contribute to inflation pressures."
http://yahoo.reuters.com/news/articl...mktNews&rpc=44

[kg_veteran]

Originally Posted by Usually Lurkin

It sounds like you are trying to be sarcastic about this, but it really is bad news. You can trust Reuters to tell it like it is:

"The unemployment rate fell in October to 4.4 percent from 4.6 percent in September. It was the lowest unemployment rate since 4.3 percent in May 2001 and was likely to fan concerns that labor markets are growing tight and could contribute to inflation pressures."
http://yahoo.reuters.com/news/articl...mktNews&rpc=44

Saw this comment.

The libs really can spin ANYTHING into bad news.

[purplefrog]

I think this thread has made me think alot about the economy and it is interesting to see all of the posts showing that the economic numbers seem to be mostly very good. So, why is that most Americans believe the economy is fair or poor and that it is getting worse?

From USA Today (October 24)
Economic news. Low unemployment, falling gas prices and a record-setting stock market typically would translate into warm feelings about the economy. But 55% of Americans rate the economy as only fair or poor, and 54% say it is getting worse.

I am not trying to throw up a rhetorical question, but I am sincerely interested in why this perception is there. I can't remember another time when all indicators seemed so positive, yet Americans are not seeing that picture (me included). Is it an illusion? Are people less smart than they used to be (including me; I HAVE felt a bit more dementia lately than usual)? Are these indicators no longer valid? What's going on?

[dude1394]

Just my opinion.

1. Iraq war puts a downer on everything.
2. The media does NOT want republicans to win office. They just don't so unlike bubba they don't tout it.
3. The wages have not been going up as quickly as some would like. A lot of that is why inflation has stayed lower.
4. Outsources makes everyone nervous in general I think. Seeing the economy change so much just makes folks nervous.
5. We are moving from a company focused (pension, benefits, etc.) to an independent focused (same). This also makes folks feel nervous.
6. Folks do understand fundamentally that our politicians are broken when it comes to reigning in spending. They really WANT their own congressperson to bring home the bacon but they know that it needs to be reigned in. I'm not sure americans have the stomach for reduced spending however,..some very brave politicians are going to have to force it.

[Poindexter Einstein]

Polls tell us that when asked pointedly, respondents say that they are doing well, but they feel the economy is not. In other words, when they say the economy is bad, it's their perception, not their experience. In politics, perception equals reality.

In this case, "blame it on the media" is clearly a merited approach.

[Mavdog]

there was an eco prof who liked to say "get 3 economists in a room and ask them their opinion on data and you'll get 4 answers..."

economics isn't black and white.

as for the public's perception, imho they see their costs increasing for goods (gas, food)and services, and their net income isn't keeping pace.

[Poindexter Einstein]

Mavdog, no that is NOT the case. The respondents net income IS keeping pace. They feel they ARE doing well. But they base their feelings on the economy on what they are being told, not on their own experience. The economy is indeed doing well, but hearing repeatedly that things are bad, in time they begin to think they must somehow be the lucky exception. It's an odd situation - akin to mass brainwashing - but true.

[Mavdog]

Originally Posted by Poindexter Einstein

Mavdog, no that is NOT the case. The respondents net income IS keeping pace. They feel they ARE doing well. But they base their feelings on the economy on what they are being told, not on their own experience. The economy is indeed doing well, but hearing repeatedly that things are bad, in time they begin to think they must somehow be the lucky exception. It's an odd situation - akin to mass brainwashing - but true.

I recall that real personal income peaked in 1999 and has not yet returned to that amount, so NO net income is not keeping pace for the average american.

if you believe that people do not know the difference between having extra money to spend and not having disposable income, and they are "being told" if they are doing well rather than basing it on their personal experiences, yes I do know who has been "brainwashed".

[dude1394]

We should raise their taxes...that would make them feel better and get the economy booming.

[purplefrog]

Originally Posted by dude1394

Just my opinion.

