2 Million Homeowners Are Too Many to Fail: We Need Action

COMMON N SENSE ___ You nailed it. The handul of money boys and gals of the world would love to see a few billion of us die off. No matter what happens to the economy, thay've got their wealth and security locked up.

The blue comment *was* stuoid, LOL, was meant for the guitar forum. The CD edit "feature" is stupid too, doesn't work.

Yup, just making childish stupid posts. Glad you had a nice time, N.H. is awesome.

Hi Geoff, yep I ran around in circles all night, then drove up to the White Mountains and fished in the lakes and streams near Alpine for trout all day and the next. We just got home and I logged on to see if Jake was still here. ___ Wow is he ever.

Of course I see he is still disagreeing with almost all, and of course he says Keith Olbermann is wrong too. No matter what anyone says, Jake is right and they're wrong. Tell ya all what, you can talk about what bankruptcy means, the words, leagalities ect. I'll go along with the peope who should know the score, and the score is the U.S. is flat ass broke and the depression is coming and coming soon. Gotta go and clean some nice Apache, Rainbow and Cutthroat trout. It was great fun, and I quit running in circles too.

I too think the downfall will be gradual. I also think that it has indeed been gradual since Ronald Reagan took office.

Perhaps we need to decide once and for all exactly what a bankrupt nation is. Is a bankrupt nation possible when we still have (and more than ever before) millionaires yet millions in or facing bankruptcy?

Today, there are more millionaires than ever in the USA. But taking a broader view of the financial problems of a vast majority of Americans, the picture is quite different. Can a nation sustain itself for long when there is such imbalance? Historically, the answer is no.
"Let them eat cake" comes to mind when a government is so out of touch with its citizenry.

It's indeed a very complicated issue and a question with no easy answers. So, to stop my attempts at trying to come up with an answer that has so many ramifications, I'm going to stick with a morally bankrupt nation.

jake: A statistically significant amount wealth in the US is controlled by a relatively small demographic. Probably if a handful of the very wealthiest Americans were to shift their assets around overnight we could see significant changes.

There are also natural disasters (such as massive crop failure, super bugs, etc.) that have plagued times in the past. Some people attribute WWI to the singular act of the assassination of Archiduke Ferdinand. History has examples of nodal points of inflection.

But I think what'll be our downfall is probably more gradual: (1) the massive offshoring of good jobs, and the replacement of formerly decent-paying trades jobs with illegal labor coupled with (2) the obviously inflated value of real estate, and all the loans people have taken against imaginery/non-existent equity.

"I think the latest figure I've come across indicates that the current account deficit is about 6% of GDP. "

That's what I see. I'm not smart enough to know if that is big, small, or even the right way to look at it.

"But the GDP figure in itself is somewhat skewed as it incorporates production of goods and services, consumed here in the States, by 'American' companies that really offshore their production due to labor arbitrage."

I see different things on this, and if true I wonder about the in sourcing as well. There are within a few miles of me a number of foreign pharmaceutical companies that amount to major regional employers. Anyway the devil is in the details as to how the Commerce Department comes up with the number.

"day of reckoning "

A characterization that I think supposes the "snapping" of something. As we discussed before, I instead think there would be a more gradual move, barring an all out major war developing or something similar.

@ JakeNewton
I think the latest figure I've come across indicates that the current account deficit is about 6% of GDP. But the GDP figure in itself is somewhat skewed as it incorporates production of goods and services, consumed here in the States, by 'American' companies that really offshore their production due to labor arbitrage. Regardless of what the current account deficit is with respect to GDP, if there comes a time when America is not allowed to remit the balance using dollars, then we will be in serious jeopardy of defaulting, since America holds no foreign currency reserves.

And as to why I, and others, think that the day of reckoning when foreign creditors no longer accept dollars as legal tender may soon be upon us is based on several different factors: The huge amount of debt, both at the macro and micro levels, never ending war, which, leaving aside the horrendous moral reprecussions, is a monetary black hole, the systemic undermining of institutional integrity, whether those institutions are related to finance, jurisprudence, or governance, and general ill-will towards what is preceived by many as an unjust, pompous nation whose comeuppance is due.

"but I think that this is the worst position the US has ever been in financially,"

I don't agree for the present, but I would say that there are new challenges regarding competition among countries. It's not like post WWII when everyone else's infrastructure was broken pretty good. Now they are back and we have to figure out our place.

"The difference today is that these wars are doing anything to help us financially."

They are ostensibly for physical security which can lead to financial security. Of course whether it's really true or by how much is a fair debate to have. I'm not too keen on it for the record. A pretty good read is "The Pentagon's New Map" by Stephen Barnett. You may not agree with him on everything but he is pretty sharp and lays things out in a compelling way.

"One of the things I thought about was the "self-fulfilling prophecy" aspect in regards to what some people are saying and thinking and maybe doing. What you called earlier, their "politics?" "

I had said politics. I was referring to "confirmation bias". If you are not familiar, google the term. Basically we all tend to weight things as events progress in a manner that confirms what we think is true. IOW, we tend to ignore things that would be contrary to what we think while emphasizing things that support what we think. We all do it.

"Interesting lest we abet our own destruction because on some level of our own individual hypocrisies and or fantasies, which I think you are trying to illustrate somehow but not in the same language I would use, we may be in fact WILLING ourselves on to our own destruction."

Not sure I understand, cut off nose to spite face maybe?

"You seem to be trying to equate that to reality - or sanity, or both, if either really exists as such - in a manner in which not being maybe as precision oriented as are or you seem to be, I can at least appreciate."

