I went to Sweden on business several times in 1994-96. Things seemed quite good. The main complaint the Swedes had was the 4-5 hours of daylight in winter.
It will be bad, but predicting the timing is hard. There are a lot of forces exerting a lot of energy trying to keep everything afloat. Reading this blog for 3 years now, people were expecting what we are going through now to manifest to last year... when will our economy start acting rational again?
'90/'91 recession, combined with a decrease in defense spending (that hit California especially hard).
Since this is the second time you've mentioned it, my two cents. California was punished for things like helping to win the cold war. By then CA was no longer a contested Presidential state. With no reason to court the state the Federal government embarked on a planned stripping of the people. Only once in the last 19 years has CA come close to breaking even on the balance of payments with D.C. Some years getting as little as 78¢ back for every dollar extracted.
There's a lot more than just two bubbles at work here. 1) Housing 2) Credit/Debt 3) Finance/M&A 4) Currency/Fiat 5) Derivatives 6) Boomers 7) Consumption 8) Cheap, plentiful energy 9) Government 10) and on, and on, and on...
What you're missing, CR, is how the on-demand service economy changes the definitions of employment and unemployment.
You get hired by Starbucks and they say: "Call in Sunday night to get your hours." They give you 23 hours.
The next Sunday night, business is bad and they give you 18. Then, 12 and 9.
When do you become unemployed? You don't. You get another crummy part-time job to fill in the gaps. And you go from one crummy part-time, iffy, on-demand job to another.
It's all designed to minimize benefit accruals and unemployment insurance impact. You never actually qualify for benefits or unemployment.
It's a different economy. Sweden doesn't have it, and nobody else does. They are where we were 25 years ago. We are the world's first giant on-demand service economy.
the 90-91 era the country was more manufacturing driven then today's service driven economy. The employment issue could play out differently this time given our changing employment landscape.
Also the Housing bust of the late 80's was centered in the Southwest while today's credit bubble induced housing crisis is national and not so easy to create a corral to contain the problem.
rich, I can't disagree since I've made that argument myself several times. But I don't think losing hours a week is comparable to being unemployed. Actually this is one of the areas that I'm interested in seeing how it plays out (less of an increase in unemployment, more underemployment).
mp, OK, if Conjure Bag says so - and I agree, the employment dynamic has changed. I think the economy is constantly changing and in general that is a good thing.
In 1985, the SAP deregulated the credit market. This, in combination with the excess profits created by the devaluation's, led to an orgy of reckless corporate borrowing and speculation in real-estate and stocks. When the bubble burst in 1990, all that remained was financial disaster (worsened by deflationary policies). Between 1988 and 1992, the total credit losses of Swedish banks and financial companies amounted to a staggering Skr 153 billion..
KINDA like where the US is now.
Frightening as I lived there, then. A truly wild time.
Is employment as big a problem as loss of say 400-600 billion a year of MEW? Which I estimate is equivalent to 10-15 million 40000 dollar a year jobs. This is about to be gone and ain't coming back. This would equate to 20-30% unemploymant.
Rich - If your hours change from 35 hours to 20 hours, you can get unemployment benefits in California. (There's some kind of sliding scale for partial employment). I know people who apply and get those benefits.
I'm pretty sure it shows up in the statistics as a "new filing."
What most dont look at that this recession/depression will mark the formal beginning of a secular shift of wealth from the West to the East. The simple fact is that the premium for American and G7 labor commands is simply not sustainable over the long term. Combined with ever increasing levels of automation, human labor is increasingly commoditized at ever higher levels of skill. The schools in the East may not match schools in the West but they are clearly catching up at very fast pace.
This development has been masked by the credit bubble and resultant financial economy over the past 25 years but especially since the dot com era. Given the fact that competitive infrastructure is now being built much faster in the East and that automation/machine dependent productivity is commoditized through easy and low cost availability of computer systems, the G7 edge in productivity is bound to vanish likely within the next decade. Salaries are not even close to reflecting such a reality.
I therefore dont expect this to be a short blip but part of a long and highly unpleasant adjustment of the standards of living in the West. Due to an ever growing competitive labor pool combined with ever increasing computing intelligence, real labor costs are bound to adjust downward for the foreseeable future.
The present problems are not of an apocalyptic nature but should mark the peak of Western economies and Western standards of living for a long time to come. I dont see how such an adjustment can happen without significant social unrest over time. Wars for economic reasons are not out of the question as Iraq amply demonstrates.
I wonder if things will play out differently. Admittedly we've exported a fair number of jobs. I think that affects things in two ways. One, I suspect that the 'desired' participation rate is lower than measured. Meaning more people would like to work, but can't because of opportunities and such. So I wonder if unemployment is actually higher.
Two, I think we're exporting our real unemployment. This is probably happening now - this is the benefit (for the US) of exporting those jobs and outsourcing. In a downturn, many Chinese are out of work, but it's not felt that way here in the US.
So I think there's a good chance of a very severe recession, with fairly high employment rate. Add in the need of households to shore up finances via increased savings, and it seems unlikely (to me) that this will be a small recessio
I am baffled why this topic doesnt get a lot more attention but as alluded to in my post, during bubbles everybody ignores unpleasant realities that havent yet clearly manifested themselves.
"My view was the S&L crisis didn't cause the '90/'91 recession"
Then this implies that you don't believe Greenspan's rate cuts after 2001 caused the current RE bubble, then, because what we're experiencing right now is almost a duplication of the S&L crisis, except on a much larger scale.
I recall that in late August of 1992 that the SEK-to-dollar ratio was about five to one -- that was when I was offered my postdoc at a university in Sweden.
After I accepted the modest but doable offer in early September as enough to cover my dollar-denominated student loan payments, the currency crashed, on its way to eight to one. It's around 6.5 these days.
California is in recession 6.1%
MI is in severe recession 7.6%
Nevada is in R 5.8% (skyrocketing)
Ohio is in R 6.0%
Rhode Island is R 5.5% (skyrocketing)
Broward Horne, I'm not sure what your point is. The entire sentence was:
My view was the S&L crisis didn't cause the '90/'91 recession, but I do think it left the economy susceptible to a downturn.
Maybe I'm wrong - no problem.
As far as my views on the causes of the housing bubble, I've detailed those many times - and the rate cuts clearly played a role - but there were other factors too.
Michigan is an absolute tragedy. Three weeks ago I was offered a fully-equipped 10,000 sq. ft. machine shop--including the building--for $50,000 by a tearful owner. He had been doing work for the auto manufacturers. I turned him down.
Only once in the last 19 years has CA come close to breaking even on the balance of payments with D.C. Some years getting as little as 78¢ back for every dollar extracted.
Rob Dawg | Homepage | 02.08.08 - 9:45 pm | #
CA is not alone in that respect, NY, CT, NJ also regularly pay far more in than they get out of DC, oddly the states that are the reddest and most likly to rail against high domestic spending are the ones who always get far more back from DC
The Swedish case has always been my best guess for how things would turn out here - massive debt bubble when companies borrowed too much and a huge housing bubble that collapsed.
Several very tough years followed as consumers raised their savings rate by several percentage points while housing prices crashed - many homeowners left upside down.
Then again, we'd probably be lucky if we got off so easy - the bubble's far bigger now then just a Scandinavian sideshow. A couple of years later, and Sweden resumed its normal role as a wonderful place to live (for those of us who enjoy snow).
Household debt is now at $13T, disposable personal income (DPI) is at $10T, a ratio of 130%.
Back when this mess started (personal consumption and borrowing started taking off in '81), household debt was $1.5T and DPI was $2.2T, a ratio of 67%.
One's household debt is someone else's bond. Either the borrower cuts consumption to repay his debt or the lender writes down his bond and cuts his consumption.
We have excess consumption/excess debt of $7-10T to repay or write off. Do that over five years, and that is 10-15% of GDP --> big time unemployment.
We have a depression coming: either some people are going to repay their $7-10T debt or other people are going to write down their assets by the same amount. I don't know which is going to happen, but both have the same effect --> death blow to consumption.
mp writes:
RE- "I am baffled why this topic doesnt get a lot more attention..."
Why upset the masses with "unpleasant realities?"
mp | 02.08.08 - 10:55 pm | #
I am going to guess it is easier to say "All the jobs went to China". I follow the automation of industry with amazment.
IH has a engine plant outside Indy. At one time they employed 2700. In one fell swoop a few years ago they shut down and automated. 2100 jobs gone. None went to China. My cousin just helped his company move a decent size facility BACK from China. 150 approx employees reduced to 20.