1. Iraq war puts a downer on everything.

Good point. I think when I hear the dollar amount of what is regularly being spent in Iraq I get a bit squeemish. How long can we keep doing this? Even if the answer is "for a long time, don't worry", the reality is that a billion dollars a month (or whatever it is) is difficult to get your mind around. The perception is that this one expense is an economic train wreck waiting to happen if we don't offset at least some of those expenses with cuts in spending.

2. The media does NOT want republicans to win office. They just don't so unlike bubba they don't tout it.

I am assuming when you say media, you are referring to ABC, NBC, and CBS nightly news. There are data to support the claim that these media outlets are talking more negatively about the economy than it deserves. But, don't people also listen to Fox news and a variety of mostly conservative talk shows on the radio? In fact, aren't these outlets very, very popular? I believe there are pockets of bias, but it goes both ways.

3. The wages have not been going up as quickly as some would like. A lot of that is why inflation has stayed lower.
4. Outsources makes everyone nervous in general I think. Seeing the economy change so much just makes folks nervous.
5. We are moving from a company focused (pension, benefits, etc.) to an independent focused (same). This also makes folks feel nervous.

Good points that do help me see why there might be increased anxiety levels about the economy.

6. Folks do understand fundamentally that our politicians are broken when it comes to reigning in spending. They really WANT their own congressperson to bring home the bacon but they know that it needs to be reigned in. I'm not sure americans have the stomach for reduced spending however,..some very brave politicians are going to have to force it.

Somehow, someway we do need to face reduced spending. If the war on terrorism is going to continue to be a big budget item then something has gotta give somewhere else (and I do not mean we need to raise taxes). I think in the end this is what really has me concerned. If we are going to live with multi-theater wars for a long period of time then we have to get a grip on spending at home (actually regardless of the cost of these military operations, we need to get a grip on spending). Not a popular message or one that will help you get elected, but probably one based in reality. Interesting.

[dude1394]

Originally Posted by purplefrog

Good point. I think when I hear the dollar amount of what is regularly being spent in Iraq I get a bit squeemish. How long can we keep doing this? Even if the answer is "for a long time, don't worry", the reality is that a billion dollars a month (or whatever it is) is difficult to get your mind around. The perception is that this one expense is an economic train wreck waiting to happen if we don't offset at least some of those expenses with cuts in spending.

I don't think people really care about the amount of dollars spent in Iraq with respect to thoughts of the economy. It's just that being in a long-protracted struggle that isn't going swimmingly is a downer, and the economy is as much perception as reality. Much more is spent in many other places.

I am assuming when you say media, you are referring to ABC, NBC, and CBS nightly news. There are data to support the claim that these media outlets are talking more negatively about the economy than it deserves. But, don't people also listen to Fox news and a variety of mostly conservative talk shows on the radio? In fact, aren't these outlets very, very popular? I believe there are pockets of bias, but it goes both ways.

Fox News (cable is what you are talking about) is miniscule when compared to the free networks and the plethora of liberal newspapers. Most of the mainstream opinion makers are liberal, vote liberal and think liberal. Talk radio is predominantly conservative but mostly listened to by people who probably think the economy is doing swimmingly as they hear it. I would imagine that if you polled conservatives they'd have a much higher opinion. [/quote]

Somehow, someway we do need to face reduced spending. If the war on terrorism is going to continue to be a big budget item then something has gotta give somewhere else (and I do not mean we need to raise taxes). I think in the end this is what really has me concerned. If we are going to live with multi-theater wars for a long period of time then we have to get a grip on spending at home (actually regardless of the cost of these military operations, we need to get a grip on spending). Not a popular message or one that will help you get elected, but probably one based in reality. Interesting.

the major spending is still on welfare-like spending and defense. The extra costs of the Iraq war is not the big ticket items, the big ticket items are medicaid/social security and other programs. SS in particular is a timebomb waiting to happen. I think people understand this as well..that at the end of the day the guvment will renege on the social security pledges or they'll have to raise taxes so much that it will throw us into a pretty deep recession.

[Usually Lurkin]

sigh. The biggest mistake made by the Republicans in the last year or so was not publishing this thread in as many places as possible. The biggest (most connivingly vital) victory by the Democrats was convincing so many folks that a good economy is bad.


