Investment strategies in the current economy

The education bubble burst a long time ago. You either need an advanced degree or a degree in a hard science with an excellent GPA...all from an upper tier school.

Basically all of Europe. Their budgetary retrenchment is the absolute wrong strategy at the wrong time. Just like Hoover before the Depression. The worst thing you can do in times of economic down turn is trim government spending, must less trim it drastically like so many European countries are doing. It's a recipe for disaster on a huge scale. And to the extent that smaller countries are not participating, I think it would be hard from them to isolate their economies from the contagion. It's like they've completely forgotten the lessons of the Depression. If the Europeans think they have trouble paying off their debt now, let's see them try to do it with their GDP cut by a third or more. Originally Posted by TexTushHog

No, fiscal consolidation is exactly what European countries should do now. In fact, it's what they must do in view of their dire fiscal circumstances. Failing to make tough choices now would lead to far worse problems down the road.

Just look at the U.K. It's running a fiscal deficit of around 11%, even worse than ours. Continuing on that path would obviously lead to a real train wreck.

Germany, whose deficits are not nearly as bad as the U.K.'s, passed a constitutional amendment last year mandating the virtual elimination of its fiscal deficits within 5 years. Policymakers are forced to live within those limits. When the German finance minister says that his government is going to practice fiscal discipline, he really means it!

People who think that failure to spend enough money is what prolonged the Great Depression have no understanding of the issue. For one thing, Hoover increased government spending by almost 50% during the first three years of the Depression. He was a big-government interventionist who introduced all sorts of other destructive policy initiatives as well. It's amazing that some people still think he was some sort of laissez-faire conservative who stood by and did nothing while the depression ballooned out of control. The opposite is the case, and the problem was that most of what he did was very bad.

It's astonishing that so many historians (and for that matter, many economists) know nothing at all about economic history.

No, fiscal consolidation is exactly what European countries should do now. In fact, it's what they must do in view of their dire fiscal circumstances. Failing to make tough choices now would lead to far worse problems down the road.

Just look at the U.K. It's running a fiscal deficit of around 11%, even worse than ours. Continuing on that path would obviously lead to a real train wreck.

Germany, whose deficits are not nearly as bad as the U.K.'s, passed a constitutional amendment last year mandating the virtual elimination of its fiscal deficits within 5 years. Policymakers are forced to live within those limits. When the German finance minister says that his government is going to practice fiscal discipline, he really means it!

People who think that failure to spend enough money is what prolonged the Great Depression have no understanding of the issue. For one thing, Hoover increased government spending by almost 50% during the first three years of the Depression. He was a big-government interventionist who introduced all sorts of other destructive policy initiatives as well. It's amazing that some people still think he was some sort of laissez-faire conservative who stood by and did nothing while the depression ballooned out of control. The opposite is the case.

It's astonishing that so many historians (and for that matter, many economists) know nothing at all about economic history. Originally Posted by CaptainMidnight

I have to say, I generally agree with this statement.

The reason I asked you the question I did TTH is because from an investing POV it is pertinent to remember that whilst England is part of the European Union their base economy is not the Euro..it is the GBP still obviously. From an investment POV you can't lump them all together. It's more complicated than that.

I have looked in detail at the proposed budget cuts in England over the next 4 years and the only thing that really stands out as a major problem is the prposed increase of VAT (consumer goods tax) which is currently 17.5 %...and will be pushed up to 20%. A lot of the other proposed measures, such as increasing retirement age (to be more inline with life expectancy rates) and reducing the amount of time people came claim unemployment benefit to one year from forever (yes..forever) are long overdue. Some people are now going to have to get off their backside and actually work at McDonalds instead of sitting on their arse and eating it courtesy of the government. Refraining from giving handouts to EVERY parent with a child REGARDLESS of income is an action that is long overdue. The cap of 70K (meaning you only now get this is you earn <70K GBP is more than fair). A lot of these are simply lifestyle changes that are being reflected in the budget as cuts..and they should have been implemented a long time ago. What has forced the government to have such confidence in taking just drastic economic/fiscal action is the number of workers coming in to do these jobs from other (poorer) EU countries and actually building some kind of life for themselves. Like any country, England has it's fair share of hard workers...but also it's share of lazy bastards who feel entitled to live off the state. When you look at what they are cutting and where (and what they are re-investing in and where) you can see that it's not aimed to deprive the needy, but the parasites. Anyone who still contends that England is a socialist country needs to take a proper look at these proposed cuts which have "capitalism" written all over them. The socialists in England are in for a real shock.