Thanks. I just sometimes wonder if people really mean what they say, or if they've thought it through. None of this easy though.

"The US has a humongous current account deficit,"

Thanks for your posts. Usually is compared to GDP, right? I am trying to find information by country relating account deficit as percentage of GDP but not having much luck.

A writer I have respect for likes to say that "accountants count things that are easy to count", alluding to the importance of intangible factors. What such factors would you say apply the most here?

Thanks for the response Jake. What I can't stop thinking about are all those children, people unable to work for one reason or another, or simply too old to work who also are figured into this 30 thousand dollar statistical dept. I do think we can agree on one thing though. I'm making a guess here, but I think that this is the worst position the US has ever been in financially, but then there was the Great Depression. The depression during the '30's was a world wide affair, I believe, and not just happening in the USA. People certainly had a much more difficult time back then as well. However, there was a different leader of our nation back then and we made it out of it and continued to do well for several decades after. Of course there was WWII and that had a lot to do with getting us back on track.

Today we are involved in two wars (Afganistan and Iraq) and if certain people had their way, we'd have three wars on our hands. The difference today is that these wars are doing anything to help us financially. In my opinion, we need to set our own house in order and cease to pursue what I see as destructive policies which aren't helping the people and society here at home one bit.

jakenewton,

prior to meeting you in the next discussion. One of the things I thought about was the "self-fulfilling prophecy" aspect in regards to what some people are saying and thinking and maybe doing. What you called earlier, their "politics?" I'm too lazy to look through all the posts to find exactly what you called it.

Anyway, that seems to me a VERY interesting problem and something that might need further looking into, regardless of what is actually taking place in the world of economics. Interesting lest we abet our own destruction because on some level of our own individual hypocrisies and or fantasies, which I think you are trying to illustrate somehow but not in the same language I would use, we may be in fact WILLING ourselves on to our own destruction. In a weird kind of way. Which sort of seems to maybe lack either clarity and sanity.

You seem to be trying to equate that to reality - or sanity, or both, if either really exists as such - in a manner in which not being maybe as precision oriented as are or you seem to be, I can at least appreciate.

jakenewton,

you made me think, and others too. I appreciate that. Thoughts crept up on me while I was out running around, without my willing or forcing them. That seemed pretty good, and that it took some talent even if I was momentarily aggravated and had to work through that.

looking forward to your future discussions.

akashgiri,

Ok, now, string theory? And how does String Theory affect our everyday life in the here and now? I know you won't be mystical about it.

goeff29, thanks for you fairness.

@ Ruthru
Thank you. Quantum physics is an abstruse subject, as you can imagine, but at a high-level it is the branch of physics where classical Newtonian mechanics, those laws, framed by the imminent English mathematician and philosopher Sir Isaac Newton, such as the law of gravitation, do not fully apply. One cannot apply Newton's gravitational laws with which astronomers/physicists determine the orbits of planets around a star for example to sub-atomic particles such as electrons orbiting a nucleus. E.g. an individual using Newton's gravitational laws as a foundation could accurately determine the position of an orbiting object at any given time in its orbit. Whereas it would be impossible to apply those same laws in an attempt to determine accurately the relative position of an electron as it orbits around a nucleus, due to Heisenberg's uncertainity principle, a cornerstone of quantum physics. (-:

Regarding the question of how to define if a country is bankrupt, IMO I would term it as when a country defaults on its international accounts. For example, in 1991 India virtually defaulted on its current account payments, as it did not have enough foreign currency reserves to pay off its international balances. And as those payments could not be met using rupees (Indian currency) as tender, the Indian government was forced to sell gold reserves in order not to go into default, viz. bankruptcy. This in turn led to sweeping economic reform, and now India has hundreds of billions of dollars in foreign currency reserves to meet its international account balances.

The US has a humongous current account deficit, much bigger than India ever had or ever could have. America's international debit balance is nearly a trillion dollars per annum, and the only reason why the US has not defaulted on those payments is that they are allowed to remit those balances with home-made IOUs, viz. dollar denominated treasury notes. But if and when the time comes where international creditors no longer accept US dollars has legal tender to settle accounts, then America would be in an extremely difficult position, where it is almost certain that we would go into default. Thus the conclusion is that the only reason that America is not technically currently bankrupt, is that its foreign creditors still accept dollar denominated IOUs, but for how long no one knows, but to quote Bob Dylan, "the times, they are a changin'" and "hard rain is gonna fall".

The comparison of national bankruptcy to personal bankruptcy is fair:

" each citizen's share of this debt is $30,042.04."

And this is an accrued figure. OTOH, GDP is a yearly figure. The per capita GDP today stands at about $46,000. Per year. That's each year.

"I think that if 250 million of the 300 million people living in the US owed 30,000 dollars – on top of what they already may or may not owe some one, they would say that they were bankrupt. Extending this line of thought to a Nation, I think it safe to say that such a nation is bankrupt."

Except it was unfair to heap that additional debt onto each person without also providing the $46,000 of additional income, per year, from the GDP. We can see where many households go into debt with a mortgage of a few times their yearly income without being considered bankrupt. In the current case, they are in debt of only 65% of yearly income.

Thanks for your post.

Let's not forget also that Bush precluded this with changes to the bankruptcty laws which made it next to impossible to file bankruptcy anymore anyway.

however,

for a place to stay and a few morsels of food, if there's any left over, I'll come out there to that hand made adobe house of yours there in Hawaii if you need any help fending off the mongrel hoards with arguments and sticks and stones or what have you!