Christ how many people have ever seen the inside of a fully automated storage warehouse...sight to behold.
As computing power increases and electronics get cheaper and cheaper this is going to accelerate...
In broad strokes, the parallels are alarming. After a long boom, the Japanese economy in the 1990s, as Americas today, was jolted by a sharp plunge in the real estate market.
In Tokyo, the government bankers and policy makers were slow to recognize the scope of the problem. Bad loans piled up. The financial troubles rippled through the economy as consumer spending and job growth fell.
I think there are a lot more similarities than people are willing to admit, said Clyde V. Prestowitz, president of the Economic Strategy Institute, a Washington-based policy research organization that has long promoted American industry.
The American economy is very fragile now, said Mr. Prestowitz, who was a trade negotiator with Japan in the Reagan administration.
Good to see NYTimes talking about the Japan experience. Time will tell how similar things will be (esp. California vs Japan).
Since unemployment raises its ugly head again, let me again mention that like for like measures are important - across time and across geographies. Please, use the BLS U6 measure of unemployment, not their headline one. Here is a link: Table A-12. Alternative measures of labor underutilization
Look at the last row. U3 is the headline number - U6 is much more akin to the metric used in Europe. Its also a much more honest number IMO - anybody know when they switched to using U3 and not U6 in the USA ?
sportsfan- "How can a fully equipped machine shop not be worth $5/sf?"
Sportsfan, you have absolutely no idea of how BAD things are in Michigan right now. It is truly a depression there, and it's getting WORSE.
Also, the market for machine tools is collapsing. Many perfectly serviceable machines, eg, lathes, screw machines, horizontal and vertical mills, are being sold for scrap because of the cost of hiring riggers to move them.
yes mp this is very sad, even at 10K the
house will not be sold because the area has no future, the bubble just killed this state. Also lots of them are blue collars who worked hard their entire life.
The state was already weak like OH the bubble was the last straw
There was a housing bubble in the late '80s that also contributed to the '90/'91 recession, combined with a decrease in defense spending (that hit California especially hard). Recessions usually have multiple causes.
CR, the length and depth of recessions often have multiple perspectives, too.
In my part of California both the local economy and RE prices continued to fall until 1996. It was a '90-'96 recession.
It still took a couple years after that to recover and eventually, of course, there was a RE boom here as elsewhere.
A major factor in the '90s was the closing of a local military base (which was a significant part of the local economy). A related factor was that the personnel were all sent to the Gulf War at the end of 1989 and never returned so, while the base didn't officially close for a few years, it was in essence deserted.
Defense spending cuts take various forms, not all of which are as official or as dramatic as closing the Lockheed Skunk Works.
Adding to the problems enumerated by tj&the bear, does anyone remember a large part of the collapse in the Soviet Union had to do with a capital-draining war in a country called Afghanistan? And now we have two of those, with a third threatening, plus a never-ending "war on terror", plus "star wars" technology, plus replacement of deteriorated military resources, etc., etc..
A budget of 1/3 of all federal spending--and much more than the spent by the remainder of the world.
Another 100 years for McCain? We'll be lucky if we can afford one more year.
Unemployment will be less than in past bad downturns, simple demographics. In the last 2 bad downturns, 74-75 and 80-83 (NBER counts 80-83 as 2 seperate recessions, but consider them together) the workforce was growing at an increadible rate. Baby boomers were entering the workforce and women dramatically increased their participation. Now the boomers are starting to head out to pasture, and the participation rate of women is almost as high as for men, not likely to rise much more. Thus in good times we had unemployment of 6%+ and we would head towards double digits when things got rough. Thus the relatively low unemployment rate of the just ending expansion was not all that impressive 9and to a lesser extent nor was the ultra low unemployment rate of the late Clinton years. Given current demographics an unemployment rate of 7.5% would be a very, very severe recession. Note that the official unemployment rate did not go up that high in the last recession. yeah this recession will be at least as bad as 74 or 82, you just will not see it as much in the unemployment rate.
As computing power increases and electronics get cheaper and cheaper this is going to accelerate... "
The double whammy is that even developing countries, for competitive reasons, now have to and can compete on the automation front. This drives down or at least limits increases in labor costs in countries such as China and India resulting in even higher pressure on labor in the developed nations.
I've never heard of anything like that.
sportsfan | 02.08.08 - 11:25 pm | #
I know where two are at right now in Ohio. Closed up with no work. The owners are paying the taxes but I have no idea how long they plan to try and hold out...
The heck with Congress big stimulus bill. The way to get the country out of recession and most people think were in one is to get the country out of Iraq, according to an Associated Press-Ipsos poll.
[J]ust 19 percent of the people surveyed said they planned to go out and spend the money [from the rebate checks in the economic stimulus package]; 45 percent said theyd use it to pay bills. And nearly half said what the government really should do is get out of Iraq.
Forty-eight percent said a pullout would help fix the countrys economic problems a great deal, and an additional 20 percent said it would help at least somewhat. Some 43 percent said increasing government spending on health care, education and housing programs would help a great deal; 36 percent said cutting taxes.
You're right. I have no idea how bad things are in Michigan right now.
I'm actually stunned to think that "perfectly serviceable machines" are being sold for scrap. That's our tool making base. That's equivalent to eating our seed corn.
I understand machinery is expensive to move and store, but at $5/ft for the building, there's no moving and the storage is a one time payment.
Son of mp, for example, told me of an auction last week at a manufacturing facility in Tennessee. Two late-model machining centers, both less than three years old, sold for $1,000. They were $1 million+ machines when new. Two storage cabinets were sold for $100 each. The cabinets couldn't be opened because the auctioneer didn't have the keys. After sale, the cabinets were broken into and found to contain $970,000 worth of new carbide tooling.
None of the geniuses who run the S&P 500 want to be involved in manufacturing. There are a lot of reasons. I'm just telling anecdotes.
"...Now the boomers are starting to head out to pasture..."
I don't expect the trend for boomers to match your scenario. If you look at this chart (I haven't updated it since Dec 06), it becomes obvious that there is a surprsing development. The participation rate for "65 and Over" is increasing at a highly surprising rate:
Let's assume I'm not in the manufacturing business and don't live in Michigan, Ohio or Tennessee. Let's also assume I make modest investments as most folks here do.
Why shouldn't I be looking for these sales and auctions? Why can't I just compute the cost of maintaining the property and/or paying taxes for 5 or 10 years, add that to the purchase cost, and still end up with a great investment?
Ergo, why aren't others doing this now?
Are people thinking the U.S. will never need manufacturing equipment again?
The big leveling is on its way
RE | 02.08.08 - 11:42 pm | #
The wildest part...They skip the interim expense and move damn near directly to automation.
Dirk | Homepage | 02.08.08 - 11:41 pm
My company put out a questionnaire last Oct/Nov asking who planned on retiring in 08. Judging from the corps reaction I am going to guess a lot more people said yes than planned. We have a lot of people hitting 59/60 this year. If business falls off though we just won't replace em.
With the informal "parents friends" survey completed I came to the conclusion about half my parents friends will die with their workboots on.
My thought exactly as I read the comment from mp. Even given the changes in technology, a $1K machine -worth about $1M new - can still be resold in several years at a decent profit.
This might be interesting.
"Honey, can you park in the driveway for the next four years? I've got a $750K automated lathe in there for a while."
Is there anyone living near Vegas here ?
Things appears to be turning bad very quickly. They sold a lot of expensive so called master-planned community with guards and a fake italian style
Sportsfan, some people are doing that, but it's a very risky thing to do, particularly in Michigan because there is SO MUCH OF IT.
I am very particular about what I buy. For one thing, I'm not interested in buying a failed business. I'm interested in particular tools, like recent (meaning 10-15 year-old) Bridgeport Series II mills with DROs (digital read out). I have a use for that type of equipment, and am willing to move it, but see it scrapped ALL THE TIME NOW.
One additional fact, of which many are unaware. The US heavy manufacturing base isn't imploded, IT HAS ALREADY IMPLODED. According to my sources, the largest casting US industry can turn out now is 6 tons. The Japanese and Chinese routinely do 20+.
If this country ever faces another global conflict, or major regional conflict, it will be unable to produce the equipment necessary to fight it. Simple fact. Sorry.
Here in barren desert California I was involved in the purchase of a 42,000 sf industrial building a few years ago. It had been used for cabinet making, mostly speakers, and had a seriously expensive dust collection system. Price (empty) was $35/sf.
Since then it's been rented at 35c/sf/month by someone who only needs half the space. That's $4.20/sf just to rent it for a year.