C

The education bubble burst a long time ago. You either need an advanced degree or a degree in a hard science with an excellent GPA...all from an upper tier school. Originally Posted by gnadfly

In the US, yes.

http://www.bbc.co.uk/news/uk-politics-11570593
Harrier jump jets, the Navy's flagship HMS Ark Royal and planned Nimrod spy planes are to be axed and 42,000 MoD and armed forces jobs cut by 2015.
Unveiling the strategic defence review, PM David Cameron said defence spending would fall by 8% over four years.

Never said that was the case WTF..but look at where they are re-investing that money.

The military has a significant amount of un/underused equipment. Trim the fat. Good.
At least temporarily use some of that money (and probably some of those soon to be ex-mod employees) in counter intelliegence and UK security. Sounds reasonable to me.

No, fiscal consolidation is exactly what European countries should do now. In fact, it's what they must do in view of their dire fiscal circumstances. Failing to make tough choices now would lead to far worse problems down the road.

Just look at the U.K. It's running a fiscal deficit of around 11%, even worse than ours. Continuing on that path would obviously lead to a real train wreck.

Germany, whose deficits are not nearly as bad as the U.K.'s, passed a constitutional amendment last year mandating the virtual elimination of its fiscal deficits within 5 years. Policymakers are forced to live within those limits. When the German finance minister says that his government is going to practice fiscal discipline, he really means it!

People who think that failure to spend enough money is what prolonged the Great Depression have no understanding of the issue. For one thing, Hoover increased government spending by almost 50% during the first three years of the Depression. He was a big-government interventionist who introduced all sorts of other destructive policy initiatives as well. It's amazing that some people still think he was some sort of laissez-faire conservative who stood by and did nothing while the depression ballooned out of control. The opposite is the case, and the problem was that most of what he did was very bad.

It's astonishing that so many historians (and for that matter, many economists) know nothing at all about economic history. Originally Posted by CaptainMidnight

Perhaps you should reread Keynes. Cutting spending by the single biggest spender during a liquidity trap induced recession is suicide. The kind of spending cut idiocy you endorse is what caused the recession of 1937-38 (the foolishness of Richard Vedder and Amity Shales not withstanding). Enjoy the ride down.

Bravo! Exactly the conversation I wanted to induce. Thanks for all the input.
Lots to chew on.

Never said that was the case WTF..but look at where they are re-investing that money.

The military has a significant amount of un/underused equipment. Trim the fat. Good.
At least temporarily use some of that money (and probably some of those soon to be ex-mod employees) in counter intelliegence and UK security. Sounds reasonable to me. Originally Posted by Camille

My point was that in this country people that want to cut govt spending always exempt Defense. If you are serious , like England appears, then you cut the fat from EVERYTHING.

What England appears to be doing is hunkering down to be defensive in their own country. They are pulling troops from countries they feel they can no longer afford to have a presence in. Exactly what we need to do in this country.

The English are cutting welfare for the Defense industry just as they are cutting welfare for the lazy bastards of which you spoke. Good for them to reconize both! That was what I was pointing out. I was not trying to say you said something you did not. I was only expanding on what England was doing so my fellow right leaning Americans would not get confused!

Perhaps you should reread Keynes. Cutting spending by the single biggest spender during a liquidity trap induced recession is suicide. The kind of spending cut idiocy you endorse is what caused the recession of 1937-38 (the foolishness of Richard Vedder and Amity Shales not withstanding). Enjoy the ride down. Originally Posted by TexTushHog

Keynes never advocated fiscal surges in the presence of already-large structural deficits. In fact, he was quite specific on that issue, insisting that budgets be in balance or even in surplus during good times so that governments could afford to engage in countercyclical spending in order to mitigate the severity of downturns. Keynes would probably roll over in his grave if he could see the sort of irresponsibility invoked in his name.

Spending cut "idiocy" had little to do with the 1937-38 downturn. That's what gets taught in many of our universities by left-wing professors, but it's complete nonsense. In the first place, the cuts actually put in place were quite miniscule. Several other factors caused that secondary downturn. The Federal Reserve tightened the money supply (by way of large bank reserve requirements) in 1936-37. There were big tax increases on high incomes and undistributed corporate profits as the New Dealers railed against what they called the "princes of greed." Compulsory unionization ran amok, driving up wages and keeping the unemployment rate extremely high. It should have come as a surprise to no one that a lot of capital decided to take an extended vacation, just as it's doing now in response to anti-growth economic policy in the U.S. Paul Krugman will not tell you any of this, since it does not fit in with his narrative that you need massive increases in government spending in order to blast out of recessions.

If you do decide to follow Krugman's prescription, just look what happens. Japan had a horrific asset bubble burst about 20 years ago. It failed to stimulate its economy with monetary policy when it bumped up against the zero bound. The government tried surge after surge of "stimulus" spending, tripling its debt/GDP ratio and running it up to almost 200%. It didn't work. The Japanese economy has been mired in stagnation for many years. Japan's experience has been called the "Lost Decade", although now they're finishing two decades of stagnation. That could be where we're headed if we don't change course.

