Is The Media Downplaying Economic Trouble?

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I recently wrote a post speculating that the media might be overplaying the economic troubles of the U.S. right now in order to assure voter anger at the Republican party in November, thereby assuring a win by the most likely Democratic candidate, Obama. JD, from the blog Techfun, wrote an in-depth reply that was so good I am publishing it here as a guest post. His take on the U.S. economy is scary, but unfortunately makes quite a bit of sense. Thanks JD… I think.

  Here are his thoughts:

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  Maybe its because I am a financial/economy news junkie, but I think the opposite is happening in terms of how the media is reporting on economic news. I think the media is greatly downplaying the severity of the economic problems we face.

We are only in the beginning of what is almost certainly going to develop into a “perfect storm” for the US economy.

The Dollar is Falling. This would have HELPED us 30 years ago since it would have made imports more expensive and enticed the US manufacturing sector to increase domestic production which would increase earnings and help the wider economy. That scenario is no longer viable for two main reasons. First, many of the US factories that once would have simply scaled back domestic production in times of a strong dollar and cheap imports have instead either closed or relocated out of the country entirely. Secondly, one of our biggest trading partners, China, has a currency that has only recently been allowed to diverge from its relationship with the US dollar. At present, it has not been allowed to diverge enough to make it prohibitive to keep importing their goods. The current federal plan to address the situation in the form of rebates to tax payers in May will not help because it will be used to either pay on existing debt or to purchase more goods that are not manufactured in the US any longer.

US Consumer Debt. US consumer debt, including primary and secondary home mortgages is insanely high. Too many people believed that home values could keep showing significant rises year after year and behaved accordingly via refinancing for the higher values or taking out lines of credit based on the bubble-inflated home value. As a result, people making their mortgage payments on time and not spending anything on credit are still going into further and further debt every month as house prices decline. “Realtors chief economist Lawrence Yun said a survey showed 18 percent of homes up for sale in March had negative equity, meaning the mortgage was larger than the value of the home. This percentage, which represented homes that were either in foreclosure or involved in a “short sale” in which the house was being sold for less than the value of the mortgage, was up from levels around 3 percent during the 2002-2006 housing boom.”

Imaginary/Play Money. As Roger Bootle, a well known London economist who predicted the dot com bubble collapse puts it: “The essential truth is that umpteen billions of dollars have been magicked out of nowhere – and must return whence they came, no amount of financial gerrymandering can obscure or diminish this point”. He further said “Do not expect the current market turmoil to go away easily or quickly. It is not imaginable or fanciful, on the contrary it is the direct result of the creation, on a massive scale, of imaginary wealth in the housing and financial markets of the world, a mirror of what happened in the 1920s America and 1980s Japan.” (Bootle accurately described our current situation in his 2003 book Money for Nothing – Real Wealth, Financial Fantasies, and the Economy of the Future.)

U.S. Federal Debt Increases. When Clinton left office the National Debt Clock stopped and we actually started repaying loans to the US Govt. In the time since Bush took office we have lost all those gains and gone so much further into the red that Congress has had to raise the debt ceiling (the amount the govt. is permitted to borrow) four times in five years. Three of these were while under the Republican control and the fourth was immediately after Democrats took control in March of 2006. This has taken our debt from $5.6 Trillion when bush took office to its current $9.3 Trillion. These were not loans to help Americans get education suited to the new world economy or anything like that. These were loans to keep the war in Iraq going and to forestall a shut down of the federal govt like we saw in the 1990’s after Republicans won control of Congress. This debt is not created by us just printing money. We have to sell the debt to people who are willing to trust in the U.S. ability to pay it back or at least pay the interest on the debt. Traditionally this has been other country’s reserve banks. This can only continue as long as people and nations are willing to buy US Dollar backed securities. This is growing harder over time and is not expected to change soon. In 2006, the central banks of Italy, Russia, Sweden, and the United Arab Emirates announced they would reduce their dollar holdings slightly, with Sweden moving from a 90% dollar-based foreign reserve to 85%.On May 20, 2007, Kuwait discontinued pegging its currency exclusively to the dollar. Syria made a similar announcement on June 4, 2007. In Europe, on the other hand, government deficit in the 15 countries now using the euro fell to 0.6 percent of GDP in 2007 from 1.3 percent in 2006 and debt declined to 66.3 percent from 68.4 percent. This makes Eurozone debt instruments far more attractive than similar US debt offerings.

I think the media is downplaying the economic news and talking in broad generalizations because most people are either too apathetic or just ill equipped to face head on the full ramifications of what is going on economically at this time. There is scary and depressing stuff going on and the fundamentals are not really changed by the media’s presentation. The media appearing pessimistic or optimistic about segments of the economy can speed or slow events to a small degree (self fulfilling prophecy style) but in the end, the fundamental facts don’t change and the corrections and losses continue on.