Now the Dems are in a position to really try to tank the economy, and already having control of this portion of the public debate, might successfully blame republicans for any downturn.

The biggest upcoming challenge for Repubs is to link any downturns to the change in congressional leadership.

[dude1394]

Must be the dems.

American paychecks are rising again at a pace not seen since the 1990s.

The pay increase amounts to 4 percent on average over the past 12 months, and it comes at a very helpful time for millions of households.

For three years, pay increases haven't kept pace with the rising cost of living. Then came this year's housing slowdown, which has further squeezed family finances.

Those setbacks, however, are now being offset by rising income. Four percent may not sound like much, but you have to look back to 1997 to find a calendar year with a gain that big.

Equally significant, tamer energy prices mean that the "real" wage gains, after inflation, are above 3 percent for the past 12 months. That, too, hasn't happened since the 1990s, even though the economy has been expanding over the past five years.

"The striking feature of this expansion has been that ... real wages for the typical worker haven't risen that much," says Richard Berner, US economist at the investment bank Morgan Stanley in New York. But with real incomes rising, he says, "you get a picture of an economy that can weather this housing storm."

The risk of recession hasn't disappeared, he and other economists say. But with a fairly tight job market and low unemployment, many expect that paychecks will keep rising solidly in 2007.

[dude1394]

Damn...I thought for sure there would be a mavdog sighting telling me how bad this is for the US? Guess the economy is not nearly as bad now as it was a month ago. Go figure.

[Mavdog]

Originally Posted by dude1394

Damn...I thought for sure there would be a mavdog sighting telling me how bad this is for the US? Guess the economy is not nearly as bad now as it was a month ago. Go figure.

"real wages for the typical worker haven't risen that much," says Richard Berner, US economist at the investment bank Morgan Stanley"

with the article you posted mentioning how real wages have declined for the past three years, and with real wage gains not reaching 3% anytime during the current administration's term, nothing further needs to be said...

[dude1394]

Ah all is right with the world. I was beginning to worry.

[Epitome22]

Exactly. The economy is ok at the Macro level, but the lion's share of the gains have gone to the wealthy. Real wages have barely kept pace with inflation. A rising tide lifts all yachts apparantly.

Thankfully with a more competent, grown up congress, dedicated to leadership. These concerns will be addressed.

[dude1394]

Probably...so the first thing they'll do is cut taxes for 100k-500k wage-earners (which I'm okay with by the way) and raise taxes on everyone by letting tax cuts elapse.

Come on back when their first budget is proposed, since they haven't done one in about 4 years so they don't have to make a decision.

[Mavdog]

Originally Posted by dude1394

Probably...so the first thing they'll do is cut taxes for 100k-500k wage-earners (which I'm okay with by the way) and raise taxes on everyone by letting tax cuts elapse.

Come on back when their first budget is proposed, since they haven't done one in about 4 years so they don't have to make a decision.

there's no tax "cut". do you even understand the amt?

[dude1394]

Yes...

The alternative minimum tax (or AMT) is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. But for various reasons the AMT reaches more people each year, including some people who don't have very high income and some people who don't have lots of special tax benefits. Congress is studying ways to correct this problem, but until it does, almost anyone is a potential target for this tax.

Riddle me this...

Will those wage-earners that we are talking about pay MORE or LESS in taxes once the AMT is abolished?

Have we already begun the "it depends on what the meaning of IS, IS"? Sheesh they haven't even taken the oath of office.

[Mavdog]

the people ar not subject to the tax today. they don't pay the amt.

[dude1394]

Need english here Mavie. ??

[Mavdog]

guess you don't understand it...how is not increasing what one pay's in taxes a tax cut? sure seems to me that to have a tax cut one's taxes would need to be reduced...you know, CUT!

[The Crippler]

Well, strictly speaking for myself, I was poor when Clinton was in charge and now I'm rich as hell...

Because of this, I think W. and his boys have done a fine, fine job. And yes, I'm scoreboarding all the poor people and liberals looking for a handout. Good job me and thanks for making this all possible repubs...