That's why I'm having trouble with the machine shop story.
Its important to note that the desire for a mild recession is what can sometimes prolong the pain.
Mexico in 1995 and Argentina in 2002 are two examples of unmitigated economic disasters. Lacking any real choice, the countries made rapid adjustments in savings rates (higher) and current account deficits (lower). The pain was severe, yet two years later, both were on their way again -- not without their problems, but not with a Great Depression either.
We need to achieve the same adjustments: higher savings, less reliance on foreign capital. We can do it quickly, or we can fight it every step of the way with low real interest rates and spiking budget deficits.
"Are people thinking the U.S. will never need manufacturing equipment again?
sportsfan | 02.09.08 - 12:00 am | #"
Sportsfan,
Oil patch story from a friend. He has 12 or so wells on his property. Each one is profitable at 35-40 barrel. He now would like to drill 50-60 more since oil is 90+. Guess what?? Long waits for drill rigs. Evidently when the oil industry collapsed in the late 80's everybody sold all the equipment for scrap...Only a handful of people wanted to sit on the stuff for 20 years till needed again. He has pretty much given up for right now(18 month wait).
Here is an example of why our economy is in trouble. Banks and brokerages have been funding hedge funds which are in trouble with huge January losses.
With banks required to report reserves this week we could see some significant selling to cover margin calls. This could be bad news for long term investors.
None of the geniuses who run the S&P 500 want to be involved in manufacturing. There are a lot of reasons. I'm just telling anecdotes.
mp | 02.08.08 - 11:55 pm | #
I believe it.
The million dollar MCs in Tennessee your son saw probably had bad spindles too... each exceeded the current value of the machines.
Moving & refooting the things also cost more than they were worth - building the footing probably many times more than the things were worth.
Finding folks who know how to 'cellularize' a bunch of mahines into a tight cell - also rare, that's a skill that will die in North America with the last of the boomers. You'll have to import them from Asia.
Yet if you could get the skills together, find the right location get folks to put sweat equity into the start up... they could all be millionaires in a few years. Its that kind of synergy that makes those worthless machines golden.
I saw it happen over and over in the 80s.
Even right now - if that Michigan plant were near John Deere it would be loaded - Deere is running 30-40% ahead of forecast in the Ag Div right now... we are talking many contracts in the millions each at decent margin.
But you had to be there in business with them BEFORE the boom. Its too late to chase that now.
Yeah, that thought crossed my mind while pondering your story. I guess we could get 25c/ft just for warehouse space so long as someone still wanted to store something like, oh, recent vintage perfectly serviceable machinery.
But please don't tell me the Chinese are making our Abrams tanks. )
I'd hate to think we need another war (in addition to all the other really bad reasons) to rescue our industrial base.
mp,
You're gonna make me cry. There was the time that Bridgeport would leave the massive base castings outside for two years to stress relieve. You could hear tinking and popping from acres of future precision machines.
This alone is worth a few ticks on the ole conjure clock.
I can't help but reiterate a point I made several days earlier, that...
(a) since this is now a service-oriented economy, and
(b) services are much more discretionary than goods production
... then the workforce is much more elastic then ever before.
Once the consumer pullback is understood to be more than just a temporary phenomenon, just how many "associates" will those big box retailers really need? How about all those salons and day spas?? Restaurants???
Face it, people can quickly and easily stop buying toys, start cutting their own hair and painting their own nails, and preparing their own food.
p.s.: I like to joke that U-6 is regular unemployment, whereas the highly promoted U-3 is the "core" rate.
"But please don't tell me the Chinese are making our Abrams tanks. )"
sportsfan,
Actually we don't "make" any more m1a1's or a2's. All the tanks now are refurbs that go through Anniston,Al for the initial disassembly and repair. Then they are shipped to Lima,Oh for final assembly and finishing. So per say the chinese don't make our tanks yet...
It's not just a shortage of rigs. The rigs that are out there are so old as to be falling apart. Investing in companies that produce drilling equipment and perform oilfield services is going to be an absolute no-brainer for decades to come.
I guess we have to assume the machine shop guy in Michigan isn't near Deere or anyone else who could give him some work.
Your idea is worth pursuing, though, if you can find the right guys to put it together. Maybe that's for the next generation to figure out once you clue them in to the possibility.
This summer could see the mother of all garage sales in the rust belt. Fortunes are made on the way down, too.
So true. Decades after we made the switch to a service economy, economists still treat services as an adjunct to manufacturing. The theory is manufacturing leads and services lag, manufacturing is volatile and services stable. Inventory cycles cause recessions, cap goods cycles determine their severity.
Isn't it obvious that entertainment, hospitality and retail employment are all based on discretionary, debt-fueled spending? Throw in overcapacity in real estate and financial services, plus a chunk of discretionary healthcare (botox), and you have the makings of a service-led economic downturn. What about manufacturing? Who cares. Maybe it will lag services, or maybe trade will save it. In the end, it won't matter.
Thats what amazes me. The front end lead time on all the "stuff" the oil industry needs is crazy. Then when prices went to 10$ barrel we just junk it. And then people bitch when demand increases and the industry can't keep up.
This is a pet peeve of mine. While high energy costs bother me it doesn't hurt me all that much. I have the cash to afford whatever the costs are. Who do high oil/energy costs kill...Lower income/poor people. But then you have a moron governor like Charlie Christ that just axed a clean coal power plant here in Florida...Gaaaaaa fucking drives me nuts!!!!
I'm not picky. Put me down for a 4 1/2 axis and the laser engraving option. Auto clamp/feed would be ice. I've been kicking around some rock climbing and motorcycle and aviation accessory ideas. Something tells me 6061-T6 stock that's lost certs is gonna sell for scrap too.
julieng, if the condos or townhouses get back down to $125K, I'd start poking around. Until then, it's going to be a long way down. Vegas is way overbuilt and it hasn't stopped yet.
homedad, no offense intended, but some folks were becoming agitated by the Conjure Clock. Conjure understands better than me.
I guess it's kind of like being on a flight where the stewardess stands up and says, "Ladies and Gentlemen, grab your ankles, put your head between your knees and kiss your asses goodbye. This plane will crash in 11 seconds."
From previous (apparently dead) thread, but on topic here:
Yes we outsourced lots of jobs, and so some companies can idle foreign factories and workers that dont affect our unemployment. However, folks here in the U.S. have switched to other jobs (services) that will also suffer.
As burnside pointed out, lots of the service jobs weve created in the last decade are highly discretionary. That includes many government jobs, along with the personal trainers, massage therapists, doggy day-cares (not to mention dog-poop cleanup services) and the like.
In addition, I fully expect high-tech centers like the Bay Area (my home) to feel the effects of layoffs and business closings in foreign countries. Those are the very places that the tech companies are claiming will keep their orders coming during a downturn here.
Here's a chart I mad of the 50 years of historical data from the Fed... it shows Reserve Requirements and Non-borrowed reserves..
Mainly, this data is just a visual representation of the special TAF thingy the fed came up with for the first of the year and is now extending indefinitely.
The TAFs are putting out about $60 billion short term debt and rolling it over "as long as necessary"..
Seeing the graph of the data... it just sort of puts what's happening in context. This sort of thing hasn't really happened before.
sportsfan, $125K is a house there, not a condo. Unless it's a "luxury" tower condo it should'nt even sniff six figures in Nevada.
I have had family there for 20 years and prices weren't even decent inflation hedges for three quarters of that. I fully expect LV prices to fall through the absolute floor, Michigan style, since there's simply nothing there to support prices even at pre-boom levels.
"Thank you for flying Total Bastard Airlines."
mp | 02.09.08 - 12:56 am | #
Hey,I think I worked for those guys at LAX in the late 80's. Cept I called em "Teeny Weenie Airlines". Nothing like the unions butting heads with Carl Icahn. Oh,the memories.
I guess I'm surprised that some were agitated by the clock, since the Concerned Scientists group had their nuclear countdown clock for years, etc.
I'm just curious as to the insights that some of the posters here have and how they came about. I lurked here for some time before getting the cajones to actually post, although most of mine tend to the wiseass; my general thought has been that we've been seriously out of whack for years and will continue to be so...but I have no "mechanism" as it were to relate just how far along the curve we've come.
BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.
The flaw, reported by Buisness Week could be corrected if offshored factories and workers are idle.
