This article from submission sitting in sub-q on Plastic was published on Sunday and says "S.& P. recently raised the odds of a recession this year to 50 percent. It predicted that the Fed would cut the federal funds rate, the key interest rate under its control, to 3.5 percent by this summer, from 4.25 percent now." Admittedly, "by this summer" does not mean in between regular meetings on Tuesday morning in mid-January, so maybe you really were "genius". And article didn't mention possibility of another quarter or half percent cut by next regular meeting on 29 January (next Tuesday) either, as plenty of analysts have speculated since Bernanke's 0.75% cut.

So I take it back. You really qualify as genius. I get accused of worse plagiarism regularly.

I am very fiscally prudent.  I am however probably about a year of unemployment away from bankruptcy if I can't sell my condo for a reasonable price.  Also, if unemployed, my expendable income drops to 0 overnight - no new car, no trips to Costco, etc...  If people like me become unemployed, Costco will go bankrupt, and the remnants of the auto industry will merge into a single company before they are bought out by an Asian automaker.

As for those "off-shore" casinos.  Who do you think their patrons are?  Punters in the US.

Those who think this recession is going to be somehow limited to financials and the housing sector have their head in the sand.  Anything that affects the financial sector so adversely is going to have an affect on the overall economy, as these are the folks that provide the money that finances just about every other economic activity in the US.  Also, ever notice what percentage of web advertising was for mortgage based products?  Yahoo just announced significant layoffs.

As for foreigners rushing to bail us out.  Have you checked the current account deficit at all the last decade?  Foreigners have been lending us money to buy their shit for a long time.  I see no reason why they would continue to do so.  We've already hocked every conceivable piece of collateral - and don't you think that at some point the US government is going to balk at an outright buyout of our entire financial sector?

There is another way out - the way the Fed picked this morning.  Inflation.  They turned the printing presses all the way up to 11, and lowered the Federal funds rate 3/4 of a percentage point.  Debt repudiation by inflation.  Hell, after a decade of double digit inflation, that $750k suburban manse will probably actually be worth it's asking price.

I don't think you and I disagree how much of a debt hole the country is in. However much of that debt won't become critical for a decade or so yet. There is still gas in the American engine.

Addressing your points in turn:

1. Unemployment rates are not at the level which would even begin to presage a great depression style collapse. Gucci might go out of business but its unlikely that Costco will. Consumers will still purchase staples regardless of economic crisis.

2. As to the so-called offshore casinos, with the passage of UIGEA, very few casino patrons are Americans as there is no way for Americans to deposit/get their cash. Most online casinos now have patrons in europe (those run out of Ireland) and in China (those run out of hong kong). Mah-Jong as an example is a bigger market than all of US gambling.

3. Yahoo has indeed announced layoffs, but Google on the other hand is still hiring. The failure of one 'brand' web company doesn't mean that online businesses are suddenly unprofitable.

4. There is a difference between foreign banks lending us money (by buying US dollars) and foreign corporations buying assets like golf courses/businesses etc. I guarantee that over the next 18 months business stories are going to start running about the furriners buying up America. The era of the dollar as a safe haven is over, now its time to start selling some metaphorical national forests.

5. You are absolutely on the ball that the Fed has just given a little juice to inflation fears. Then again -- this is part of the reason I've moved abroad, after all they can only cut rates down 0...and then they are out-of-ammo. But we're a long way from 0 and a multi-trillion economy does not evaporate overnight.

Memory is a strange bell, jubilee and knell.

Have you been to a Costco lately?  Sure I buy coffee and other staples there, but at least half of their inventory is higher end products that are reasonably priced - things that most people can do without or find cheaper replacements for.  And I guarantee you those higher end products are where most of their margin is.  Do you think they make any money on a $6/3lbs bag of coffee?

I know unemployment is still low, but how long can that continue in the face of layoff announcement after layoff announcement?  Money is still tight.  Businesses are finding it hard to borrow, expansion plans are out the window, and as consumption shrinks (there are already indications of this) layoffs will be soon to follow.

As for Google, it's still sitting on a cash hoard from it's IPO and advertising revenues from the real estate industry.  Yahoo is the canary in the coal mine.  If there is a significant downturn, Google's ad revenues could vanish overnight.   Advertising budgets are the first to be cut.

I haven't owned Costco financial statements in a while, but the last time I checked the chunk of their profits came not from the sale of goods but from their membership fees. My perspective is that people will buy at wharehouse clubs even more because the deals they get their are better than at regular stores.

