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Home Front Economy
Biden: U.S. Economy in Danger of 'Absolutely Tanking'
2008-12-20
Vice President-Elect Joe Biden said the U.S. economy is in danger of ''absolutely tanking'' and will need a second stimulus package in the $600-billion to $700-billion range. The economy is in much worse shape than we thought it was in,'' Biden told me during an exclusive interview -- his first since becoming vice president-elect-- to air this Sunday on ''This Week with George Stephanopoulos.''
Joe's quite correct. We've spent the past 30 or 40 years casually discarding our manufacturing base and making our living selling information, derivitives, and burgers to each other. The Democrats' world of cloth-capped workers taking their lunch buckets to the factory every day is a fantasy. Today's Americans are supervisors and managers and executives, just like the Soddies. We hire Mexicans and Guatamalans and Peruvians to do the actual manual labor, just like the Soddies use and discard Banglas and Filipinos.

Now that the entire economy's been thoroughly gutted it could very well just tank in the Crash of 2008. The price of your house could drop to maybe $5-10,0000, max. (Don't laugh: My Mom sold her house -- both halves of a duplex and four lots for $10,000 in 1971, which for some of us isn't that long ago.)

We now live in a global economy, which is something al-Qaeda either doesn't realize or doesn't care about and the oil ticks certainly don't comprehend. The economic hipbone is connected to the economic neckbone. When our economy goes down it's going to take all the other economies in the world with it, with the possible exception of China, where they still make things, and South Korea, if they're not too leveraged. Hard skills will have some value, Modern Dance or Womyn's Studies majors need not apply.

I'm probably a dullard, but I really can't comprehend how spending unimaginably large amounts of money we don't have -- somebody said the stimulus packages add up to $21,000 per man, woman, and child in the United States -- is going to repair the damage, especially when it's been going to bonuses for Malefactors of Great Wealth and creating "green" jobs -- at the supervisory level, without a doubt -- for friends of Dems. I keep waiting to hear a politician form either party utter the Magick Words: "We can't afford it." So far there's been, if not silence, then background noise. The current path has been a thoroughly Zim approach, and it probably has cholera epidemics in its wake.

I write code for a living, one of those jobs that has been exported overseas. You can hire a coder in Bangalore for $10 an hour with no more effort than a Google search. My job isn't going to come back any more than unionized steelworkers' jobs are coming back, though good luck with getting your requirements defined and understood and getting the code maintained.

I restore furniture as a hobby, in the hours and hours of spare time I have on my hands. The output goes to my wife's antique stores -- she has space in two shops. Without much effort at all we'll be able to go into the used furniture business when the true extent of the carnage becomes fully apparent. Those among us who still have houses are going to need someplace to sit.
Posted by:Fred

#28  As Pauli would have said, "You know, Crosspatch's idea isn't totally stupid."

My first thought was, "Wha?"

But it grows on you fairly quickly. When a home is sold at a firesale price, it pulls the whole block down. When you consider that the 3T$ spent so far on the bailout is equivalent to the cost of WWII in current dollars, destroying a few houses hardly matters. And as he says, it provides jobs in construction - once down, once up. All the value is in the land, anyway, when you are talking foreclosure prices. The idea is to avoid a glut of cheap homes, which would cause long-term damage to the construction industry, which truly drives our economy.
Posted by: KBK   2008-12-20 23:53  

#27  It's gonna get ugly. True enough. There will be plenty of pain to go around, and I think we're just at the beginning.

But....remember not so long ago when the Japanese were going to be our new landlords, or maybe it was the Arabs, but anyway we were all gonna die in a nuclear war (started by Reagan, natch) so....good thing we dodged that bullet with Y2K, because the EU was definitely poised to whomp us good economically.

Let's all calm down here a bit. Gaming out "what's the worst that could happen" is interesting, but it rarely if ever occurs.
Posted by: Cornsilk Blondie   2008-12-20 21:41  

#26  At this point they should be demolishing repossessed homes and selling them as building lots rather than turning the houses around at fire sale prices.

Thus leaving debt holders eating the entire amount of the loan instead of having an asset that allows them to recovery a large portion of it. And we think banks are hurting now, Jeebus. Not to mention it destroys the entire asset backed loan model.

This would stop the plummeting of median home prices and put some support back into the market by reducing supply. It also sows the seeds for more home construction in the future.

Destroying an asset for no reason other than to eliminate assets is interesting economics. Especially when it's done with the intent to rebuild it later. A more economically inefficient idea I cannot imagine. Asset Destruction Economics doesn't have a catchy populist tone like Trickle Up Economics, so I wouldn't expect to hear the Bumblemint Twins putting the hard sell on that idea.
Posted by: Mike N.   2008-12-20 19:07  

#25  You could also allow immigration and citizenship to anyone able to buy a house for cash.
Posted by: Nimble Spemble   2008-12-20 18:45  

#24  CP - I scarcely know where to begin there, but:
A) the economy is based on the value of mortgage-held and asset-value real estate... OK, somewhat;
B)"At this point they should be demolishing repossessed homes and selling them as building lots rather than turning the houses around at fire sale prices. This would stop the plummeting of median home prices and put some support back into the market by reducing supply. It also sows the seeds for more home construction in the future."
C) How does removing the house value on a lot increase the market? Who decides what houses get demo'd to increase the value of the remaining? Bawney Fwank? What about the now homeless? Rents increase tremendously because of the housing shortage... how great is that? WTF?? Are you simply trying to increase the paper-value of your own home?