Kem,

I disagree. respectfully.

through negotiation jakenewton stated his point of view without the which you seemed to be endlessly chasing your tail around the forum causing me to get dizzy. now, that was significant, wasn't it?

The U.S. National Debt Clock displays the outstanding public debt as of November 14, 2007 at 04:22:43 PM GMT and it is: $9,118,705,725,491.23. The estimated population of the United States is 303,531,423, so each citizen's share of this debt is $30,042.04.
The National Debt has continued to increase an average of $1.49 billion per day since September 29, 2006!

The following is taken from a dictionarie's definition of bankruptcy. "Bankruptcy is a legally declared inability or impairment of ability of an individual or organizations to pay their creditors. Creditors may file a bankruptcy petition against a debtor ("involuntary bankruptcy") in an effort to recoup a portion of what they are owed. In the majority of cases, however, bankruptcy is initiated by the debtor (a "voluntary bankruptcy" that is filed by the bankrupt individual or organization)."

Bankruptcy law varies from state to state, but I have come across one instance of the first nation to declare bankruptcy. That was when Phillip the second of Spain had to declare four state bankruptcies in 1557, 1560, 1575 and 1596. Spain became the first sovereign nation in history to declare bankruptcy.

I think that if 250 million of the 300 million people living in the US owed 30,000 dollars – on top of what they already may or may not owe some one, they would say that they were bankrupt. Extending this line of thought to a Nation, I think it safe to say that such a nation is bankrupt.

"it would have to be on some very large change on a basic level, completely unlike we have ever had in history, and I just don't see what that is."

Now you've spoken to the higher consciouness awareness week crowd.

What's this? Attention all you would be prophets, all you useless striking corporate scribes, here was true prohecy! Not your typical garden science fiction police state variety. Spoken by the last person here who would speak it. Not a madman apparently. As an after thought. Now I'm worried.

When we used go to the movies and see the "Coming Attractions," we knew there was nothing good on the way and so could avoid it. There was divination at work for you.

"George will be crowned when mountains crumble and fall." No, I wouldn't be afraid, and I may not shed a tear. But a few hypersonic bunker buster nukes later, and those mountains will fall into the sea.

The real estate agents played their part. When we sold our home two years ago, we were appalled by the folks who were being shown our home because they were first-time shoppers being offered the most awful financing possible. The actual buyer financed the down payment as well as the mortgage, and three adults who would be living there co-signed the loan. If any one of them hit financial difficulties, the whole thing would go kaflooey. And this with a variable rate mortgage at a time when rates were obviously as low as they were ever going to go. I wouldn't have bought under those circumstances but the real estate agent was hustling like a grifter, and those folks were so excited about having a home of their own, at last...

The buyers should not have gone for it. Sure enough, when we drove by recently, we saw the place is up for sale again, by the bank.

So there's blame to go all around. To the buyers, who didn't sensibly consider all the factors; to the real estate agents, who are only interested in their commission; to the lenders, who had to know how high the risk was when they made the loan; and to us, I suppose, because we didn't scream a warning to those folks that there is risk and then there is foolishness -- and the deal that was being set up was foolish for all concerned except the sellers and the agent.

And yet that was par for the course -- no wonder millions are now defaulting.

"Last night Johnathan Alter was on the Keith Olbermann show and he stated three times that Bushes war with Iraq had bankrupted our country and Keith never once corrected him. "

Olbermann should stick to sports. If Olbermann were to say that the US were not bankrupt the world would stop spinning. I am sure they did not define the term "bankrupt" while slapping each others backs.

OK, if the US defaulted on it's treasury bills, I think we could then say it was bankrupt. It's *never* happened.

"The saving in taxes was several thousand a year alone. "

This speaks to the terms of the loan and not so much the asset class 'residential real estate". It's available to those who qualify in the US, but not in places such as Cananda. It's the loan terms, and it gets back to the subject of the article above.
And to repeat the leverage can work against you as well as for you as we see now.

Values of residential real estate have appreciated around 5% long term. Compare to the broad stock market at 10%. 100K in cash in one or the other the performance is twice as good in the latter, log term.

This may be helpful:

http://compasslifedesigns.com/blogs/your-house-is-not-an-investment/

I thought so too RUHIE, but now after all of the debating, ____ I'm confused.

You won't believe this one. Last night Johnathan Alter was on the Keith Olbermann show and he stated three times that Bushes war with Iraq had bankrupted our country and Keith never once corrected him. Boy, if our other expert here had seen that, I bet Keith would get an earful. ___ Golly wow, what is this world coming to?

Clarity Logic Bravado Knowledge

K 8 7 10 7

A 9 9 7 10

J 6 8 9 8

And the winner is: (drum roll) Akashgiri!!!
Christ, that was good! Do it again!
Subject: Quantum physics
GO!!

Do none of you know history? Are any of you aware of the Bilderburg Group?

Depressions, recessions are orchestrated. Yeah, yeah, I can hear you now ... a "conspiracy nut".

The top 1% never suffer, they gain during depressions. The big banks buy up the smaller further consolidating their wealth and and all the best property for pennies on the dollar. What happens to the rest of us is of no concern to them. Don't take my word for this, do some checking.

Frankly they'd be more than happy to see about 2 billion of us die off.

A house is just a house. A home now, that is a totally different matter. A home is where your heart is, where your children were born and raised and love was abundant. I fear there are more houses than there are homes.

Land is the thing of true value, a house can be built and re-built if necessary. The land is ir-replaceable. Once it is sold, or ruined by mining, by atomic waste, by eroded and washed off top soil, it can become land of little worth to any.