By contrast, look at the severe recession of 1920-21 in the U.S., which followed the boom & bust of the teens. Industrial production dropped off a cliff and the stock market fell precipitously. Year-over-year price deflation is estimated to have been as high as 15%. The downturn was actually worse than the first year of the Great Depression. Government responded by cutting taxes and cutting spending, and quite dramatically. The economy recovered quickly and robustly.

Yes, there are plenty of lessons to be learned from the Great Depression, but unfortunately they are not the ones being taught. We all suffer from the fact that no one ever seems to learn from economic history, even historians and economists -- who obviously should know better.

Britain is doing exactly what it should be doing -- indeed, what it must be doing. I don't hold out much hope that we're going to do anything similar anytime soon, at least not until forced, but it's what we must do -- since the alternative is so much worse. We need to cut everything across-the-board. Everything means everything. There can be no sacred cows. That's what the U.K.'s government is doing, and it's obviously politically tough. I applaud them for it.

If we stay the course in the U.S., I'm afraid we'll find that we have been building a bridge to the next bust, not to a more prosperous future. You can't just run trillion-dollar deficits forever without a credible plan for doing anything about them.

Unfortunately, fiscal and currency crises are not kind enough to announce their arrival a couple of years in advance so that you can get your house in order.

Bravo! Exactly the conversation I wanted to induce. Thanks for all the input.
Lots to chew on. Originally Posted by ClairJordan

Here's a great book and he has an even better blog

http://www.amazon.com/Postcatastroph.../dp/1591842638


Hopefully RK has read it since he seems to be in charge of fixing our banking system!

The reason I asked you the question I did TTH is because from an investing POV it is pertinent to remember that whilst England is part of the European Union their base economy is not the Euro..it is the GBP still obviously. From an investment POV you can't lump them all together. It's more complicated than that. Originally Posted by Camille

Word! Even with in the Euro-zone it makes little sense not to evaluate the economic situation of each member country individually.

First, I think you want to get out of European assets in fairly short order. Europe is headed for the a Depression, Originally Posted by TexTushHog

I disagree. The situation in Europe is quite different from country to country.

Plus there are certain factors that are beyond control of Europe and Russia. esp. since the US as well as China run the printing press like crazy and flush the markets with currency.

My point was that in this country people that want to cut govt spending always exempt Defense. If you are serious , like England appears, then you cut the fat from EVERYTHING.

What England appears to be doing is hunkering down to be defensive in their own country. They are pulling troops from countries they feel they can no longer afford to have a presence in. Exactly what we need to do in this country.

The English are cutting welfare for the Defense industry just as they are cutting welfare for the lazy bastards of which you spoke. Good for them to reconize both! That was what I was pointing out. I was not trying to say you said something you did not. I was only expanding on what England was doing so my fellow right leaning Americans would not get confused! Originally Posted by WTF

Ah ok. I didn't get that at all from your post, my apologies.
Your point about pulling troops is exactly what they are doing.
It's also worth noting the the UK military is, and has been, under staffed for a long time. I believe it was 2000 when they were so desperate for new recruits that they had to higher the age limits in several areas to aid recruitment. In some parts of the military we have more resources than people. What's the point in having planes that are grounded because we don't have enough pilots/engineers? These budget cuts are probably the most logical ones I have seen England implement in a long time. My concern is that it's a huge amount of change in a very short space of time. I'm not sure how the country will react to such a radical overhaul. At the same time, I'm not sure what other choices were left given the state of the economy. It's a bit of mess really for everyone...

One of the first things I looked at in the cuts is where the 490k job losses are going to be..and where re-investment is going to be. It's not clear if the job losses are after cuts and before re-investment..or after both but if it's the former the losses will be much less as the NHS/benefit fraud/intelligence services are getting a significant injection of cash whilst some are getting with new directives that change the way they work. Simply put, at worst, some government jobs will be re-distributed. The current unemployment rate in England is 7.8%..it will be interesting to see how that changes over the same 4 year period.

C xx

Yes we have seen a deceleration in growth, but less so at the industrial than the consumer level. Construction of new buildings throughout the rest of world has and will continue to amble along. Steel prices in the rest of the world are about 15 percent more than the US. Given that the U.S. imports 20 percent of its steel every year, the US can't produce enough to satisfy domestic demand even in a recession. So if steel prices in the U.S. are below the rest of the world, why would anyone export to the US? They wouldn't. Domestic steel prices are going to have to be taken a lot higher. On top of that, US inventories are at a 10-year low which means that if demand does begin to spike inventories will have to be built. Either way, Steel looks like an investment worthy of consideration...no?

C