AU Blogspot

In updating my economic forecast for the new year, I surprised myself.  I walked into the spreadsheet moderately gloomy (I thought) and plugged in conservative numbers.  Out came the fairly pleasant forecast that is pictured above.

There’s weakness in the current (fourth) quarter, and then things look better.  I did put some dreadful numbers in for housing construction, but that sector is now only 4.5 percent of total GDP.  I clobbered housing starts, but that doesn’t have a huge impact on GDP.  I brought down the growth rate of consumer spending for a couple of quarters, and kept inventory growth down to near zero in the first half of 2008.What’s keeping the forecast up?  Export growth will remain strong, and import growth will weaken.  Nonresidential construction, though it will decelerate, still grows at a nice pace.  Late in 2008 I see business spending on equipment and software recuperating.  Defense spending grows at the recent pace, then the growth rate slows.  I have less confidence in this area.

Why the disconnect between my economic outlook and the news reports?  I think it’s a weighting issue.  For instance, when the housing starts numbers come out and they are rotten, that fact is seized on by the press.  Same thing for falling home prices. (more…)

Paul Krugman is simultaneously one of the most respected and controversial economists in the world.  Named by The Economist as “the most celebrated economist of his generation,” Krugman’s provocative opinion pieces in the New York Times often set the tone of political debates that appear across the cable/network television and talk radio wire.  It’s not uncommon for Meet The Press’s Tim Russert to relentlessly grill Presidential candidates on Krugman’s latest “op-ed”, so it’s clear that he does project quite a lot of political influence whether you agree with his analyses or not.  In this video, which you can view by clicking on the image above, you’ll watch Paul Krugman’s recent presentation at Google Headquarters.  Enjoy the video.  I look forward to hearing your perspective.

Ryan Rode
Interactive Services Manager
Ashworth University       

            Thanks to Louise Docker for permission to use this Photo.

If you owe the bank $100 that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” J. Paul Getty 

Individual mortgage holders are in the first situation; together they are in the second. 

I want to look into this whole situation of freezing some adjustable rates (that are scheduled to increase for adjustable rate mortgages) more - because I don’t really understand what is actually involved in the “agreement.” 

My impression is that the government is paying nothing, giving no other incentives (like reducing taxes owed). With that being the case, I can’t see why some people think it is bad. Some people are saying it is unfair to people that were careful.  They don’t get this benefit. That makes little sense to me. One of the things you have to learn about investing and personal finance is there are no guarantees. You enter into mortgages with your best guess about what will happen (as the lender or the one receiving the loan). 

From my understanding of what is involved, the government is using some moral persuasion to try and get lenders to step up and provide more favorable terms than originally agreed to. I’m not that confident such a thing will end up happening in practice, but I don’t have a problem with the attempt. (more…)

 
              Thanks to Tom Hensel for permission to use this Photo.

Fears of the subprime mortgage crisis spreading into other credit markets prompt the question of whether our economy could operate without the volume of credit that we’re used to.

Our economy could be healthy with much less credit than is common now. Businesses could operate with greater equity and retain more earnings. Consumers could defer spending until they had saved enough money for their purchases. It could work.  There would be a loss of efficiency, but not a total breakdown of the economy.

However, a sudden transition from our present, credit-heavy economy into a credit-light economy would be disastrous. Many companies have business models based on financing receivables, inventory and capital spending. They could adapt over time, but not suddenly. On the consumer side, today’s buyers use credit. If tomorrow’s would-be buyers need to save for first, then in the meantime no big-ticket consumer purchases are made. (more…)

 
          Thanks to Matthew Perkins  for permission to use this Photo.

I recently received an email from an individual (who will remain nameless) that wanted to know why it was they felt like they would never get ahead financially. A feeling of being stuck in the rat race of life, struggling to never get ahead in the end. My answer to his question was simple and it paralleled the ideologies expressed by Robert T. Kiyosaki in the book “Rich Dad, Poor Dad”. The answer is one that is not readily taught in our school systems. Before I give you the answer to why you aren’t rich yet, let me first ask you a couple questions and see if you can’t figure it out yourself.

Question 1: How many different assets do you own?

Question 2: How much passive income have these “so-called assets” of yours produced? 

Does the second question change your outlook and perspective of the first question? The word ASSET is defined three different ways. The first way is how the poor class defines it, the second is how the middle class defines it and third way is how the upper (rich) class defines it. The way in which you define this term will ultimately define your financial well being in life (or not so well being). (more…)

 
             Thanks to Don Harrison for permission to use this Photo.

We have too many new homes on the market.  Take a look.  (This chart shows new homes for sale that are either finished or under construction.  The Census Bureau also counts houses on which construction has not begun.  To me, that’s counting some developer’s hopes and dreams.  But the picture is similar by either measure.)

The average number of new houses for sale, including the recent sky-high period, is 295,000.  At the recent pace of decline, which has lasted 13 months so far, how long will it take to work off the excess inventory and bring us down to that 295,000 average? (more…)