The CitiBank 20k+ layoff is going to hurt a lot of families so I'm not belittling the unemployment risk. What I'm saying is that right now..not six months from now, but right now unemployment is contained and inflation is relatively low. We can afford to see a few percentage spikes in these figures before having to stock up on guns and ammo.

I think we both agree that the US is facing a serious, critical crisis in its economy. The question is how to react to it? The congress is talking about printing cash and the Fed the same. This is going to devalue the currency no doubt, but should get us over the near term hump. Come 2012 or so when Social Security/Medicare is about all the government can pay for, THEN you might as well run for the hills.

Personally as long as there isn't a 9/11 type event, I'm confident in the ability of the general marketplace to sort through this crisis -- the same way it has others.

Memory is a strange bell, jubilee and knell.

"but the last time I checked the chunk of their profits came not from the sale of goods but from their membership fees."

That's been my feeling as well.  I've looked into Costco , Sam's Club (owned by friendly folks that gave us WalMart), and a couple of others.  As a single consumer, I can't justify the "membership" fee.  The local stores will do for now.

there's only one way to find out...

As a BJ's (heh heh) member, I can say the savings are somewhat worthwhile if you play it right. We go once every 2-3 months, and stock up on an absurd amount of things need that store for a long time. When you couple that with their instant rebates and in store coupons you usually come out ahead on what you spent with the membership fee. Especially if you make your last trip just before your membership lapses and refuse to renew at the register, since you go only every 3 months it really helps out. Plus, 30-60 days later you'll get a series of whiny letters, culminating in certificates good for $10-20 off if you come back for a year. Half off membership, BAM!

Also, I usually get free stuff 50% of the time from idiots who leave large, non-perishable items underneath their carts and return the carts to the corral. This weekend it was a 48 pack of ½ liter bottles of Green tea of some kind. I don't like it, but I took it anyway.

Spread it on!

Fed learned something from Great Depression. Trying to get out of liquidity crisis by being fiscally responsible/conservative resembles trying to get out of anorexia problem by eating less. They won't make that mistake again, as both Hoover and Roosevelt did. But natural result of flooding market with liquidity will either be inflation, as you project, or Fed (or central government) will have to come up with new way to direct substantial portion of that new liquidity into small business sector that would be capable of using it to create new business activity or to poor people who would reliably spend it, thereby creating new business activity. But they have either never wanted to do this before or have never been able to figure out how to do this before, and Bush has predictably been insisting that any "economic stimulus" should go to those who need it least (those who "pay taxes" rather than those 44 million who make too little money to pay taxes or who have retired and don't pay taxes), continuing to pursue his "top down" economic religion, so chances that economy will improve much structurally under Bush's watch can be compared to chances of heroin addict to kick his habit while quarter pound of smack sits in his drawer.

"I am however probably about a year of unemployment away from bankruptcy"

I feel for you there, pal.  I've been unemployed (voluntarily) for 5 years now.  I did a fairly good job of stashing away a few bucks (best advice my dad ever gave me) and my house was paid for several years ago.  

I've still got taxes, utilities, food, etc., to deal with.  Health insurance is another matter.

Don't worry about it.  At one point or another we all have to pull ourselves up by the bootstraps, but then we go on living.

there's only one way to find out...

Well, I don't know that I need sympathy - I'll probably pull through just fine even if there is a serious economic downturn - especially if there is significant inflation.  I could stand to see my wife's school debt, and our mortgage debt decrease in real dollars.  I guess my point was that I am particularly conservative when it comes to personal finance, much more so than the average American - but if I am unemployed for a significant amount of time, I stop spending on extras, period - and after about a year, the reserves will be mostly gone.  How much more screwed is the average American - even high earners?

Now if the US Gov't gave me a break on cashing out my 401k - I might be able to last quite awhile.  Social security will be there for me, won't it?  :)

Personally, I'm cheering for the oddly dressed trannys.

It is easy to buy small plaster models of what you think life is like.

The whole Chinese pull the rug out on the American economy is well overblown. There comes a point when someone is so dependent on you that you become nearly as inextricably dependent on them. If Americans can't afford Chinese goods, the Chinese economy won't be able to sustain itself. Beyond that, the sort of inflation pressure a massive rug pull would have on the Chinese economy would allow every mill-working family in China to buy a house in the Hollywood Hills. That sort of political power swing is untenable to the Chinese government and they're well aware of such a fact.