Think again. Write it down, explain it to someone you don't know, and if they agree, repost. Until then....
Posted by: Frank G   2008-12-20 18:09  

#23  "international trade has almost halted"

That is pretty much true at the moment. In order to get someone to ship a cargo of goods, the recipient obtains a "letter of credit" that tells the exporter on the other end that the recipient has means to pay for the goods. In the meantime the shipment is also insured in case it is lost in transit.

It is practically impossible for businesses to obtain these letters of credit at the moment and the insurers are hurting too. As a result shipping is at a record post-WWII low.

The problem is that the same people that issued credit for import/export were the same people holding mortgages in the US market. Once those mortgages went under water, they had no assets to lend against. No assets, no lending. It's pretty simple.

The major problem here is one of a lack of diversity. Practically the entire economy was build on one thing ... US real estate. Even big ticket "durable goods" purchased by end consumers such as appliances, furnishings, cars, boats, home improvements, etc. were financed with home equity loans. Eliminate home equity loans and there is no more demand for those items. When home equity is eliminated, home equity loans are eliminated.

At this point they should be demolishing repossessed homes and selling them as building lots rather than turning the houses around at fire sale prices. This would stop the plummeting of median home prices and put some support back into the market by reducing supply. It also sows the seeds for more home construction in the future.

Extraordinary times call for extraordinary measures.
Posted by: crosspatch   2008-12-20 17:03  

#22  You got anything to back up your positions?
Posted by: Mike N.   2008-12-20 15:27  

#21  There are going to be some serious "whipsaws" in this thing. For example, right now, international trade has almost halted, but at the same time retail stores are desperate to dump their inventories. This means "sale" deflation, but once the shelves and warehouses are empty, no more stuff in the pipeline to refill them.

The Port of Long Beach, right now, looks like the biggest parking lot you have ever seen, because it is full of new imported cars that have arrived, but are just sitting there, not moving inland.

You might be able to buy a new car cheap, but once they are gone, no more imported new cars for a long time.

The whole machine is seizing up. Like running a car without oil.
Posted by: Anonymoose   2008-12-20 14:03  

#20  Well, Thealing, they keep calling Barney Frank the smartest guy in Congress. And he was a big supporter of Fannie and Freddie. I'm just going with the flow..
Posted by: Ho Chi Hupaviper1106   2008-12-20 13:55  

#19  dont do it .5MT

there's is gonna be a glut of those things and your value will tank
Posted by: Abu do you love   2008-12-20 13:45  

#18  I wish I would have gone long Doom-n-Gloom about 6 months ago.
Posted by: Mike N.   2008-12-20 13:44  

#17  I'm talking all my money out of the bank and buying 50% Panic and 50% Stupid.
Posted by: .5MT   2008-12-20 13:41  

#16  JM is probably spot on, especially about the Nixon China thing. I just hoep we get there in Bambi's first term so there isn't a second.

Another option is that Barry, Harry and Nan fritter away the next 4 years, afraid to do anything to hurt any of their victimized supporters. Palin runs in 12 and we have a 1932 type turnover. That's what I go to sleep dreaming about every night.
Posted by: Nimble Spemble   2008-12-20 11:31  

#15  Ho Chi Hupaviper1106:
While I wouldn't credit the Dems with enough smarts to manufacture this crisis on their own, it is interesting Hank Paulson is a registered Democrat.
Posted by: Thealing Borgia 122   2008-12-20 10:59  

#14  Thinking that happier sentiment will fix the economy is the same as thinking transcendental meditation will help you avoid gravity.

Only borrowing that increases productivity more than the interest costs is worthwhile.

Debt servicing on mal-investment is what is killing the economy, and the government is doing all it can to keep those mal-investments in the economy! That's how to make a depression from a recession.
Posted by: Bright Pebbles   2008-12-20 10:52  

#13  Look for immediate FICA tax annual ceiling $97.5k illimination. Also monthly FICA deduction increases in conjunction the end of SSN eligibility at age 62. Eligibility will likely jump from 65 to 67 or higher for full benefits, and may take into consideration pensioner 401K, or other sources of other residual income. The IRS will be a key partner here. Don't be surprised to see Obama go after future military pension plans and the illimination of duel-pension, ie military and SSN.

If not through some Euro based carbon-emission scheme, I suspect he'll also be looking at Green Taxes on luxury cars and trucks. Chicago is famous for tollroads. I'd look for a national tollroad program to.... cover the cost of road and bridge repair, etc.

Gradual at first, assets and non-church properties, but rules on tax exempt institutions will be targeted as well.

The train is approaching the station.