The Next President is in Trouble. Whoever is elected our next president is in for a economic crisis unlike anything in the last half century. By the time they are sworn in, this problem will have spread much farther around the world. I personally think the National Republican Party does not want to have McCain or any other Republican in office when this happens. For the GOP, a Democratic president is a win-win situation. Either the Democratic party president will man (or woman) up and make the tough and unpopular decisions to address the problems we are facing and as a result mitigate the worst of the symptoms, or they will go down in history as having presided over the second “Great Depression”. That will pave the way for the next round of “Change” in the form of a Republican president.

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Will Sig
1 Bob

Wow, scary stuff, I am watching CNN as I type, nothing has been said about the economy, just why Obama might be put in because of the race card, in fact I have heard nothing to speak of of any economic instability, the only time money came up is when they said Obama has greater financial backing, crazy.

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2 timethief

You know it’s surprising to hear that there is more discussion about the American recession in Canadian media than there is in the US media. My friends visiting from Oregon were glued to CBC when they were here just a week ago. They say that all economic concerns have been minimized or ignored south of the border. The race and woman card has been played over and over gain but when it comes to things that matter … nada is said.

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3 JD Thomas

timethief, the news is available here in the US but with the focus the US 24 hour news has on “personalities” over issues, it doesn’t get TV air time. I’m a big fan of NPR (National Public Radio) and at least the big stuff is covered there enough to point me off in the right direction for more details.

Normal network news, cable news, and talk radio feel they have to keep to things that can be at least a little bit sensationalized to hold onto their audience. They may be correct in that.

It’s sure much easier to attract people when you are reporting on whether a pop star is shopping bra-less or a politician is paying for hookers than it is to cover complex, constantly changing, economic news. When it comes to this stuff there are a few good economics blogs out there but London’s Financial Times and the Wall Street Journal ate more than up to the task of keeping people who want to be informed up to date.

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4 Ann

Very informative, I agree with what you state in your blog. The next president will their work cut out for them. Hopefully they will have a good support team to help them out!

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5 Swubird

I agree with most of the points made in the article. However, I don’t agree that the Republican Party wants a Democrat for President. Big John is probably the closest thing to a Democrat the Republicans are willing to stomach, and I’m not sure that the party is whole-heartedly behind him.

I don’t blame GW for our problems either. Bush has had it hard. Nine-eleven wasn’t his fault, and it wasn’t his fault that Saddam spent eleven years flipping his finger at the UN resolutions. Our strategic interests were at stake and Bush stepped up to the plate. It costs big bucks to conduct a war. Consequently, oil prices have sky-rocketed to well over a hundred dollars a barrel – good for for rebuilding Iraq, but not so good for American consumers at the pump. But good that our oil interests in the mid-East are secured, and we had better make sure it stays that way, or else Americans will learn mighty fast how the rest of the world lives. But not so good for inflation. With the prime rate low, and oil prices high, the cost of everything will spiral upwards to ???? – who knows?

The housing bust is the one area where I absolutely agree that the media is hyping our economic problems in the wrong direction. Houses weren’t artificially inflated to satisfy some fat cat in a bank – like the newspapers and TV would like us to believe. Prices went up to meet demand. Simple. Sellers stubbornly wanted more for their little piece of paradise, and buyers were more than willing to pay the price. That’s not artificial – it’s called FREE MARKET. Banks made the loans because they are in the busy of making loans. If they had done otherwise – they’d be out of business.

Now back to this issue of Republican vs. Democrat the next time around. If McCain gets the presidency – I think he’ll strive to keep interest rates low – but that won’t be possible because it’ll drive investors out of the money market sector. So he’ll probably raise taxes to cover his growing nut, and of course, give the liberals a bone with a few entitlements. But that’ll be a problem too. Because as taxes go up to match government spending – the dollar will lose even more ground. If Hilliary or Obama get the nod, they’ll screw up the thing even more than Big John, because they’re both driven by entitlements. Socialism. More and more taxes will taxes will drive us off the economic cliff into a free falling recession.

The bottom line is that it’s a bleak future we face. I for one, would like to see reduced spending in the mid-East, higher interest rates, tighter mortgage underwriting standards, reduced incentives for corporate CEO’s, more environmental controls, a strong military, funding for the space program, etc. My wish list goes on and on, and I’m sure I’m not alone. But I don’t exactly see how all of that is possible. Of course, not unless we’re willing to give up our economic power to the Eurodollar.

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6 Blink 182

I think “Great Depression” somewhere close. USA Economic falls rapidly. Future is not very good I think. I will change my money to euro.

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7 JD Thomas

Blink, I am not sure another Great Depression ala the last one is possible anymore. However, when it happened last time we had a world population of just over two billion people (2,070,000,000).