Thats what amazes me. The front end lead time on all the "stuff" the oil industry needs is crazy. Then when prices went to 10$ barrel we just junk it. And then people bitch when demand increases and the industry can't keep up.<
I remember reading an article in the WSJ in 2000 about people shutting down stripper wells because they weren't making money. Also had discussions of drilling rigs being scrapped or mothballed.
This was right in the middle of the dot com bust.
it was still going on but quickly losing steam.
Anyway, it had been 15 years since anyone had made any money in oil, and people were finally just giving up.
It was one of those articles that you just know you are at a bottom. I did nothing but think a little about how it would be too much work to actually figure out how to buy stuff. I would have gone for the mineral rights, but like everything else, a long learning curve.
Always wanted a second place in LV to allow us to stay near family for extended periods without imposing, but never got around to actually buying. Figured either a townhome or gated home to allow us to just lock it and leave, just as you describe.
IMHO it'll take hyperinflation to keep housing from absolutely tanking there. Outside of tourism (which is very economy-sensitive), the largest employer was construction, and, well... that train's left the station and won't be coming back for a long damn time.
The Chinese don't make our tanks,but i believe they do make the guidance systems for our cruise missiles,and their newest generation of small arms is pretty impressive.
mp:
Productive machinery being scrapped.. what a horrific story.
We simply need a good, stiff recession to beat some sense into folks. I agree with all who mention there are huge problems with the US basing its huge economy on 'services' ... dogwalking, real estate, retail mall junk..
I think once the economy starts to really slide, we'll see some crazy bad unemployment, perhaps a dollar run, hard to say. But some sort of crisis is needed, so we can figure out how best to redeploy capital in a way that makes sense.
Matt Simmons predicts an energy short world. So he often talks of the need to relocalize agriculture, manufacturing, and rebuild rail and barge shipping.
Doing any of this will require huge capital and energy expenditures that we barely have.
We can't afford to keep using it to support the homebuilders. They need to dissapear. And productive machinery needs to be rescued for the future.
Good to hear you and Conjure Bag are on the job.
Carry on.
Apart from us burning all of our food to go to McD's, there are more articles discussing global cooling in light of sun's cycles and the coming need of the Chinese to start importing corn.
Nouriel's on fire again (although a bit hard to follow at times):
As one former senior financial official put in a private Davos session on systemic financial risk if we had today for the auto loans and credit cards an instrument similar to the ABX for pricing the value of subprime loans such form of market transparency would be self-destructive and lead banks to show massive additional losses, even larger than those warranted by the worsening fundamentals in the consumer credit market. In other terms, marking to market in a market where prices are discounted by illiquidity may be self destructive.
While public policy should be concerned about a contraction of demand and economic activity that is in excess of what is necessary to restore economic and financial sustainability public policy should not aggressively prevent the necessary economic adjustment that is now required, i.e. a painful reduction of consumption relative to income and an increase in the saving rate that is necessary to bring the economy on a more sustainable growth path over the medium term.
Interesting anecdote from an out-of-town co-worker. He lives in Phoenix area, and is frustrated because he cannot re-fi his crappy mortgage (he used builder financing in order to be eligible for builder incentives on the house). Unfortunately, enough of his neighbors have foreclosed and lowered prices that he cannot refi.
The interesting part is this. The 2-3 houses that have foreclosures on his street have all foreclosed more than once in succession. Apparently, a bargain-hunter investor buys the house, then fails to sell it for a profit, and forecloses. The bank gets it back and sells it at a yet-again lower price.
So thats a little scary, the thought that a significant part of the pathetic current level of demand might actually be flippers still! I guess I shouldnt be surprised after seeing the recent stories about foreclosure bus-tours.
My buddy bought capped wells near land run by the big cats who had come up with better extraction processes.
Not only was he making money because oil blew up, but the yields increased as well. The mother of all coattail ridings.
He took the money from that and put it in coal pits that were a mess because of some back tax issues. Got those fixed and turned around & flipped it at a time when coal had blown up.
He's been busting his ass, but the last 5 years have been very good for him.
If the CRE bust in Phoenix happens, there's gonna be some good opportunities in niche offset printing. You can get the machines for next to nothing, but it's the footprint you need to make it happen.
As somebody who has been involved with ag and has family that still is I am pretty upbeat on it. Some of the best GMO stuff for grains is testing or just about ready. I think you will see some pretty incredible gains. The one thing thats hurts is the high cost of Natural Gas which is used in fertilizer...
I completely agree with Krugman, but I think it's a lot worse than he's letting on. I may not have his gravitas -- hell, or any gravitas at all -- but I care so strongly about this that I wrote it up into a little document. It's hosted on my corporate server because I'm ghetto 1995 and have no blog. Without further ado:
I'd really appreciate all your comments and feedback on my writeup. It's pretty amateur compared to the stuff here, but hopefully you'll find it elucidatingly entertaining anyway.
Yeah..screw that 'Stimulus Plan' cuz most of it is gonna get sand bagged anyway. Why not do something more meaningful - like jack everyone's FICO scores up 100pts. That ought to help reinflate the economy lafin
Re: the last few replies concerning the value of firesale prices for high tech machine tools. I just finished a 40+ year run in 'high tech' - the last 30 yrs of which were with DEC/Compaq/HP. Back in the early 90's when DEC downsized a lot (most) of the capital equipment ended up in salvage. They gutted whole facilites and loaded the 'stuff' (computer rooms of VAX minis, solder machines, circuit board test stations - you name it) into trailers. There were 40-50 parked in the lots at some facilites. It got sold by the trailer load to the highest bidder. More often than not as salvage.
I recall dropping in at the local auto repair shop/salvage yard one Saturday to have a couple of beers with the owner. He dragged out a full height 5 1/4 inch hard drive (RD54) and asked if I knew what it was and how much it was worth. I informed him that the MSRP was perhaps $2500 but it was of no use to anyone other than those who had DEC gear. Why do you ask? Well, he said, I just got one of my trailers back and its got hundreds of these in it... It also held a bunch of storage racks (fully populated) and 10-15 VAX 780's. In the end he stripped the racks of the lead counter weights for their scrap value and gave the rest to an unsuspecting sucker who jumped at the chance to take it away for free. What I'm saying is that high tech stuff quickly depreciates from asset to liability.
I've been watching the country rip it's industrial heart out for my entire life as well. The part that worries me is that at 40 I'm the youngest guy in my department. When folks finally wake up and realize that we need to rebuild our infrastructure, there will be no one to do it.
At least when it happens there will be interesting jobs available to those with skills. Any ideas what the big
ones will be?
Thanks! Change of plans, though. LV isn't totally out of the picture, but we're now thinking of places in San Diego and maybe Tahoe when prices hit bottom a few years out. Once housing is permanently relegated to non-investment status, things should be damned reasonable.
lots of cause for concern add to it thanks to our health care system we lose consumers to minor illness now.Look at the bankruptcy reasons not job losses medical bills. Health care is taking to big a piece of the consumer pie.and that is not going to improve. sorry to add another worry bead to the string, but that has to be a factor in consumer spending and it always gets a free pass .
Thanks for all the manufacturing discussion. When the media in this country portrays manufacturing they generally talk about some guy on an auto assembly line. But there is that critical second layer of quasi-craftsmen doing tool-and-die or churing out low-volume speciality parts that gets overlooked, and that the CEO and MBA just don't understand.
The one thing that hurts is the high cost of natural gas which is used in fertilizer.
Would you take a look at a company developing alternatives? While it reads a bit 'new age', they've attracted some of the right sort of attention. U of Maryland is looking at this as well and has test plots in progress.
heads up on credit and the economy. Yesterday I received the new Business Week with a cover titled: Credit on the Edge." A couple of elegant competitive ball room dancers are dancing on what appears to be the edge of the Grand Canyon. Maybe CR can post something from this issue of BW.
It seems that banks are getting very worried about credit card defaulting. The solution: "We are cutting your credit line from 15K to 2K and we are increasing your interest from 15% to 27%." ISn many cases, rates are going up and credit limits down on people who have been paying on time. Seems a little like ARM resets, although less predictable for the borrower.
Does this sound like a good plan to reduce the risk of credit card default? Might cause more "saving" and less spending in our economy. Sounds like the American consumer is waking up with a big headache.
CRB hit a new high yesterday. Wheat chart has gone hyperbolic.
I expect two things in the next year. First will be that these increased costs filter through to the US consumer.
Second is, with corn and wheat stocks at 2-decade lows, expect hypersensitivity to weather. An El Nino off the Cali coast this year and it could get very, very hungry in Chindia and Europe this year.