GEOFF, I'm glad you are one of the Common Dreams bloggers, you're fun. Arguments?

It would be an argument for a week, laughter for a month and a good jest forever. ~Shakespeare~___ 1 Henry IV.

Treatin your advesary with respect, is givin him an advantage he is undeserving of. ~Snakeshit~ Kem Pat the second.

There may not be anything inherently special about a "house." I'm fortunate that I have a place to house myself, but in the end, no matter where it is or what, a house is just shelter. Or a place to keep possessions. My ego attaches a value to it and fears the loss of it, but living in a tent by the highway may be a more rewarding experience for me for all I know.

It seems to me that the monetary values that we attach to things have a kind of arbitrariness about them. They could be valued greatly, or they could be nothing. They could go either way in a trice.

It's a job for the economists to preserve the illusion.

Kem,

I tend to see it as another example of how the Boomers fucked over the X/Y-Generation. They offshored good jobs, speculated housing into the stratosphere, got relatively wealthier while we got relatively poorer.

My mother grew up on a farm, I've got inlaws on farms, etc. but I'm glued to running in place in the city. Stuck here, and no way out. Land has been flipped to the point where there are no real deals left -- for my generation, it's like a form of feudalism. We're serfs, there is no escaping Chase-Manhattan's grip on us, no great deals that I've been able to find.

You gotta buy right naturally PAUL. The saving in taxes was several thousand a year alone. Right now, I dunno if a new home would necessarily be a good deal. We could sell our land now for four times what we paid for it and sell it tomorrow. Of course land here is now over inflated, so we'd have to sell it cheap, but make a bundle in comparrison to what we paid for it. But, it isn't for sale for any price, our hidden valley mountain home is priceless to us. The home we sold in the city was not and it allowed us to buy this land and home.

Up until about six years ago, buying a home was generally considered to be a good investment, of course what is occurring with the economy now is not what anyone expected and many are going to be hurt and hurt badly. Luckily we don't have a mortgage, thanks again to our last home sale. So your argument does not apply to me and to many others.

KEM PATRICK,

I'll have to side with Jake on the house=investment question. At least, it's a question worth asking. A genuine investment is a relative one. That is, it allows not just your raw dollars ($20K to $280K) to grow, but to grow relative to your cost of living also.

As your house "grew" in value, so did every single comparable home, and they most likely grew comparatively, through inflation.

Now I bought my '65 ranch home in 2000 for $140K. You saw a 10 times magnitude differential in 30 years (or whatever your figure was). So in 23 more years can I expect to sell my suburban ranch home for $1.4 million? It just doesn't seem right...

So "investment" isn't the right word, so much as a "place to park your money, so that it at least keeps pace with inflation."

But it's a massively losing investment in most people's cases today -- I know more than one person who needs to sell now, and they won't get what they paid. I've also calculated my own amortization and see that I'll be sending more money to Chase-Manhattan than the value of my property itself. Imagine a stock, bond or mutual fund with management fees which were 100%+. Nobody in his right mind would touch them. Bad investments.

Bernanke said just a month ago the economy was strong. Hmm.
The working people have had it.
Since 2001 we have been told
"The stockmarket losses were a correction."
"Help the economy by buying."
Just how are the corporations helping out the american people? Pay raises, health benefits? Only to a select few and it appears the select few are unable to make a profit for the companies.
I see tons of meat going bad in grocery stores. No one is lowering any of the prices. They even have the 10 for 10 sales that go ignored by most because people cannot afford it.
The government passed the difficult to get out of debt bills just before the corporations and lending companies decided they would rob the american people. If this is not a form of conspiracy I do not know what else is. People are in debt because they are not making the money they used to and the dollar has gone down in value.
People have no choice but to borrow-the banks and finance people have choice in how much interest and fees they want to charge people.

HERE'S A NEW IDEA: The government stops bailing out big companies in hard times EXCEPT when they get stock ownership in the company-- and then only if it's a good investment at that price. Company stock depressed? Market cap down to $10 billion? Need $2.5 billion in cash to survive? No problem-- just give the U.S. Treasury 20% of the company in stock and a seat or two on the Board. No more corporate welfare; no more little guys crushed when the big guys collapse. The GAO could help manage the companies back to profitability (perhaps even by awarding gov't contracts for services to these companies) and the gains could go to keep Social Security solvent.

I do believe some others here spelled it out in great detail and gave us some very good reasons to believe we are near bankruptcy or already are and it just hasn't been admitted by the federal reserve and our government. Well see who is correct in the near future.

It doesn't take a rocket scientist or a brain surgeon to see what is happening to the economy and to the dollar. ____ Nite

Kem,

I know you love to argue. I was thinking about Steinbeck the other day saying something along the lines of there being a necessity to being "angry." Something like that. An aspect of thinking is being reactionary maybe? Or being alive.

thanks jakenewton. I think you should start with that in your next battle.

when I started to argue with you the other day, it made me reflect on the good that I had and not on the ill that I might have. And in that I realized that I was caught up in a kind of blindness where I may have been criticizing someone or something else, maybe you for example, and yet it might as well have been me that I was describing in my arguments.

That may not make any sense, but something along those lines. Kind of like stating I really should not be engaging in arguments about economics, and yet here I am.

Oh my gosh GEOFF29, This does not bother me in the least, in fact I love a good argument with someone who is dumber than I am. They're hard to find.

It would not matter who made it. You are absolutly correct JAKE and I love you, ___ smooch smooch.

Good to have someone here who knows more
than the ones who are paid to know and can tell them they are wrong about the economy. I was worried before today.