[Drbio]

I've knocked at least 7-10 years off my retirement age during the Bush tenure so call me happy as well.

[chumdawg]

Been doing some reading lately, and before now I never realized that the marginal tax rate under Carter was freakin' NINETY percent! Reagan managed to get that down to where it is now. Thank God.

Who knows where this country would be if Reagan's "supply side" economics hadn't rescued us from economic hell.

[dude1394]

Originally Posted by chumdawg

Been doing some reading lately, and before now I never realized that the marginal tax rate under Carter was freakin' NINETY percent! Reagan managed to get that down to where it is now. Thank God.

Who knows where this country would be if Reagan's "supply side" economics hadn't rescued us from economic hell.

Tax cuts for the rich.

[Mavdog]

Originally Posted by chumdawg

Been doing some reading lately, and before now I never realized that the marginal tax rate under Carter was freakin' NINETY percent! Reagan managed to get that down to where it is now. Thank God.

Who knows where this country would be if Reagan's "supply side" economics hadn't rescued us from economic hell.

90%? not accurate...

the marginal tax rate peaked a the end of WW2 at 94%. JFK cut the tax rates from the 91% rate when he came to office to 70% in 1964, which was the rate during Carter's term.

the marginal rate was down to 50% before reagan's policies were implemented. it went as low as 28% (only on the 3 quartile of income, the highest quartile paid a lower tax rate!) until the infamous GHWBush tax increase, when it went to 31%.

Clinton's terms had the rate at 39.6%, it's down to 35% for 2006 and is set there until 2010.

The overlooked number is the income level applicable to the highest rate. for instance, even tho the marginal rate under JFK was at 70%, it was applicable at $200K (about $500K in today's $). in 1987 the rate dropped to 28%, but it kicked in at $45K. it's at 35% with the trigger at $350K or so today.

historical tax brackets chart

[dude1394]

Maybe with the dems in there we can finally stop all of this horrible economic news.

NEW YORK (Reuters) - U.S. stocks surged on Thursday, driving the Dow industrials to a record closing high on strong earnings from a range of companies such as investment bank Bear Stearns Companies and an improving outlook for both the U.S. economy and corporate profits.

The Dow Jones industrial average was up 98.70 points, or 0.80 percent, at 12,416.20. The Standard & Poor's 500 Index was up 12.23 points, or 0.87 percent, at 1,425.44. The Nasdaq Composite Index was up 21.44 points, or 0.88 percent, at 2,453.85.

[purplefrog]

I'm interested in your comments.
______________________________________________
How Dangerous Is the Dollar Drop?
By Christian Reiermann
Der Spiegel
Tuesday 12 December 2006

A currency in decline.

Is an end of an era looming in the foreign exchange markets? The dollar has been depreciating against the euro for weeks. Currency experts and the German government don't yet see this as cause for alarm. The US currency's role as a lead currency isn't as important as it used to be, they say.

Like most central bankers, Jean-Claude Trichet, the president of the European Central Bank (ECB), has a penchant for cryptic comments. Injecting a certain degree of incomprehensibility is a signal to the professionals that he's competent. And when it comes to laymen, industry jargon has the desired effect of generating the necessary respect.

Last Thursday the public was treated to yet another example of Trichet's convoluted speaking style. A number of risks, the ECB president said, could jeopardize a generally favorable economic outlook in the euro zone. They included, according to Trichet, "concerns regarding possible uncontrolled developments triggered by global economic imbalances."

What Europe's most powerful protector of the currency was actually saying was this: The gradual decline of the dollar in the foreign currency markets in recent weeks could pose a threat to the economy. What Trichet was also trying to broadcast is that the ECB has recognized and is aware of the threat.

Nevertheless, the European Central Bank in Frankfurt again increased its key interest rate on Thursday by a quarter percentage point to 3.5 percent, which makes the euro more attractive to international investors. The central bankers had no choice but to take the step, having already announced their intentions weeks ago.