For people interested in benefiting from higher food prices without directly buying commodity futures check out "DBA." It is an ETF tied to the price of soybeans, wheat, corn and sugar. Check out the chart--it's great and probably less risk than a similar chart for equities.
Personally, I think any predictions made now on the impact of this recession are mere shots in the dark.
There has simply never been a set of circumstances like this. Six months ago, there were executives at Citi that didn't understand the workings of a SIV, but they had $100B of them. How can anyone pretend to be able to map the what lies ahead?
Then there are the real black swans, bird flu, another terrorist attack, etc.
These predictions of the ultimate unemployment peak are worth no more than the idiotic ditherings about a "48% chance of a recession."
I wonder who is going to buy anything when this great leveling with the East occurs? Maybe the north and south...
That said, if the same bright banking bulbs who sold off our country for debt scrap are slouching toward such a "leveling," I say be careful what you salivate for. Get an American fat and happy on fake wealth and they'll do anything -- gladly march off to a bad war, support a government that outsources their future, sign up for an overpriced house with a lethal mortgage, etc..but once they realize how they've been played you are going to have an angry, sober, perhaps even vengeful, populace.
Wave that level around in this town and you're likely to get shot.
And just think: all those computers that have been great for automating things are also splendid tools for organizing and communication. Angry people with a common mission can join forces as never before. And what with our war-making machinery outsourced, do we really want to go around creating unrest? Especially in our own back yards?
Karl Denninger had two tibits last night that should be investigated by CR and this sites bloggers. First, it said that mortgage insurers are pulling out of CA, Nevada and parts of Florida. This would presumably mean 20% minimum down payments accross the board.
Second, it showed that AAA CRE spreads have skyrocked in the last few days. This suggests that something important and not good in boiling up in commercial real estate.
I love the gloom in this thread! I'd like to do an age demographic for all those that seem to think that everyone now couldn't re-build a manufacturing base and that it's all in the past. It isn't. And I seem to remember all this talk when I was younger about Japan...now just substitute China and we're back in the same place.
If it becomes investment positive to build out manufacturing in the US it will happen full stop. An important point earlier was the automation argument, and that is key to some of what you see happening. Remember as the cost of oil goes up, so does tranportation costs, and that starts the process of re-patriation of some manufacturing. But if you're thinking this will translate into lots of jobs on lines, you are wrong. The type of job has shifted thanks to technology and are more likely to be IT-based than hands-on.
Have you ever been to a modern auto assembly plant? I was at the Chrysler plant in Mexico City...you could eat off the floors and everything was automated. Good jobs, but not as many of them as you'd think. The jobs are in the systems that make it all run, and to some degree the technical maintenace of the equipment. So what you are seeing, in my opinion, in a net shift in jobs, and you'll also aee a re-partriation of manufacturing here, and that's what's going to lead out of this resession. My prediction and I'll stand by it.
This summer could see the mother of all garage sales in the rust belt.
In terms of ACTUAL garage sales, I spent all last holiday shopping season sitting back and watching people buy stuff for me. "That's right, hon. Go right ahead to that electronics sale. Buy my shit for me. I'll come by to your garage sale next spring to pick it up."
My personal favorite. A national project that'd bring jobs to nearly every local, with a real long-term payoff: cheap energy, and a much more decentralized grid.
All it needs is some political leverage and the right sales job.
RE- "...with ever increasing levels of automation, human labor is increasingly commoditized at ever higher levels of skill."
True: however you have to wonder if "financial engineering spreadsheets" that allow a quick determination of loan eligibility based on FICO scores is an advancement in the economic system.
Spending on infrastructure, localized manufacturing, rail, and neglected downtowns.
Again, when and if we have the money to do it. Ultimately, this makes sense. Highly capital intensive, large scale manufacturing won't generate enough jobs, or be competitive without high tariff rates.
The city and town of the future will look a lot like the cities and towns of the 1950s.
I agree, as the automation of manufacturing becomes more intensive and the flexibility of the automation of the manufacturing increases, total employment in manufacturing decreases.
Manufacturing then become the province of those large (sometimes flexible) operations able to assemble a line-up of killer automated equipment. Labor cost become relatively insignificant in the per part cost break-down. A plant could be anywhere, with perhaps the most important factor in plant location being shipping costs (in and out).
But in no way does it spell a revival of manufacturing jobs. As you say--picture a 100,000 sf facility with 10 people per shift working as machine operators--the remaining 40 or so in shipping and handling.
Not a recipe for a vital economy for the workers. Not a recipe for vital municipal, state or national tax receipts due to the "If you do that we'll relocate" hammer.
And the labor intensive parts-IT and technology--brains grow everywhere and can be connected by cable--so I don't see how a 50-100K a year programmer or designer can compete with 5-20K a year overseas option. The salvation that IT was supposed to be in the 90's will prove to be as ephemeral in the new century.
And the reality is, most Americans don't want the drudgery of sludging through the routine and essentially repetitive nature of manufacturing IT/technology jobs.
So, manufacturing returns, but the effect will be minimally positive and in no way recreate the 50's and 60's.
Very true yossarian. If you analyze the supply chain and costs, you will see that it is beoming more expensive to ship heavy and large items. Clothing, sure, but machines? Not so much anymore. And I truly believe oil will never come down past around $60 a barrel. So run some costs on shipping and moving items around the supply chain. It becomes cheaper to assemble here and ship. Then it becomes cheaper to build some one the components here.
If you look at a state like MI, for example, we've now destroyed the costs of labor and living to the point where you can get people to work for a lot less than they used to. Was this by design? I don't think so, but it is a result. So, you can get a factory for next to nothing, equipment for next to nothing, and have a labor pool that will work for less than half of what it used to. Now, whip out your spreadsheet and look at the costs. Do you go to China and ship or here? As costs begin to increase in China (which they are...clothing is already moving to Vietnam, btw) what do you do?
mp and Conjure are being quite shrewd. This is a manufacturing bottom in places. It's a good time to shop for the swing of the pendulum in the other direction. There is money to be made.
After reading all of the above, I have only one question: Is it better to buy semi-automatic rifles or shotguns for the coming feudal state we'll be living in? I could make the case for either, so I'm conflicted. I need an outside opinion.
BEIJING, Feb. 7 (Xinhua) -- Multinationals have set up 1,160 research institutions in China by the end of 2007, according to figures with the Ministry of Commerce....62 percent of the global companies rated China as the most attractive location for prospective R&D, said a ministry official, citing a survey conducted by the UNCTAD (United Nations Conference on Trade and Development).
"China welcomes more international hi-tech companies to set up regional headquarters, R&D centers, procurement centers and training centers in China," said Zhang Xiaoqiang, vice minister of the National Development and Reform Commission.....Major industries include bio-medicine, aviation and aerospace, micro-electronics, photoelectron and software.
In 2006, the total revenue of the hi-tech industry exceeded 5.3 trillion yuan (706 billion U.S. dollars), with its added-value contributing 8 percent of GDP growth....
Zhang Weixing, an official from the Chinese Science and Technology Ministry, said this January that China's invention patent applications amounted to 210,000 in 2006, the fourth largest in the world. More than 40 percent of these applications came from foreign companies.
Neal, I can tell you from my own experience that connecting IT workers by cable and programmers too is NOT the cost-effective measure people think it is. Frankly, I've NEVER had an outsource project (and I've used people in Eastern Europe, Russia, Ireland and India) that didn't require a whole lot of brain on this side of the cable in terms of quality checking (their code in India and China is generally AWFUL), management and general baby-sitting. And most I talk to have had similar experience.
The issue is that after the tech bust, we just can't find people here. That will change. Again, the reason to outsource is NOT to save money. You don't. So yes, I agree that manufacturing jobs will not return but manufacturing will. The jobs will just be different and require different skills. Tis always the way...look at the changes in the last 100 years. Displacement happens every other generation or so.
Neal, on that article...the actual worry is not what China is doing there in terms of outsourcing, but in terms of not providing a net inflow of talent here in the US for us. A lot of our tech talent comes from immigration because the opportunity is better here and life is better (or at least thought of that way there). What happens when they keep their talent at home? Do we get the workers we need? And THAT is the lever for outsourcing...you can't find what you need here so you have to supplement elsewhere, not the cost.
So I'm worried that the policies of immigration which are hamfisted (just try to get H1B visa for people that you really do need because you can't find them) will stop the infow, that China and India will retain people there, and that we won't be able to produce the talent in the numbers we need here.