That point made, medicade/care/social security are very legitimate threats to US economic growth. However, we have a fantastic example of what happens in the case of an aging population supported by a socialist state on the backs of a smaller working youthful population--Europe. The thing is, there's one simple solution that will work in America that Europe will simply never contemplate--grant citizenship to the Mexicans. The only impediment to the support of an aging population is a larger young population. This is very solvable from an American perspective and something America is very open to on a general basis.

I absolutely share a lot of your concerns about the health of the American economy on a short term basis, especially regarding the retirement of the baby boom generation. I don't think there's anything to indicate, though, that America's economic systems will wholesale fall asleep at the wheel as was the case during the 1930's.

It is easy to buy small plaster models of what you think life is like.

In regard to the idea that China will never discard their best customers, its worth noting that the USA while a major trade partner with China, does not represent the majority of China's export market. As nations like Russia, India and Canada develops, the need to prop up the US economy in order to support trade declines. Russia by itself has the capability to completely absorb the "US" portion of Chinese export.

In the end as China economy develops, the yuan will be de-pegged from the US dollar.
Once this happens, market forces will dictate a significant rise in the cost of chinese goods in the American market (what with the American dollar not worth much).

As to the idea of giving citizenship to mexican citizens -- its important to recognize that while immigrants are an integral part of the economy, only 2nd or 3rd generation immigrations become high wage or middle class earners. The top 10% of income earners pay for near 90% of revenue acquired from income tax. The solution of giving citizenship to immigrants is akin to saying "we'll use model-t's to race at Daytona". Our educational/financial/healthcare system is simply incapable of processing these people into first-world knowledge workers while meeting the needs of retiring Americans. Poor people don't pay tax (in amounts that matter).

As I've said - the problem is structural. There is no 'buying our way out' - the American economy WILL crash in decades to come.

Memory is a strange bell, jubilee and knell.

As nations like Russia, India and Canada develops

As a Canadian, I totally can't wait for this day.

Also, where do the 5-1 Debt to GDP ratio come from?  I thought it was around 2/3.  Although the US was dumb to be running deficits in boom times, I don't see this as anywhere near the danger as the looming banking crisis.

These things:

   1. There will come a point in the next few decades where the USA will default on its debt obligations unable/politically unwilling to raise taxes to meet revenue needs.
   2. There will come a point where Medicaid/care+Social Security obligations exceeds greater than 90% of federal tax revenue and still those obligations cannot be met.
   3. There will come a point where the Chinese Yuan has been repriced causing a 200-500% spike in the cost of all chinese made goods.
   4. The above 3 points is what i mean by collapse and will cause...

or a resurgence in manufacturing and skilled labor jobs in the US (especially #3). Just throwing out what the "Good Guys Win, Bad Guys Lose, and as always the USA prevails" crowd is going to claim follows from your suppositions. Not that I believe that.

Spread it on!

Considering that a collapse of this degree hasn't happened since the Great Depression (and, if I'm reading you right, you see this as being even worse than the G.D.) doesn't this picture strike you as somewhat alarmist? Nobody wants the US to collapse that badly - it would wreck the world economy just as much, after all. Wouldn't it be much more likely that the Rest of the World (TM) would put together some sort of IMF-based rescue package (ah, the cold irony of the US accepting an IMF rescue package...) than that they would allow things to go that far south? I foresee a far more likely result of some kind of stagflation reminiscent of the 1970s (although perhaps worse), more than the absolute disaster you seem to be proposing.

Ce n'est pas une pipe. C'est une signature.

American GDP is something close to 3t/Year. The national debt is 8t+ (closer to 9 than 8) and growing by a couple billion a day. This figure doesn't include our future debt obligation (from social security + medicare) which is around 53t.

Government assets (national forests etc) are worth maybe 10t if we sold it.

Bottomline: We are running a debt-to-GDP ratio of greater than 5-1. Thats third world country debt levels. More importantly, to put it in practical terms, if you have so much debt that you can't even pay into the principal even if you directed ALL your GDP into paying the debt, you are structurally doomed to bankruptcy.

Right now we are using our 3T gdp to pay the interest on the 8t debt. This is fine and dandy but when the obligations for Social Security and Medicare start kicking in, that same 3t is going to be required to pay for that too.

There simply isn't enough GDP (even if you used figured like 10% GDP growth YoY) to support paying for these programs.

Memory is a strange bell, jubilee and knell.

American GDP is something close to 3t/Year.

You mean 13T/year, yes?

You mean 13T/year, yes?

Laugh. Yes my bad.

Memory is a strange bell, jubilee and knell.