Not now, thanks to Jake here, I feel good about it now. Think I'll run out and finace a new F-350.

KEM, I now wish that it was someone else who made the bankrupt comment.

"your comments are mostly childish and uninformed."

Prediction: You'll not show this to be true anytime soon.

" where do you see this is going then? or what's your interpretation of it?"

People often paint the worst case scenario about something that is of legitimate concern. Remember Y2K? So as an example to say that the US is or will be bankrupt to me is an irrational argument towards a worst case scenario. It's reasonable to ask people what they mean by this, and hopefully in doing so it makes them think some more about it.

I see the economy as a chaotic system of push-pull, give-take, a bit like the weather. I don't think a particular trend is always destined to snowball into something great, or horrible, instead, it'll usually die down and perhaps reverse direction. Storms always dissipate, winter always turns to summer.

You don't see me here trying to paint everything about the economy as being so great, I would concede some things as good and some as bad. But my sense is that many here would be loathe to admit anything about the economy as good, for purely political reasons, and that indicates to me distorted thinking.

If things are poised to get as bad as many here seem to think, it would have to be on some very large change on a basic level, completely unlike we have ever had in history, and I just don't see what that is.

Kem,

I'm hard pressed to understand why your lettin yourself get into a lather. You won't be able to sleep.

The wind is old and still at play
While I must hurry upon my way,
For I am running to Paradise;
Yet never have I lit on a friend
To take my fancy like the wind
That nobody can buy or bind:
And there the king is but as the beggar.

jakenewton,

Ok, so taking into consideration the dire straights that many of the posters here see in the economy and so forth, and provided the glass isn't empty, where do you see this is going then? or what's your interpretation of it?

I'm just trying to get at what you are getting at. I'm not an economist.

There you are folks, two more are wrong in Jakes line of thinking. Hope you are the only one here who is correct Jake, I don't wish to see us bankrupt or have a depression. Of course "hope" is only useful with action. I hope after over 50 years of doing so, I can quit smoking for example. ___ Hope won't cut the mustard.

So for you to "hope" your comments make sense JAKE, is not cuttin the mustard either, because your comments are mostly childish and uninformed.

You asked the question of what do you mean by bankruptcy, or such wording. You didn't wish to have an answer, you wished to argue, write the other person's words and then offer a diverse opinion to suit yourself satisfaction and show your intellect. You failed miserabley and made a fool of yourself. ___ Sorry, you probably are a nice person. Just very ignorant and self serving.

"They start with a quality product and after a time squeeze the consumer with shoddy merchandise in the same wrapping. "

If you think that US consumers will continue to buy product lines whose quality declines over time, you are right, that is a problem. I don't think they will though.

"I didn't show it?"

Nope. Our discussion is there for *all* to see.

Thank you FOREXTRADER and AKASHGIRI and others less JAKE, for the valued and clear lessons.

I concur. I have had much explained and clarified for me in this discussion.

Well jakenewton, you are useful as a catalyst. I do take exception with you about overall inflation. They now exclude energy and food from the calculation, calling those items too volatile. Oh yes, heat rises. Since we can no longer afford them, we can live on polluted Chinese junk instead.

you two should maybe come to some kind of terms? maybe not.

Kem, you didn't have to debate him. I now know all about your house projects. You're still cool in my book!

But, I agree, Jake, it's still unclear what you are arguing in support of, I just know you disagree. so for me it sounds like you are arguing from a position of that you are afraid of losing something rather than telling us the full extent of your point and then supporting it.

I enjoyed it though, I learned something so far.

I didn't show it? God, just go back and read what you wrote you dunce. It is self evident.

BTW Chinese toys are not our major worry, they make 50% of our prescription and non-prescription drugs now. One doesn't know if they're getting the proper drugs or not. They make a huge percentage of the spare parts for our military equipment, Aircraft and vehicles.
A good deal of our food now comes from China, some is poison. I found swollen cans of veggies in a Wal-Mart last month, Chinese imported with American brand names. The Chinese are famous for the term SQUEEZE. They start with a quality product and after a time squeeze the consumer with shoddy merchandise in the same wrapping. China now owns us.

"Jake doesn't debate, he asks loaded questions and when you reply, he tells you you're wrong. Then gives his one sided opinion. Most of the time however, he does not know what he is talking about on most anything at all."

It's one thing to say this, and quite another to *show* that it's true, isn't it? I note that you didn't do that, and anyone reading can also see that. Disgraceful.

If JAKE is correct, all the rest of you and I are wrong.

Jake doesn't debate, he asks loaded questions and when you reply, he tells you you're wrong. Then gives his one sided opinion. Most of the time however, he does not know what he is talking about on most anything at all. He is humnerous at times, however an does make some clarify their comments, which is helpful at times. He reminds me of the dunce in school who insured the teacher got the message across. The dunce of course, ___ didn't ever get it, he already knew it all.

If we attack Iran, I would bet China will dump the bonds they hold and attempt to dump their dollars and we will then be in the depression in a day or two. We will also be bankrupt and not be able to deny it, as is happening now.

Thank you FOREXTRADER and AKASHGIRI and others less JAKE, for the valued and clear lessons.

Check out "Neighborhood Assistance Corporation of America"

It's a non-profit trying to help people save their homes through restructuring programs that the homeowner can afford.

https://www.naca.com/index_main.jsp

hedge teacher, you nailed it

akashgiri: Thank you for your VERY lucid writing about a complex subject that I only understand on the surface. If you wouldn't mind answering a question about your comments?