Posted by: Besoeker   2008-12-20 10:49  

#12  I agree with 'moose on the idea that the open-ended entitlements will abruptly end. The surprise is going to be who kills them. It will be the Dems. We can't pay for them anymore and there's not even the hope of it. The only people who will get anything out of SS are going to be those who have neither a pot nor a window. Same with Medicare. Medicaid will be tossed to the states with a "it's your problem now; change it however you like, just don't ask us for cash to run it."

Bottom line: the Dems are power-mad bastards whose strongest points are invective and the politics of personal destruction. That said, even they can't ignore the coming financial train wreck and know the political carnage will kill them if they don't take action.

So they will.

In a way, it will be a lot like Nixon approaching China. No Dem could have done so without touching off a firestorm of treason charges. The Dems will be able to cut this stuff because when they propose it, their idiot voter base will finally believe the cuts are necessary rather than "mean-spirited Republicans out to grind the faces of the poor." They might even do something about illegal immigration for the same reason.
Posted by: Jolutch Mussolini7800   2008-12-20 10:07  

#11  Run to the hills, run for your lives.

The markets can, in a reasonable orderly manner, unwind leverage on bad debt. The only thing that concerns me is that the Bumblemint Twins are going to make it far worse on Everyman than it has to be.
Posted by: Mike N.   2008-12-20 09:58  

#10  Actually, Biden hits 50%, because this will be a very bad recession, most likely a depression.

But it is bad that he and the rest of Washington hasn't yet realized that the two typical means for recovery in this type of economy won't work anymore. More government spending or trying to grow the economy will just make matters worse.

There are at least three major collapses that are going to happen soon. The first two are the collapse of two other mortgage schemes, worth about 1.5 times the subprime scheme failure. Then the much more dramatic collapse of the T-bill bubble, which is anticipated to be "dramatic".

The best the government can do is protect the real economy from the many times larger fantasy leverage economy creating the problem.

Like a 1500 pound man, underneath all that fat he may be generally healthy, but until the vast majority of the fat is gone, it's not letting the healthy part of his body move.

And this applies across the board. Government will have to contract as much or more than the rest of the economy. Open ended entitlement programs such as Social Security, Medicare and Medicaid will *have* to end in their current form.

Credit and debt will have to be tightly controlled at all levels, individual, corporate and government. Business, to a great extent, will have to operate on reserve funds. If they are reliant on credit to function, unless measures are taken by the government to protect them, they will be swept away with the leverage corporations.
Posted by: Anonymoose   2008-12-20 08:56  

#9  This pre-planned and Democrat-manufacured "economic crisis" was delibrately timed to devastate McCain's campaign and knock out National Security/WOT as the main campaign issue, to the Dems great benefit. The tools at FannieMae and FreddieMac and the other Financial houses were happy to oblige the Dem agenda and support their buddies in Congress (note that the execs didn't lose THEIR bonuses, so it was no sweat off their backs.) The problem is that it snowballed much faster and deeper than they expected because their Media buddies went overboard in their anti-Bush zeal and completely scared the wits out of the investors and consuming public. This is not to say that that there were (and are) not real and serious problems in the economy. Just that the timing and that everybody jumping on the bad-news bandwagon at the same time is suspicious.
Posted by: Ho Chi Hupaviper1106   2008-12-20 08:56  

#8  C'mon Joe, get with the agenda. Fred Thompson will explain it to you if you want.
Posted by: tipper   2008-12-20 08:40  

#7  4 years to go, minimum
Posted by: lotp   2008-12-20 07:36  

#6  Could someone sew his lips shut already?
Posted by: gorb   2008-12-20 05:38  

#5  

Posted by: GolfBravoUSMC   2008-12-20 03:21  

#4  It would be to their political advantage to attempt to tank the economy as much as possible before they take office. But it is a gamble.

They can attempt to use psychology to put a brake on consumer spending and spread fear in the hopes that when they take office they can turn it all around by simply saying "nothing to see, move along, the economy is doing splendidly" and spending will come back and things will cycle up.

The gamble, though, is that things will go too far and a lot of economic infrastructure will fail that can't be revived easily by pumping sunshine up our arses.
Posted by: crosspatch   2008-12-20 02:05  

#3  Nothing, gets by Slow Joe Biden!
Posted by: Ulomoque Mussolini7472   2008-12-20 02:03  

#2  Joe must've slipped his leash and ripped off the duct tape*. Hope his handlers didn't hurt him when they shoved him back in the closet.






*Though Ed Morissey at Hot Air is speculating that Joe is tasked with the Chicken Little routine on purpose.
Posted by: Seafarious   2008-12-20 01:40  

#1  I thought he was Obama's expert on foreign policy.

Now he's a genius on the economy?

Obama's guys must have trained him to babble the party line without making too many gaffes. That way they're on message with 100% gloom and doom so the country will be ready for the deficit spending that they decried when Bush was doing it. By comparison, Bush will be seen as being a piker in the deficit-spending competition.

The only thing we have to fear is Joe Biden himself.

Posted by: Boss Sleans2792   2008-12-20 01:24  

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