Why is America's economy still in such bad shape?

Thunder said:

We are clearly not in a Recession as our economy keeps grouping. But unemployment is still way too high & GDP is still way too low.

So what is causing this? Are the banks still not making business loans? Interest rates are at an all-time low.

Taxes have not increased since Bush left office.

So what's causing our economy to just slog along?

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While what you are saying is true, there is no real economic factor that suggests we should have an economy doing better than just "slog along." We may not be seeing a real recession (as defined) at this time but we are not that far into growth either. The numbers are not there to support that the economy is really doing all that well even though it is not negative numbers. Democrats do not like to hear this but at this stage there is little in economic factor to consider reasonable risk return investing right now. That is where it starts, investment. Something government investment has not handled well, at least not well enough to prop the economy into higher levels of growth. Right now it is more reasonable to look to safe haven investing and quick returns over any real impacting returns based on long term growth oriented future forecasting. One could go so far as to suggest what little gains on GDP we might see is artificial at best, influenced more by governmental action (both positive and negative) over any real fundamental economic gains from private influence.

When one equates that banks should be loaning due to low interest rates that fundamentally ignores that profit from loans comes from the interest rate, not the amount loaned. Said another way, interest rate is the return on investment for making a loan (such as a mortgage, or car loan, etc.) Keep those interest rates as low as possible and you will find Banks will just sit on the cash even longer, some clearly have on the books with no intention on loaning it out. That is not an argument for high interest rates, it is just a statement that very low to no interest rates have an effect on investment in consumer debt. We already see that when it comes to banks as returns on holding cash are also at historic lows basically saying the banks have no interest at all right now in giving account holders returns for holding that cash. It is not being loaned out anyway, as you point out.

You are right on the taxes part, but that in itself should not be the defining factor in economic improvement or not. Not saying it does not matter at all, just saying tax rates alone are not the sole reason for or against investment. That is something Republicans will probably disagree with me on but I consider tax rate to be a factor, just not the only one.

Anyway, all that being said there is just not enough reason for the economy to be improving right now. Political positioning is not making things any better either these days when it comes to certainty, or volatility, in the markets. That is evident just about every trading day watching market movement based more on fear and panic over market fundamentals in risk to return investing. Again, some may not agree but the first step is investment in concepts and future looking intentions... that is not happening enough right now no matter how much government tries to do that for us.

Thunder said:

We are clearly not in a Recession as our economy keeps grouping. But unemployment is still way too high & GDP is still way too low.

So what is causing this? Are the banks still not making business loans? Interest rates are at an all-time low.

Taxes have not increased since Bush left office.

So what's causing our economy to just slog along?

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My opinion

Stagnant middle class wages was compensated via borrowing due to easy/cheap credit and housing prices. As mentioned earlier, consumption is down and that's what is hurting the economy. Consumption has two strikes against it, uncertainty (employment situation) and paying down past debt. Those together are pretty killer for the economy.

With no raise for myself (or anyone else in my company) or my wife in the past three years, I'd say "recession" in a heartbeat.

Proud South Korean said:

Too many years of borrowing, a slowing economy, a mismanaged economy designed for artificial and superficial growth, and a culture of spend, borrow, and consume

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This is why.

And added to that, it's because we are still unwinding those losses. We are still discovering the extent of the damage, we are still digging through the rubble and estimating losses. Who is going to rush forward, if we're still tallying losses?

Look at Greece. Each month they tell us it's a little worse than they said before. They are slowly revealing the damage, to presumably avoid panic (or just human nature to hide loss). We have no idea what the EU will ultimately do here, the impact of Greece, and how far if at all it wil spread. The same is going on but less visibly in the U.S. Those losses are being realized, they are still rippling through the economy.

It's our choice that things unwind this slow though, let's keep that in mind. Some would have us unwindind it faster, immediately, pull the band-aid off. And while that has merits, pschological side-effects can result in panic, whicih does more damage for no legitimate reason...so they want to avoid that as well.

It takes time to recover. If it did not take time, that would actually be a concern. I would not be surprised if it took 10 years or more to absorb it all.

I would say outsourcing is part of the reason. I read about this company and everything they make uses American materials, everything is made on American machines by American employees and everything is shipped with American shipping companies. Their behind the art section is pretty interesting. www.us-designs.com

KSTAR said:

I would say outsourcing is part of the reason. I read about this company and everything they make uses American materials, everything is made on American machines by American employees and everything is shipped with American shipping companies. Their behind the art section is pretty interesting. www.us-designs.com

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Nice first post. Do you get paid to advertise people's **** on the internet?

It is pretty simple... the American economy is 70+% dependent on consumers. When consumers have high:

Credit card debt.
Housing debt.
Personal debt.

then this means less consumer spending.

Add to that daily reports in media of " the world is falling apart" from so called experts and political pundits and you have the total opposite of what got us in to this situation.

After all, what got us into the situation was an almost unlimited credit card debt ability, an ability to re-mortgage your home over and over again because of rising house prices, and the ability to get personal loans because of low interest rates and lax banking regulation.

This lead to a spending boom during a long period where incomes at best were stagnant, but consumption was far higher than incomes. This has now come home too roost.