You said that it would be suicide for China to dump their reserve currency (USD). Why would it be suicide? Why couldn't they just trade their dollars for euros and sterling (I know that they would loose money on the transaction, given the fall of the dollar against other currencies) but at least they would have more stable currency in their possession, right? While China would book some losses on their ledger, over the longer term, they'd be more secure wouldn't they?

Or is the problem that China has TOO MANY dollars and so would have trouble buying other currencies with their dollars? Is it like having too much zuchini from your garden - it comes to a point at the end of the summer where you can't GIVE it away?

jakenewton: "Did you know BTW that the decreasing dollar has contributed to a narrowing of the trade gap? And the current budget deficit is quite low, at less than 2% GDP."

You sound as clueless as Bernanke when he addressed the US Congress last week. Perhaps you should work for the Bush Administration.

Why are Americans such sheeple when it comes to the falling dollar? The Dollar has severly devalued againt the other major currencies within the past few years. For example, in '02 it took 1.61 Canadian Dollars to equal one US Dollar. Last week the Canadian Dollar jumped as high as US$1.10. The Euro which was at parity in '02 is almost at $1.50. In '01, took more than 13 South African Rand to make one US Dollar, now it only takes 6.50. The US Dollar can't even stand up to emerging market currencies.

Is a falling Dollar good for exports? Maybe, but why should the American people subsidize the exporters? That's exactly what they are doing as the falling dollar is ripping the American people off with lower purchasing power. FYI America is seeing a consequence of a falling dollar through recent spikes in inflation and rising fuel prices. The Fed doesn't even care about inflation and they have embarked on this recent insane interest rate cutting binge to help the plutocrats. When the Fed cuts rates in the face of inflation, the Fed has telegraphed the world that it won't stand behind it's own currency.

Is this really how the people who's decision making has an effect on the world's reserve currency suppose to act?

Last week China announced that they are going to adjust their foreign currency basket so they can minimize their dollar exposure. Other countries are starting to take action.

Brazil's supermodel announced that she didn't want to be paid in US Dollars. Smart lady. American stars like Brittney Spears would be too dumb to know the difference.

Those lenders were not irresponsible. They knew all along that when the loans went bad, we the people would be forced to make good on them. And Jackson is their shill.

Today most Americans must work their entires lives to pay off their home. Essentially we spend our lives working for money to give to a bank. One of the world's leading environmental architects, Nader Khalili, has challenged this relationship by creating a building technique called Superadobe through which individuals can build their own homes with little more than the dirt under their feet. These buildings are cheap, and wonderful for the environment since they do not require wood, steel, cement or other environmentally harmful building materials. They also are comfortable and quite beautiful. You can read about this technique and see some photos by going to www.Calearth.org

The American brand of klepto-capitalism is in the process of being exposed to the light of day, and there is a lot of nervousness in corporate offices, big bank offices, and in Washington among the legislative whores who did the corporations' and banks' bidding during the years of deregulation. These miscreants have brought the country to the brink of a major financial meltdown, and it will be a miracle if a depression doesn't result. But in this country there is never accountabilitiy, so no doubt these criminal creeps will be able to retire with the ill-gotten fortunes mostly intact and well-protected while the vast majority as usual will suffer the grim effects of the slowdown.

Imagine the scenario where foreign countries require America to sell dollars in order to obtain euros, since these countries decide that they want to sell their goods, whether they be capital goods or commodities, in euros. The price of goods will skyrocket, while the dollar will plummet, and America's current account deficit will go into default, viz. America will be bankrupt. It wouldn't have enough money to buy the oil needed to bring the troops from Iraq and Afghanistan home, as America holds no foreign currency reserves, as it has taken for granted the USD's role as the world's reserve currency. I suppose we could just take want we wanted considering the size of our military, but I guess we have already started to do that.

Sorry, but it were them, I'd rather let the banks have these back. They are way over valued and everyone knows it. The banks, appraisers, developers -- all of 'em -- have ruined another of the basic foundation blocks of America: the American home. Our voting system has lost crediblity, our home values, and of course, the dollar. Its a hard pill to swallow, but I'd let the banks have 'em back. They'll never recover any equity thats been lost.

"But, I agree, Jake, it's still unclear what you are arguing in support of, I just know you disagree. "

I had only asked for some way to define what was met by a nation being bankrupt. People say "the US is bankrupt" all the time but what are they really saying? Saying it's the fiat money can't be right because most nations have that. Saying it's foreign held debt isn't right either. I think akshgiri was maybe on to something, but I'm not convinced that we are so close to something that would trigger the scenario he/she paints. I hope this makes sense.

"They now exclude energy and food from the calculation, calling those items too volatile."

They have been doing this for a while, and that is for one index. There is another that includes energy and food. Everyone knows this, it's not like traders and economists don't know. I think you could make a case for an index that used a moving average to get rid of volatility. I think in the long term it's worth pointing out that the US has become twice as efficient in producing real GDP per barrel of oil consumed over the last 30 years. Some European countries are more efficient still so there is still room for improvement perhaps, but many developing nations are very inefficient.