Experts have been predicting for some time that the dollar would eventually go into a nosedive, and now that time seems to have come. The US currency has lost five percent of its value against the euro since late October, and 13 percent since the beginning of the year. The euro is currently fluctuating around a value of $1.33, which is only 3 cents away from its all-time high in 2004. And yet Trichet's counterpart Ben Bernanke, the chairman of the US Federal Reserve, has done nothing but look on as the dollar plunges.

A sea change appears to be taking place on the international financial markets. For years, global capital flowed in only one direction, with $2 billion going into the United States every day. Investors viewed the world's largest economy not only as a bastion of stability, but also as a place that promised the best deals, the most lucrative returns and the highest growth rates.

The Americans, for their part, welcomed foreign investment. For them, it was almost a tradition to save very little and spend more than they earned - essentially achieving affluence on credit. Foreigners financed the Americans' almost obsessive consumer spending, which spurred worldwide economic growth for years.

Because the US government was unable to fall back on the savings of its citizens, it too was forced to finance its budget deficit with foreign capital. Both consumer spending and the federal deficit kept the dollar high, because the rest of the world was practically scrambling to invest in the United States.

This phase seems to have come to an end, at least for the time being. "There are fundamental weaknesses in the American economy. This could not continue in the long term," says Alfred Steinherr, chief economist at the German Institute for Economic Research (DIW).

Investors Pulling Out
Investors worldwide are becoming sceptical and starting to pull their money out of the United States. They have realized that a people and a country cannot live beyond their means in the long term. The US dollar's exchange rate is starting to crumble as a result of this withdrawal.

The depreciation is causing growing concern about what will happen to the global economy if the United States loses its role as an engine of growth. If German cars, machinery and services become more expensive, will the German economic recovery end before it has really started?

The German government isn't worried yet, at least not officially. Nevertheless, experts in the finance and economics ministries have been keeping a close eye on developments. Although they continue to believe that the changes still fall within the scope of long-term averages, they don't rule out that the situation could worsen.

They believe that a first critical threshold for the competitiveness of the German economy will be reached at an exchange rate of about $1.36 per euro, and that Germany could see major difficulties at rates in the neighborhood of $1.50. If there is turbulence in the foreign currency markets, the government in Berlin will find itself in an especially challenging position. In early 2007, Germany will assume the chairmanship of the so-called G8 group of seven major industrialized nations plus Russia.

The G8 has repeatedly engaged in crisis management to deal with problems in the international financial system. It did so in the 1980s, when the combined forces of the G8 were needed to put a stop to the soaring dollar. It stepped in with equal verve a few years to forestall a decline in the American currency with the so-called Louvre Accord.

There are two principal causes behind the most recent development. Both have to do with the fact that Europe is becoming more attractive for international investors compared to the United States. On the one hand, interest rates in Europe and the United States are moving in opposite directions. "The ECB will continue to raise its key rates next year, whereas interest rates appear to have peaked in the USA," says Joachim Scheide, an expert on the economy at the Global Economic Institute (IFW) in the northern German city of Kiel. This means that financial investments denominated in euros are yielding higher interest and are in greater demand internationally, which in turn leads to a rise in the euro.

The prospects for growth are also shifting. The US economy is cooling off. The government recently lowered its 3.3 percent growth forecast for 2007. If Americans consume less as a result of a decline in foreign capital investment, the United States could even face a prolonged period of more modest growth.

Germany Has Shed "Sick Man" Image
By contrast the euro zone economy is robust. Germany, in particular, has surprised many with a stream of good economic news. Unemployment dropped below the psychologically critical threshold of four million in November. The Ifo business climate index, which measures the expectations of businesses, is at its highest point in 15 years, while consumer confidence has reached a five-year high.

In the last quarter of this year Germany, long considered the sick man of Europe, will have transformed itself into an engine of economic growth. According to analysts at Postbank, Germany's annual growth, projected at 3.4 percent, will even exceed that of the United States this year.

This is the kind of news that fuels the expectations of investors who now prefer to invest their money in the euro zone. The result is an increase in the exchange rate for the European Union's common currency. But how will the decline in the dollar's value affect future economic development? Could it cause a major imbalance in the global economy, or will the global economy, and Germany, get off lightly?