This is a major development, IMO. One year after the subprime blow up, foreclosures are reaching some of their highest rates of acceleration. What could cause such a ramp if not subprime? The recast on Option Arms is one reason for sure, but that alone may not explain it. Clearly, if you look at the chart, we're reaching not only unprecedented but also undreamed of levels, even though unemployment in San Diego is still relatively low.
What gives?
The spikes are a consequence of declining 2nd lien availability, IMO. No seconds means no cash-outs. No cash-outs means families must face the reality of their budget: they are unable to service their debt, much less maintain consumption, at current income levels. Once families project this conclusion out into the future, there is but one logical choice for those underwater:
Walk away.
By renting, they reduce housing expenses by 40% without sacrificing quality.
Yes, Ipodius, but the economic effect of a handful of babysitters and checkers here doesn't replace the economic effect of a building full of "sludge and drudge" employees.
All economic dislocations are painful Neal, look at the industrial revolution and the early part of the 19th centry with the assembly line. This is no different except the revolution is in connectivity. This is our version of it.
I find same thing: with my software engineering job in Orange County, CA, I have to work with a team in India and they do a great job of making charts and spreadsheets but the actual quality of work is rather poor and often delayed. And I shudder to think that we (the team in the US) have to take over the product after they (India) are done....
India and China WILL restrict departures of qualified IT/Tech workers for the reason that those workers are the ones providing the way forward for their economies.
CA is not alone in that respect... oddly the states that are the reddest and most likly to rail against high domestic spending are the ones who always get far more back from DC
That includes SC, home to senator Jim DeMint, who would cut federal funding to Berkeley's education and nutrition programs over the "No Marines" flap. In 2003, SC received $1.36 in federal dollars for every $1 paid in taxes. In the meantime, CA received 79 cents for every dollar in taxes delivered to the federal treasury. DeMint can go suck an egg ... or better yet, have HIS sons and daughters enlist in the Marines.
Neal, for a period of time I was involved with the machine tool industry, in particular the cutting inserts which were produced in them and used by them. A major change occurred in the production of the relatively simply shaped carbide inserts with the introduction of sophisticated automation.
When carbide inserts were first produced back in the 1930s, making an order of 100K inserts might have required a plant with 500 grinders and several thousand employees working for a month to produce the order. Even by the early 1980s, the production needs would still have required maybe 100 grinders and a thousand employees. By the early 1990s, controlled grinding cells existed which took up about 1000 square feet of space and which could produce 100K inserts over a weekend - without anybody doing anything other than loading the pallets of blank carbide, removing the finished inserts and making sure the machine was running and had fluids.
That was fifteen years ago. The new computer systems and sensors would enable this technique to grind more complex forms and shapes. We're never going back to the old processes, so we need to determine just how we maintain a middle class when manufacturing has gone the direction of yeoman agriculture in the last fifty years. Otherwise, we have way to many guns in this country.
Yea, you are sooo right. The only way I know is high taxes and lots of public service work. Say saving forests in the name of green house gases or public health or research.
But the thing I find interesting is the party that wants to concentrate the wealth in the hands of the few also wants to put lots of guns in the hands of the victims.
PrahaPartizan, dobry den I'll give you where they are but no one seems to notice. My job is to head up the software engineering side of the house and the IT/Infrastructure side. When we talk about it we, in rather veiled terms, look at it as the blue collar side and the white collar side. All the blue collar jobs are the network and infrastructure jobs. The people that would have done the grinding and loading and now doing the racking and stacking. The people that would have run the machines and now running networks. All you need is a certificate from Cisco and some certifications and there you go...you now have the blue collar equivalent of the job that used to exist at the GE plant not far from where I live. That's the ticket to the middle class now.
The white collar side is the software side which requires CS degrees and a whole lot of critical analysis and management skills. The pay structure for these things bears this out and, actually, good "blue collar" networking people make probably more than they would in the past loading a lathe machine. Again, it's a shift and all shifts require change in thought and skills.
Ipodius--yes there may be blue-collar job equivalents in IT, but what is the absolute percent of total employment of those involved as opposed to the total employment of those in the hey-day of manufacturing.
I think you will find an order of magnitude difference.
Ipodius, I agree with your assessment of the net migration of manufacturing jobs given overal energy cost, but I think two additional factors need to be included in the mix: time and certainty. Right now, high-speed maritime transportation allows huge numbers of cargo containers to be shipped from the far PacRim to North America on a regularized basis with a high degree of certainty that those shipments will actually arrive within a pretty tight window of time. That allows the modern physical and fiscal control systems to minimize costs of shipment and inventories.
What happens when the shipping lines can't get fuel and the freighters can't sail or must sail at a fraction of their designed speeds? What happens to the models when twice or three times as much inventory must be kept in the pipeline just to account for the uncertainties of shipment? That will change the make-here/buy-there equation. We're not quite there yet.
"Actually Neal, I fear that the US is loaded with WHITE collar workers that can now be displaced. That's actually the real problem and fear, isn't it?"
That is true, we have run through the illusion of IT saving the economy and now the illusion of finance and real estate transactions saving the economy.
Don't even begin to talk about health-care saving the economy--thats the snake eating it's own tail.
Ipodius, I agree with your assessment. Unfortunately, few want to address the issue that the number of new jobs requiring the advanced skills will likely by less than the number of old, lower-skilled jobs which will be destroyed. The political system is structured right now to avoid spreading the benefits of the new systems and to enable it be concentrated in the hands of fewer people. Such a political system is on the fast track to disaster, as we've seen from periods in the past. Only, now, with the weapons available to even the dullest peon, the outcome can come even faster and more violently than in the past.
I'm familiar with the GE plant of which you speak. Few know just how influential they were in creating new production processes during the middle decades of the last century, not just in making light bulbs, turbine generators, washing machines and refrigerators.
I know Praha! That plant was so busy and bustling...now a shadow. The interesting thing is that they kept all the buildings and infrastructure. I always said that they were moving out the jobs to re-set the wages for the union. Perhaps I was right at the time.
So, manufacturing returns, but the effect will be minimally positive and in no way recreate the 50's and 60's.
Neal | 02.09.08 - 10:22 am | #
Most mfg jobs today resemble tech jobs more than what you would think of as mfg - guys in plaid shirts & khakis running highly automated machines. These are very good jobs.
For everyone of those there are a dozen folks supporting him/her in an office somewhere - procurement, logistics, quality, engineering, IT, AP/AR and eventually marketing & sales.
While front & back office can be anywhere if you offshore the mfg it becomes logical, almost imperative to offshore the offices too. Likewise as work comes back, look for major int'l producers to start buttressing previously stripped down support operations. They really go hand in hand.
My adviser in college wrote an excellent book on this called 'Manufacturing Works' after a decade long study on communities with and without manufacturing. Those with were far more prosperous on average than those without IF you exclude major money centers like NYC & SF.
People who are removed from mfg think it is still Henry Ford's assembly line - that's been gone before Motown was hot. It is different today.
This isn't a silver bullet or the only thing that will turn the tide against recession. It won't. But if a healthy mfg environment returns in any kind of meaningful way it will be a significant offset to the downward pressures of construction & finance. Get enough of those other sectors kicking in & the whole trend changes.
Regarding outsourcing IT, you have to, and this thread has begun to, make a sharp distinction between IT vs. software engineering to analyze outsourcing as a thread. However, I think the analysis of both leads to the same conclusion: outsourcing is not worth it.
IT is relatively simple at the entry level and becomes more complex from there, but can be learned by experience. Seems ripe for outsourcing on its face. However, a lot of IT involves physical presence: racking servers, physically trouble-shooting networks and bricked boxes, etc. Anyone who thinks IT involves sshing into a box to restart the samba server once a week is kidding themselves. And the time-loop of outsourced IT can (and does) cost companies real money as their workers sit idle. As US wages continue to depress against foreign wages, it will be less and less worth the hassle of outsourcing this type of work.
Software engineering was never a good fit for outsourcing: it requires highly skilled professionals (which are available in much more limited numbers abroad than most business people assume) and the most difficult part of it is exactly what outsourcing hurts the most: communication. Without a constant feedback loop between the consumer and producer of software (ideally with physical presense/whiteboarding) you are almost guaranteed to end up with crap. Teleconferencing doesn't do it. Email doesn't do it. You need to be able to have micro-conversations when a spec is incomplete or ambiguous. You need the developers to see what the consumer sees, to see how he or she works and understand what he or she is most held-back by. These are things that cannot be written down in a spec sheet and sent off to India or China for implementation. Unfortunately, the Y2K fix, which was a rote search-and-replace of COBOL in most cases, convinced U.S. companies that they had found the software development silver bullet. Most are learning, painfully now, that there is no silver bullet. If only someone had written an essay on this topic twenty years ago. Oh, wait: No Silver Bullet Essence and Accidents of Software Engineering
Anyway, while I agree it isn't large enough to keep america spinning (I'm in the ultra-bear camp, if only for fun) I don't think the IT/Software Engineering industry is as threatened by outsourcing as many do. OTOH, I have a vested interest in it not being threatened, so perhaps I have blinders on.