@ jld_overseas
I don't think it is suicide for China, and other countries that are heavily leveraged in the dollar to start significantly reducing their holdings, but it could result, if not done in a prudent fashion, in a run on the dollar, and all would see the effective value on their dollar holdings drasticially reduced. And I think over the last few years China, Japan, and a host of other nations have been carefully diversifying their currency holdings, but as the fiscal deficit continues to balloon, the current account deficit continues to grow, and the institutional integrity of the US financial system suffers serious setback, a run on the dollar seems more and more likely. China is in a unique situation since their economy so leveraged on US consumer spending, since a large volume of their exports are in consumer commodity goods. And if the US consumer's purchasing power is drastically curtailed due to the weakening of the dollar then China's economic miracle quickly mutates into a curse. But on the flip side China has a prospective 1 billion+ domestic consumer base to fuel their economy, but they need to institute some serious reform to transition from primarily a commodity export based economy to capital goods and finance at the export level, and concentrate on internal demand for commodities they manufacture. But considering no other population will ever have a chance to be so profligate as the American consumer they are better off curtailing growth in the commodity manufacturing sector, especially those worthless knick-knacks that line the big-box store shelves. The irony is that all the developing nations' growth models, and fair number of developed nations are founded on an export based economy, where the primary importer in the equation is the American consumer. Therefore there will be rough times ahead for the entire financial world, with the brunt of the adverse reprecussions falling on the American consumer, and in turn the American economy of which over 70 percent is based on consumer spending.

In order to understand how the USD is in serious jeopardy of losing its status as the world's reserve currency, one should understand how it attained that position in the first place. First thing to understand is the concept of fiat currency, i.e. currency that is not based on any particular standard, like bi-metal (gold/silver) or uni-metal (gold) standard. For example you cannot go to your local bank and exchange currency notes for specie (gold/silver) payments, which at one time a person could. Essentially the integrity of the fiat aspect stems from general consensus, viz. you're currency may not be based on any metallic standard, but it is based on sound economic fundamentals. The USD became fiat currency when the US abandoned the gold standard, and the Bretton-Woods system of finance evolved. Its role as the world's reserve currency was based on the fact that US had sound fiscal policy and the largest economy, where the markets were large, dynamic, transparent, and had a high-level of instituitional integrity. There was stability and profitablity in US equities and dollar-backed assets, much more so than any other country in the world, thus the reserve currency status. Now we have entered a strange and troubling era in America, where "deficits don't matter", and regulation and transparency are "unnecessary restraints on the market." This MBS (Mortgage Backed Securities) and CDO (Collateral Debt Obligations) fiasco under this ponzi scheme of "Structured Finance", which IMO will turn out to be the biggest scam in US financial history, will most likely be the proverbial straw that breaks the camel's back. Couple that with the neocon sucidal fiscal policy of significantly reducing taxes, and massively increasing expenditure, and not on education or public works, where there is return on investment, but on war, an extremely bleak picture emerges. And Jake, you are correct, that the world's central banks are extremely leveraged in the dollar, so they need to be careful that they don't see there investments turn into pennies on the dollar, but the movement as already occured to diversify away from the dollar, and unfortunately I would not be surprised if there is a run on it, once a better picutre emerges on the insolvency of the major banks in America, due to horribly bad investments, which stemmed from too easy credit.

"U welcome JAKE."

:-)

Thanks for your post akashgiri.

"The federal governments fiscal deficit it is over 7 trillion dollars,"

But we have a great national asset, and this deficit as compared to GDP is not all that out of whack historically.

"THE FACT THAT THE DOLLAR SERVES AS THE WORLD'S RESERVE CURRENCY."

Not soley. It is shared with the Euro, and some others.

"Having said, the USD's role as the world's reserve currency is in serious jeopardy, if not already history, and the ramifications of the latter will be tremendous, then you will come to fully understand what is meant by America being bankrupt."

But I don't see where the dollar would be dumped wholesale as a reserve currency anyway. To do so today would be suicide for China for example. Nonetheless, I would be interested in what you think would trigger that.

U welcome JAKE.

Thank you AKASHGIRI. Very well said, I'm not smart enough to put it so well.

@ Jake Newton

With regards to the financial solvency of the United States, or the lack there of, one need to look at both the macro and micro economic figures. The federal governments fiscal deficit it is over 7 trillion dollars, and America's annual current account deficit in nearly 1 trillion dollars. The individual American's savings rate is less than zero, the first time since the Great Depression, and aggregate American credit card debt is near 1 trillion dollars. THE ONLY REASON WHY THIS IS ALLOWED TO OCCUR IS DUE TO THE FACT THAT THE DOLLAR SERVES AS THE WORLD'S RESERVE CURRENCY. Nation-states throughout the world use the USD to settle international accounts. If China, for example, wants to purchase oil from an OPEC nation they need to procure dollars to do so, or if India wants to buy a mainframe server from IBM they must procure dollars. Whereas this does not apply for the US, since if American companies want to purchase goods, whether they be capital goods or commodities, they exchange green paper for tangible goods, once again due to the USD's role as the world's reserve currency. Having said, the USD's role as the world's reserve currency is in serious jeopardy, if not already history, and the ramifications of the latter will be tremendous, then you will come to fully understand what is meant by America being bankrupt.

"Bye"

Thanks for nothing. Anyone else?

Compared to answering ignorant people. You are proving what I say about you, you are funny now though.___Bye

If you are still "CURIOUS" JAKE, go to the lead article about the cost of the Iraq/Afgan war. there is help for you there, or, for more chances for you to express your ignorance.

"Not having anything of value to back up their currency, only good faith and hope and trust for the best."

Like pretty much all countries.

"The house was a very good investment, which was the original debate."

You now qualify it with "very good" so I have to ask "compared to what"?

Great website on the housing bubble and the current crisis:

www.patrick.net

Yep, I neglected to mention my expenses, such as replacing a water heater, some plumbing repairs, a paint job I did myself, a new roof after 20 years, building a patio wall and enclosing the back yard with a nice wall, which we had fun doing. Then landscaping and new carpeting. We put aside $80 a month for all of that and had a lot left over when we sold it. The tax breaks in leau of renting made up for all of the expenses by far. Again JAKE, you just love to argue any comment I make, which is your perogitive. It is mine to state you cme across as a strange person. The house was a very good investment, which was the original debate.