Pessimists are quick to come out of the woodwork whenever a major shift in the financial markets approaches. Many economists and bank analysts, especially in the United States, believe that the correction will happen very suddenly, with the dollar depreciating by 10 to 30 percent within a short period of time.

This would inevitably cause an adjustment crisis. Growth rates would plunge worldwide and a global recession, coupled with a drastic jump in unemployment, could follow.

This doomsday scenario is by no means the majority view. Some experts, especially in Germany, are more optimistic. "The US trade deficit has grown in the course of a few years," says IFW expert Scheide. "It will also gradually decline over a period of several years."

Scheide expects the dollar to lose another 10 percent in value against the euro in the next five years, a scenario that would be much easier to handle for the German and European economies. Companies would have sufficient time to adjust to changes in exchange rates. "In that case even an exchange rate of 1.40 wouldn't be disastrous," said DIW analyst Steinherr.

Germany is a good example of how effectively this can work. Despite the fact that the dollar has lost half of its value against the euro since 2002, exports have not been adversely affected. Indeed, they even increased from €651 billion ($861 billion) to €786 billion ($1.04 triilion). The Germany economy exported more than ever before in October.

Another reason is that the dollar zone is no longer as important for German exports as it was only a few decades ago. Leaving aside exceptions such as the auto industry, other regions of the world have long since become more important to the German economy than the United States, where Germany now sells less than one-tenth of its exports. Germany exports more than 40 percent of its goods and services to other countries within the euro zone, 13 percent to eastern Europe and nine percent to Asia. The turbulence surrounding the dollar has had virtually no effect on German exports to neighboring European countries. Most of the EU's new members have tied their currencies to the euro, and exchange rate risks evaporated for western Europe with the introduction of the euro.

The euro even prevents the kinds of major upheavals in Europe that occurred in the past whenever the dollar fell. When that happened, German businesses and consumers were routinely forced to bear a greater burden of adjustment than the economies of neighboring countries. In the past, if the German mark gained 10 percent in value against the dollar, the French franc or the Italian lira would only gain six or seven percent. As a result, the German mark was overvalued relative to other European currencies, which translated into economic disadvantages for the German economy.

This mechanism was eliminated when the euro was introduced. Now all member states carry the same burden.

The consequences of a declining dollar for the German and European economy will be determined in large part by the way other currencies develop relative to the dollar. "It would be fatal if only the euro were to rise," says DIW analyst Steinherr. "Then it would only be the euro zone that would have to bear the burden of adjustment." But the foreign currency markets suggest a different development, as the dollar is also losing value in relation to other important currencies.

The British pound, for example, rose to new highs last week. Even more importantly, the currencies of east Asian growth regions are also appreciating against the dollar. The Thai Baht, for example, gained about 15 percent against the dollar in 2006, while the South Korean Won gained 10 percent. Even the Chinese Yuan, which slavishly followed the dollar in the past, gained more than three percent. Virtually every economy is bearing part of the burden of adjustment.

The decline in the dollar also has its advantages. For Germany, the greatest advantage is that Germans pay less for oil. The oil price is mainly set in dollars worldwide. If the dollar declines, the same amount of oil costs Europe fewer euros, and the money the Europeans save can be spent on other goods.

A similar dynamic applies to exports from the dollar zone. If the decline in the dollar continues, computers, software licenses and machinery from the United States will become less expensive. Both developments would represent a windfall for companies and people in the euro zone, because the same amount of money would buy more goods.

The perils of a currency crash are not nearly as great as they were in the days of the dollar's absolute dominance 30 or 40 years ago. Globalization has led to the development of a number of growth centers in the world economy which share the burden of turbulence. Gone are the days when an American finance minister could boast: "The dollar is our currency, but it's your problem."

--------

Translated from the German by Christopher Sultan

[dude1394]

I'm not real sure about the consequences of a lower dollar. Surely it will make US anufactured goods more valuable and might increase that type of employment. It might require the US to undergo some strict budget restrictions by the guvment.

Europe has a slight advantage geographically to Asia than the US does, timezone wise. It will be interesting to see how it all plays out. I would think that most of the investments being talked about here are in money and because of the difference in interest rates that's as big of an issue as any.