But as it stands now, the biggest threat to a global recovery is not this made up European sovereign debt problem, but the constant doom and gloom comments that drive markets into panic often over nothing.

I think the European debt is a bit of a bigger problem than statements in the media.

1Perry said:

I think the European debt is a bit of a bigger problem than statements in the media.

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Of course you do...

Lets take a look at that statements and facts.

Do European states have debt? yes and some have high debt. But what is high? 50%? 70%? 100%? And compared to who? The US has higher debt ratio than most European countries. Also the European debt ratio's include local and state level debt... the US numbers do not. And we have heard for over 3 years about the "Spanish debt problem" and yet Spain has one of the lowest debt ratios in the industrialised world? So how credible are the media or markets on this issue? We are talking about the same media who totally missed the sub-prime mortgage bubble and in fact helped it on considerably..

Do Europeans have massive personal debts? No not on average. Only countries that do have issues are Ireland and the UK. Rest of Europe dont like credit cards for the most part. A study form 2005 saw European unsecured debt (Credit card debt basically) to be HALF that of the UK and far far behind that of the US at the time. Europeans also save far far much more than Americans and Brits.. in fact the UK drags down the European average which last I looked was 15+%. Countries that are in the cross-hairs, Spain and Italy.. have savings ratios nearing 20% for god sake, where as the US is amazed over a 5% savings rate in the US..

Do European banks have too high leverage? Yes and no. Depends on the assets they have.. are they crap American mortgages like US banks? no. They are a mix including sovereign debt. And since sovereign debt is now deemed a problem for some and not for others (the hypocrisy aspect), then suddenly the mainland European banks are in supposed in trouble. Personally I would love to get the leverage of European banks down, but lets look at it realistically at least. What is more safe... a 80% debt ratio on sovereign debt or a 200%+ debt ratio on personal mortgage debt... that is what we are talking about often.. the kitchen table economics that the right are promoting where some debt is bad but other is not. Point is, the sovereign will always have an income... the personal mortgage owner not so much... so which is more secure?

I also worry why no one talks about the leverage of the American banks any more...Just because they on paper have gotten their leverage down and the American media are playing the patriotic drums, do we take their word on it? the very industry that brought us into the cluster**** we are in now? Why is it that the American banks are trustworthy but the European banks are not?

And considering that the two European banks that are most in the crosshairs of the markets, are the same banks that blew the whistle on the American sub-prime mortgage scandal... odd no?

Like it or not the European "crisis" is very much over blown and the markets are ignoring the problems in the US. I am personally far far more worried about the US economic cluster**** than I am about the European, because like it or not, the US consumer driven economy is the engine of the world economy. And as long as the American consumer is debt ridden, failing on their mortgages, getting screwed by their banks and politicians and see next to no hope for the future, then the world is in serious trouble. Right now the markets are praying and hoping on some sort of economic merical in the US... something that is a pipe dream under the present conditions.

Do European states have debt? yes and some have high debt. But what is high? 50%? 70%? 100%? And compared to who? The US has higher debt ratio than most European countries. Also the European debt ratio's include local and state level debt... the US numbers do not. And we have heard for over 3 years about the "Spanish debt problem" and yet Spain has one of the lowest debt ratios in the industrialised world? So how credible are the media or markets on this issue? We are talking about the same media who totally missed the sub-prime mortgage bubble and in fact helped it on considerably..

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The US (public) debt is comparable to Spains debt that's true (as a percent of GDP). Spain taxes a much higher percentage of it's GDP than the US. It's government spending is also a much higher percentage of it's GDP. Those in conjunction means Spain has much less wiggle room in solving their debt problems. In the US you can pretty much let the Bush tax cuts lapse and a majority of our debt problems is solved.

Do Europeans have massive personal debts? No not on average. Only countries that do have issues are Ireland and the UK. Rest of Europe dont like credit cards for the most part. A study form 2005 saw European unsecured debt (Credit card debt basically) to be HALF that of the UK and far far behind that of the US at the time. Europeans also save far far much more than Americans and Brits.. in fact the UK drags down the European average which last I looked was 15+%. Countries that are in the cross-hairs, Spain and Italy.. have savings ratios nearing 20% for god sake, where as the US is amazed over a 5% savings rate in the US..

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This is irrelevent. The US does not depend on domestic savings in order to keep it's interests rates low.

I also worry why no one talks about the leverage of the American banks any more...Just because they on paper have gotten their leverage down and the American media are playing the patriotic drums, do we take their word on it? the very industry that brought us into the cluster**** we are in now? Why is it that the American banks are trustworthy but the European banks are not?

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A lot of US banks have written off their "toxic" assets.

Like it or not the European "crisis" is very much over blown and the markets are ignoring the problems in the US. I am personally far far more worried about the US economic cluster**** than I am about the European, because like it or not, the US consumer driven economy is the engine of the world economy. And as long as the American consumer is debt ridden, failing on their mortgages, getting screwed by their banks and politicians and see next to no hope for the future, then the world is in serious trouble. Right now the markets are praying and hoping on some sort of economic merical in the US... something that is a pipe dream under the present conditions.

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I agree with this