During that depression there was much displacement of people. People moved across the country in the US and there was a huge shuffling of people between urban and rural areas. At the time, the US and other parts of the world were sparsely populated enough to handle that kind of movement of economic refugees.

A year ago, in the middle of 2007 we had an estimated 6,602,224,175 people on earth. If large numbers of people do find themselves needing to migrate to survive we will see a very different dynamic.

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8 SortingHat

And trains no longer have *boxcars* you can hop on. They are all solid containers loaded from boats.

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9 Medical Oddities

Everyone is talking about the economy and how it’s failing. Personally, I think Ron Paul should have been in the election, he knows what he’s talking about unlike the other idiots.

Medical Odditiess last blog post..Liberty Medical Supplies

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10 del sur mortgages

I think media did downplay the economic trouble because the trouble with the housing crash was in the media but was not noted as the trouble it actually was until it was too late the crash happened which then affected the financial sector and everything went to pot in one big swoop which a lot of people did say could of been managed better.
.-= del sur mortgages´s last blog ..Interest-Only Or 50 Year Mortgages – Do They Really Make =-.

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11 anonymous

I think media did downplay the economic trouble because the trouble with the housing crash was in the media but was not noted as the trouble it actually was until it was too late the crash happened which then affected the financial sector and everything went to pot in one big swoop which a lot of people did say could of been managed better.

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12 kerwin

I agree…Its like having a credit card that’s maxed out and instead of paying it off, you ask for an increase in credit. Fundamentally you did not change anything. But in the surface it seems that you’re OK. But who are we kidding?

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13 Nate

This is all true and a great post. The only thing it ignores is the possibility that the next president could use the economic crisis as a way to strengthen their presidency. It says the next presidency will be in trouble if the economy collapses; however, there are martial law contingencies hidden within 4 decades of executive orders which can actually lead to a dictatorship if the economy collapses. Here are the executive orders that lead to this option for the next president:

EXECUTIVE ORDER 10990 allows the government to take over all modes of transportation and control of highways and seaports.

EXECUTIVE ORDER 10995 allows the government to seize and control the communication media. Additionally, the USA Patriot Act contains a Sedition Clause which prohibits anti-government speech while the nation is at war. This clause is not enforced at this time, at least publically.

EXECUTIVE ORDER 10997 allows the government to take over all electrical power, gas, petroleum, fuels and minerals.

EXECUTIVE ORDER 10998 allows the government to take over all food resources and farms.

EXECUTIVE ORDER 11000 allows the government to mobilize civilians into work brigades under government supervision.

EXECUTIVE ORDER 11001 allows the government to take over all health, education and welfare functions.

EXECUTIVE ORDER 11002 designates the Postmaster General to operate a national registration of all persons.

EXECUTIVE ORDER 11003 allows the government to take over all airports and aircraft, including commercial aircraft.

EXECUTIVE ORDER 11004 allows the Housing and Finance Authority to relocate communities, build new housing with public funds, designate areas to be abandoned, and establish new locations for populations.

EXECUTIVE ORDER 11005 allows the government to take over railroads, inland waterways and public storage facilities.

EXECUTIVE ORDER 11051 specifies the responsibility of the Office of Emergency Planning and gives authorization to put all Executive Orders into effect in times of increased international tensions and economic or financial crisis.

EXECUTIVE ORDER 11310 grants authority to the Department of Justice to enforce the plans set out in Executive Orders, to institute industrial support, to establish judicial and legislative liaison, to control all aliens, to operate penal and correctional institutions, and to advise and assist the President.

Without Congressional approval, the President has the power to transfer whole populations to any part of the country, the power to suspend the Press and to force a national registration of all persons.

The President has the power to suspend the Constitution and the Bill of Rights in a real or perceived emergency.

The term emergency has been expanded to included economic crisis as well as mob rebellion. So a new depression could lead the new president to take complete control and suspend the Constitution. Once the Constitution is suspended it will never be reenacted. Who gives up power after working so hard to acquire it?

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14 SortingHat

If you look past the One World Trade tower plane incident *which is what most people focus on* there is a lot of plot holes the size of Texas in the official belief and the fact they are willing to murder you if you speak out the truth speaks volumes so therefore nobody is willing to investigate further.

Do you think the victims would want to stop where we are or would they wish the investigation to the fullest extent possible?

There are entities at play we cannot even see or are allowed to know about that maneuver the chess pieces and we are just collateral damage to them in whatever financial/power trips they dream.

It will continue to happen until we declare we are one and this planet belongs to all of humanity. Nobody can claim it for themselves. You cannot own the water/skies and life.

Bush and Cheney were sock puppets since the powers to be knew they would easily be blamed and the attention shifted elsewhere.

Obama was planned straight from the get go if they couldn’t have a real democrat they would install a fake loony one that would set the stage up to blame a real Republican such as Trump.

They will pull the economic cards out from under him and let it all fall down.

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