I am a blue collar guy. I am a A&P mechanic who also is a ASE Master Tech. Right now I could loose my job and find work in less than a week. And get a raise. How do I know this? My brother just called and said his company is looking for A&P's and starting pay is approx 40.00 hour...To many people refuse to roll around in grease or work third shift for the good jobs...
PrahaPartizan | 02.09.08 - 10:30 am |
After 4 years in the Corps and having my brother spend 12 years with Army Spec Ops(160th SOAR) I am kinda opinionated on this.
Pistols are backup weapons only.
Nothing smaller than 12ga with double ought buck in the chamber.
I prefer a short barrel supressed carbine(ar15) with a 20-30 round magazines. The suppresor will keep you from going deaf if used indoors.Seriously.
Take a tactical home defense course from someone like Thunder Ranch,Blackwater etc.
Practice.Practice.Practice
Did I mention Practice?
A current employee who lives in Tampa almost was killed a couple of months ago. 13 gangbangers kicked in his apt door(nice place) and bedroom door and beat him to a pulp. He had no defensive training ever. The assholes were looking for the guy 3 doors down.
The cops are only to clean up the mess.
Chris's final rule...If you are in my home and not family you WILL leave in a body bag. Period. The police can clean up when they arrive...
Don't even begin to talk about health-care saving the economy--thats the snake eating it's own tail.
Or education. There is going to be a real shake out of universities in this country over the next 20 years according to the health of their endowment. Not the famous ones, of course, but think about how many colleges you pass driving down the highway. Probably will be able to buy some campuses cheap, if you are willing to deal with all the deferred maintenance.
"so I don't see how a 50-100K a year programmer or designer can compete with 5-20K a year overseas option..."
OK, fine. But wait till that 50-100K a year salary in the USA deflates down to 30K-50K. While we're at it, riddle me this- what happens when your offshore providers aren't necessarily willing to take dollars in exchange for their work?
Neal and all - effective birth control didn't exist in the 19th century. And, yet you can see how birthrates fell precipitously. It did exist in the 1970s but it was not easy to obtain it or use it.
Women have so many options to restrict childbearing today. And, they are doing it. Look for a further drop in numbers should the economics worsen.
Europe is basically at full employment for its European population through this means - though its immigrants are not at that level, certainly.
I'm done with worrying about race or ethnicity. My spiritual take is that the world needs a certain number of humans to celebrate it (the world). It doesn't need my genes - others will do just as well. The population must shrink, one way or another. If capitalism can't succeed without ever increasing numbers of people, then it will perish and it will deserve to perish.
But, more to the point, how do you all figure in a shrinking workforce?
We're fixin' to relearn why there are universal cultural taboos against greed and hubris.
How will they control the masses while the National Guard is deployed elsewhere? Blackwater.
Rifle or shotgun? Both.
"This is America - things like that don't happen here." Been to NOLA. lately? Remember: these people were described as being, "too stupid to get away from a hurricane." The same will be said of the unemployed. Meet the new Okie, same as the old Okie (except not as 'OK').
There are rational, reasonable, and realistic governmental responses to our economic problems, but we will not avail ourselves of them until the social fabric is torn, ad then it will be too late. Maybe if we elect Huckabee, Jesus will come down and save us. Just gim'me some old-time religion.
Every number and statistic generated by the Government/Industrial complex is false. Every. One. Who ya' gonna believe - them, or your own lying eyes?
It's time for an independent audit.
In 2005, I saw my neighbor's kid - a full-time student attending the local community college - at he shopping center. He was driving his new Mustang 5.0, wearing $100 tennis shoes and fancy sun glasses, sporting his cell phone and his ultra-chic girlfriend. He was buying some party supplies for the weekend. Until that moment, I had no idea my neighbor was rich.
Hey! Let's all put our retirement money into the Stock Market!
Hey! Let's all buy a house!
When hard times come, the wealthy will support the poor because their highly-developed sense of patriotism will require them to. It's all about values.
I was stationed at El Toro and worked at LAX for about 10 years. So yep,I know all about cali's goofy gun laws. I am one who prefers to vote with my feet. What was really funny was leaving to Ohio and within 6 months going "Holy crap,were did all is extra cash come from". I was young and had not really realized how insane all of the fees,taxes and other bullshit out there were...
Some of the readers on this blog seem to think that Conjure Bag is forecasting the end of the world as we know it. THIS IS NOT CORRECT.
Although Conjure thinks a global financial meltdown likely, that does not mean a global depression as some have falsely attributed to him.
Conjure thinks the depression scenario is worthy of consideration only because current economic circumstances have made it POSSIBLE, NOT LIKELY. Conjure is always searching for new information and calculating the costs associated with opposing courses of action. That is why he enjoys the most excellent writings of CR and Tanta at Calculated Risk.
Having said that, Conjure is struck by the level of fear, paranoia, and naivete here. In other words, CHILL OUT!
Oh,I agree. I honestly think we will muddle through this mess over the period of a few years. I look at my parents. Mid to late 60's. They bought their first new car in 20+ years last fall. Dad is already lookin at maybe another new one this year. After all the years of saving they are finally starting to enjoy spending some of it...Like i said in a previous post,roughly half of their friends are able to retire,the other half will die on the job...This includes people from all walks of life.
I am reading a book that describes a scandaled ridden GOP administration, productivity gains going to the wealthy, wage stagnation for the masses, and a world view point that the market place knows best. Economist supported this with various theories. Policy support low interest rates and globalization.
2008?, naw 1923.
It is true that we have smart folks with tools, but when ideology blinds them the tools are meaningless. The interesting piece of news in the last week was the GOP blocking the extension of UE benefits for ideological reason when all the research and academics supported the extension. The depression will happen because of the lack of leadership, not past economic theory or an appeal to the recent past.
"1. Pistols are backup weapons only.
2. Nothing smaller than 12ga with double ought buck in the chamber.
3. I prefer a short barrel supressed carbine(ar15) with a 20-30 round magazines. The suppresor will keep you from going deaf if used indoors.Seriously.
4. Take a tactical home defense course from someone like Thunder Ranch,Blackwater etc.
5. Practice.Practice.Practice
6. Did I mention Practice?"
I knew there was a reason I liked ya'.
Going practicing with my 10 mili glock and Browning 12 gauge m5 semi auto. 00 and slugs.
"1. Pistols are backup weapons only.
2. Nothing smaller than 12ga with double ought buck in the chamber."
Preaching to the choir. We have a ranch and a great place on the river, both stocked rather well. My wife has her
pump by the bed and that sound of her racking the load is wonderful to my ears. Nothing like the snick - click to put the fear of god into anyone.
There's a lot more than just two bubbles at work here.
1) Housing
2) Credit/Debt
3) Finance/M&A
4) Currency/Fiat
5) Derivatives
6) Boomers
7) Consumption
8) Cheap, plentiful energy
9) Government
10) and on, and on, and on...
Yes. This time feels worse. Feels scary. A lot of people never noticed the dotcom or the S&L situation. This time, millions of households are hitting the wall after a decade or more of outspending income. Our government is hitting the same wall. We are at the mercy of foreign creditors, which is also something new and scary, and something our leaders don't understand.
Partly because of housing costs, many or most two-parent households are two-earner households, far more than in past crises. That might seem to offer a bit more household resiliency, but in a low-pay service economy, both those jobs are essential to house and car payments. What happens when there are no longer enough dead-end service jobs to go around, as the retail sector implodes?
Then there are all those one-parent households.
At this point, a plain-vanilla recession looks pretty good to me. There are reasons to think we may be on the brink of a significant and prolonged drop in what is called "standard of living." This is actually a good thing, since by "standard of living" we mean consumption, and we consume more than our share of limited global resources. But the transition is going to be painful. It's going to be a forced transition, because most of us have refused to even think about it, much less plan for it. So now it's just going to happen to us.
"many or most two-parent households are two-earner households, far more than in past crises. That might seem to offer a bit more household resiliency,"
No it actually offers lees resiliency. During the 30's, it was often that the wife could find some work while her blue collar husband struggled. Employment often bounced back and forth. NOW if one loses a job...the fit hits the shan.