I do know however that the europeans are none to happy with the euro experiment in that it increased costs by about 25% immediately. It appears that will continue to be a problem for them.

On matters of economics I many times search out Thomas Sowell as he puts things in terms I can understand. On this one he seems to be punting however. I'll look a little deeper for his opinions.

John Hawkins: Do you think the US would be better off having a strong dollar, a weak dollar, or one just as good as the other? Why so?

Thomas Sowell: Whether a currency is "strong" or "weak" tells very little by itself. These are among the many emotional-laden words used in discussing of international transactions which obscure more than they reveal.

[dude1394]

Deficit Falls to Lowest Level in 4 Years
Jan 12 2:33 PM US/Eastern

By MARTIN CRUTSINGER
AP Economics Writer

WASHINGTON (AP) -- The federal deficit has improved significantly in the first three months of the new budget year, helped by a continued surge in tax revenues.

In its monthly budget report, the Treasury Department said Friday that the deficit from October through December totaled $80.4 billion, the smallest imbalance for the first three months of a budget year since The budget year ends Sept. 30.

Tax collections are running 8.2 percent higher than a year ago while government spending is up by just 0.7 percent from a year ago. Last year's spending totals were boosted by significant payments to help the victims of the Gulf Coast hurricanes.

[Drbio]

Must be because of that liberal House and Senate majority.

[dude1394]

THE NUMBERS ARE IN -- AND THEY ARE TERRIFIC Dan Clifton at the American Shareholders Association is all over it:

The debate about the capital gains tax cut is over. When Congress passed the 15 percent reduction on capital gains all we heard from the naysayers is this will produce massive deficits. When Congress extended the 15 percent rate in 2006 we heard the same tired rhetoric - only louder. Now the new leadership want to repeal this tax cut to generate revenue to the federal government. Based on the new data they may want to reconsider whether repealing this tax cut will generate any revenue to the federal government.

Today's CBO report puts the debate to bed. We were told by the Joint Committee on Taxation (JCT) the capital gains tax cut would "cost" the Federal Treasury $5.4 billion in fiscal years 2003-2006. Thus, the initial CBO forecast (January 2004) forecasted capital gains revenue to be $42 billion in 2003, $46 billion in 2004, $52 billion in 2005, and $57 billion in 2006.

Well in what could now be considered the worst forecast in modern times we find out today capital gains tax collections were actually $51 billion in 2003, $72 billion in 2004, $97 billion in 2005, and $110 billion in 2006. For 2005 and 2006 collections nearly doubled the initial forecast.

[Usually Lurkin]

http://corner.nationalreview.com/pos...kyMjhhYTkyNzM=
Bush's Bull Market [Larry Kudlow]

On a day when the GDP report came in strong, and the Federal Reserve backed off a bit from its inflation worries to proclaim a balanced economy with growth and contained prices, President George W. Bush became only the 2nd sitting American president to visit the floor of the New York Stock Exchange.

As he moved from trading post to trading post, all the floor brokers and their assistants stopped work and started cheering and applauding.

And I mean loud applause and huge cheers.

This is a guy the mainstream media just loves to kick around. This is a guy still battling it out over Iraqi freedom, but subject to sinking polls.

But this is a guy with more character and more faith than almost anyone else in public life.

The last time he was in downtown New York was just after September 11th, when everything was devastated, including the NYSE. Now, more than five years later, Mr. Bush went back to downtown New York with a record-breaking stock market and a strong economic recovery.

That’s why there was loud cheering and strong applause.

[dude1394]

ka..BOOOOM!!

http://powerlineblog.com/archives/016657.php

When the history of the Bush administration is written, its unsurpassed stewardship of our economy during what started out as very difficult times (recession and 9/11) will, I hope, get the credit it deserves.

Word to that.

UPDATE: The Dow reached an all-time high today.

[kg_veteran]

I heard on the radio this morning that the Commerce Department is about to release a report suggesting that the savings rate for 2006 was -1%. In other words, Americans, on average, are spending 101% of what they are making.

That can't be good, long term.