"So what is it that makes a nation "bankrupt?"

When most of the available funds are in offshore accounts that are held by people like Dick Cheney, perhaps?

Not having anything of value to back up their currency, only good faith and hope and trust for the best. And I'd take the experts opinions I choose to believe over yours any day JAKE

"JAKE, you do not know what you are talking about as usual."

Really now?

" It's fine to debate when one offers decent arguments and is sensible, ____ you are not. "

Please demonstrate.

"You are arguing with the experts, ___ not me."

It's an old joke, the "experts" predicted seven out of the last three recessions. You should know better, the "experts" disagree and are often wrong. Today, you are referring to the experts whose opinions you happen to like.

"No, having a national debt is not why we are bankrupt, we are bankrupt, or on the verge of it, because our money is backed with paper which is worthless paper."

Are you going to stick with this then? Are the many other countries that do exactly this as well bankrupt too?

"And our dollar is practically worthless in spite of your opinion."

Repeats the exaggeration. Why, I can prove you wrong simply by posting today's rate against any currency you pick.

So what is it that makes a nation "bankrupt?

Good comments from most everyone. And I too like to read two informed people debate an issue. It's much more interesting than people hurling insults at each other, and it adds to my knowledge of an area of which I know little.

When I hear the words "Our Country" and "Bankrupt" the first thought that leaps into my mind is morally bankrupt, but that's not what the article is about. However, my opinion is that the banks should not be bailed out when they make poor choices. No one's ever come to my aide when I've been in financial hardship. I had to dig my way out of that hole. Thank goodness for friends and sofas.

"It WAS an investment "

You neglected to list some of your expences, including taxes, fair market for your labor for your routine and otherwise upkeep, and to account for the opportunity cost of putting the down payment into the house instead of some place else that usually appreciates at a much better rate (stock market). Plus your house isn't very liquid.

Of course, most people do show a profit on the sale of their home. But over the long haul, residential real estate increases in value at only half the rate of the broad stock market. When you get down to it, the tax advantages on a mortgage is really what is usually the smart thing, allowing leverage to do it's work. But in recent times we are now seeing the other edge of that sword as people find themselves upside down.

JAKE, you do not know what you are talking about as usual. It's fine to debate when one offers decent arguments and is sensible, ____ you are not. You are arguing with the experts, ___ not me.

No, having a national debt is not why we are bankrupt, we are bankrupt, or on the verge of it, because our money is backed with paper which is worthless paper. And our dollar is practically worthless in spite of your opinion. If you have an option of a Euro or a dollar, which do you choose? Ask the people who make those choices.

The country is bankrupted so a bailout is probably unaffordable given how much we are in debt as a nation. Agree with everyone that the Federal Reserve and realtors, flippers, and mortagage brokers helped to create this bubble. Interest is also way out of control in this country ursury is forbidden in several religions for a reason.

"I doubt your are curious,"

I am, please trust me.

" you are just looking for an argument as usual. "

Of course. As usual. You wouldn't want these forums to be reduced to a silly Agreement Festival would you? I was going to take you to task for saying the US is "bankrupt", but thought we should try and define what is meant by that first. The question is out there to anyone.

"We're bankrupt because we owe or asses to China and Japan. The federal deficit is at an all time high,"

Having a National Debt is why we are bankrupt? Is a family with a mortgage bankrupt? I notice you indicate the debt as the highest ever, which is true in dollar amount, but as a percentage of GDP it's actually shrinking, and around half of what it was in WWII and slightly after. In personal finance, you would often compare debt to assets. Do you know what the National Asset is? Do you ever hear anyone talk about it? I'm serious.

"our dollar is almost worthless,"

Exaggeration. Did you know BTW that the decreasing dollar has contributed to a narrowing of the trade gap? And the current budget deficit is quite low, at less than 2% GDP.

"the price of everythng from gasoline to peanut butter and milk has about doubled in the past year. "

Overall inflation is low. The items you have mentioned have not in fact doubled in a year, and you fail to mention the many things that are staying flat and even decreasing in price. Still, like you, I am troubled somewhat by the recent increases in energy costs.

"Most Americans live from paycheck to paycheck with little or no savings, most owe several thoudand dollars to credit card companies."

I would like to see sources for these claims.

" Any more goofy questions?"

Would you or anyone else like to take a stab on defining what it means for a nation to be "bankrupt"?

Most people are going to skip out on their mortgages.. if you are a paycheck to paycheck person, you're going to ditch the house, move to a cheap apartment, change your phone number, and pray the bill collectors don't find you.

At this point I would love to have a house of my own, but seeing what's going on with the housing market is making me think twice about getting stuck in such a long term financial commitment. I'll be renting til I die apparently.. I'd rather pay my landlord than the banks.

Did anyone notice how the Fed just pumped an extra $40bil into the economy to save it for this week? I wonder, what happens next week?

JAKE, you say a ouse is not an investment.

Well, in 1970 we purchased a new, four bedroom, three bath home we easily could afford at a loan rate of 7.5%. The monthly payment was less than payng rent for a three bedroom two bath apartment. We didn't buy it for an investment, but it turned out it WAS a very good one.

We paid $21,800 for it and in 1992 sold it for $280,000, a little less than the market valuem then bought a little 26 acre ranchette up in the mountains, paid cash and had lots left over. The market value of that house now is $320,000, of course no