And whilst I find CB and mp humorous, no analysis is ever offered. As an aside I suggest mp stop feeding bong water to CB.
Wow, that's some default rate, D-P-. I'm very happy that I'm on the sidelines here in SoCal, renting.
Aw, mp, it IS going to be a depression! Guaranteed! All, no need to be depressed, just be prepared.
Cobradriver, I don't mind smoking an intruder, but I have neighbors here, as our homes are rather closely spaced in our modest part of La Jolla. We make do with birdshot in a short 20 gauge, and a nice baseball bat. We'll be getting a second 20 gauge for my son, too.
If I see that we are moving to the Mad Max scenario -- a possibility -- we'll upgrade our weaponry.
Get the short stocks for them there shotguns, but otherwise a good choice.
OO is for long ranges, at short ranges, say 10' or less the shot ain't going to spread out much so it don't matter if you get hit with an ounce of 00 or birdshot. The area of impact is about the same.
Not to mention that there is something about a big hole pointed at you that even an assault rifle cannot compare to. The alleged crazy might think he could dodge a bullet from that tiny tinny barrel, but think twice about a shot gun.
Besides a shot gun can be used for hunting and not as likely to attract crazies wanting arms.
Unfortunately, enough of his neighbors have foreclosed and lowered prices that he cannot refi
Like if nobody in the neighborhood had been foreclosed, prices wouldn't have gone down? Please.
Foreclosures are the result of falling prices, not the cause. While prices are rising you don't get them because the owner can sell and walk with cash.
That said, once price declines get moving, foreclosures do add to supply and speed up the decline.
Practice is almost everything as it is many things.
I can carry concealed. I usually don't. Why? Weight, need, I go to a lot of places staffed non-rent a cops.
People skills and communication have worked for me. I have been shot at, twice for real. It is not like the movies. I also do not like the mind set that goes with carrying a weapon.
My personal fear is that a lot of gun crazed white suburbanites will seize on a "event" to act out their paranoid end of the world fantasies and get people hurt.
Great description of the difference between IT and Software Engineering. I worked for a company for about 10 years that went full circle from developing everything in-house to trying to outsource some of the "commodity" work (Java back-end systems, scheduled updates of a very mature code base), and back to developing and maintaining everything in-house. The big problems were communications and quality on their end, and understanding how to manage a project 12 time zones away on our end.
Now I work at a place where everything is developed in house. Even the customer support functions are located here in a location that is VERY expensive. Quality is high, delivery is timely, and people are happy because they're not looking over their shoulders wondering if their jobs are going to India. We're also doing a lot of hiring of people fresh out of school. There still may be hope for those that pursue a CS education.
SC, believe it or not, there is no easy answer to that question. It depends on what you're looking for and how big of an operator you are. Personally, I do not go "window shopping." There's too much available out there. I know exactly what I want and go searching for it.
The best source for finding small quantities is Craig's List followed by EBay. Generally speaking, EBay equipment has high reserves and the machines are usually overbid by serious hobbyists. The sellers know this. Many of the large auctions are advertised on EBay, but they tend to attract machinery dealers.
I tend to lurk at machinist boards. The people there have their ears close to the ground and generally know what's going on. You can get advance knowledge this way.
Also, a lot of machinery dealers are beginning to hurt and are looking to offload inventory.
Needless to say, beware of "Rustoleum Rebuilds." If you're going to play this game, you need to know something about machine tools, lest you buy a piece of junk, and you must be prepared to move it when the deal is made. In short, they want it gone. Many, for example, have building leases expiring and they must clear the facility. You must also be prepared to deal in cash, the green kind. Nothing illegal here, it's because there are a lot of folks hurting, and they're always willing to give an additional discount for green.
I imagine bad folks think of La Jolla as easy pickings. Probably right.
This will be the wrong place to be if things get bad. Not easily defensible, my neighborhood. Very pretty, but not easily defensible.
jg
La Jolla not easily defensible?, You have geography working wonders for you; the ocean on 1 side, mountains to the East providing natural choke points.
Barriers along the north at La Jolla Vilage Drive, at the south at Colima.
Restrict road access to points at La Jolla village drive, Soledad Mtn road & La Jolla pkwy.
All you need is 3 people who can operate a bobcat.
Not sure what you're all worked up about. Foreclosures are merely responsible for marking prices down more quickly. The guy who cannot refi (as a result of the foreclosures) might have been able to refi if there had been no transactions. That's not to say prices won't come down eventually.
Misean, you quoted me out of context. You agree with me. Here's the complete sentence:
(Two-income households) might seem to offer a bit more household resiliency, but in a low-pay service economy, both those jobs are essential to house and car payments.
Yossarian writes:
Spending on infrastructure, localized manufacturing, rail, and neglected downtowns.
Again, when and if we have the money to do it. Ultimately, this makes sense. Highly capital intensive, large scale manufacturing won't generate enough jobs, or be competitive without high tariff rates.
The city and town of the future will look a lot like the cities and towns of the 1950s.
Yossarian | 02.09.08 - 10:19 am |
Yossarian,
A big IF.
When your flat out penniless broke you HAVE NO MONEY TO SPEND. That is what broke means and that is what awaits the US.
Gatsby, you obviously have never been to Rio in Brazil...the only place where I lost my composure with women...so beautiful that you will write bad checks if you don't focus..
My sense is that it will come as quite a shock to most Americans in and after this recession that the so called "service" economy will prove an abject failure at providing the income and spending power needed to bring about any meaningful recovery.
The last recovery was a result of massive malinvestment in housing stock and all things that go with it, along with reckless consumption provided by the household ATM. Those options to a large extent will no longer exist this time.
So in this recession, if US consumption collapses and wages / incomes remain stagnant in low paying jobs , or even continue falling , from where will come the kind of demand that might cause manufacturing to grow?
Nova, very wise words. I don't bear arms or rattle on about armageddon, but I do live in NYC, and I'm not fooling myself about how far you can push a populace down before things get ugly.
Also not fooling myself that the very rich are wise, long-run thinkers. Get out your history books. They have a long history of squandering and exploiting until they crumble governments -- and often their own fortunes.
The saving grace of the U.S. has aways been that occassionaly our government wakes up to this and takes countermeasures. I think this is probably the only reason our republic has lasted this long.
These times might not require guns and bunkers .. but I suspect they require a wake-up call of historic proportions.
It seems like a real endgame here: So, we'll have an economy based upon dog-walking and nail-painting, fueled by entirely automated plants in China that employ almost no one. How, exactly, is that going to work long-term?
i don't think that comparing the US to Sweden's economy is an exercise in academic rigor
It wont be so bad.
I went to Sweden on business several times in 1994-96. Things seemed quite good. The main complaint the Swedes had was the 4-5 hours of daylight in winter.
It will be bad, but predicting the timing is hard. There are a lot of forces exerting a lot of energy trying to keep everything afloat. Reading this blog for 3 years now, people were expecting what we are going through now to manifest to last year... when will our economy start acting rational again?
'90/'91 recession, combined with a decrease in defense spending (that hit California especially hard).
Since this is the second time you've mentioned it, my two cents. California was punished for things like helping to win the cold war. By then CA was no longer a contested Presidential state. With no reason to court the state the Federal government embarked on a planned stripping of the people. Only once in the last 19 years has CA come close to breaking even on the balance of payments with D.C. Some years getting as little as 78¢ back for every dollar extracted.
"If the unemployment rate increases 7 percentage points, then we will definitely have a severe recession."
Raw-ther, old boy! You remain a master of understatement...
Recession? Maybe. But banner ads at calculatedrisk.blogspot.com seem way up.
But, but the rebate, the rebate! We can run on down to the Sam's Club or Wally World and help out all those under employed Chinese!
Yeah, it would be tough with a 7% increase. That'd mean actual unemployment would be over 15% going for 20%. Not nice.
\tIt wont be so bad.
No, it'll be much worse.
There's a lot more than just two bubbles at work here.
1) Housing
2) Credit/Debt
3) Finance/M&A
4) Currency/Fiat
5) Derivatives
6) Boomers
7) Consumption
8) Cheap, plentiful energy
9) Government
10) and on, and on, and on...
What you're missing, CR, is how the on-demand service economy changes the definitions of employment and unemployment.
You get hired by Starbucks and they say: "Call in Sunday night to get your hours." They give you 23 hours.
The next Sunday night, business is bad and they give you 18. Then, 12 and 9.
When do you become unemployed? You don't. You get another crummy part-time job to fill in the gaps. And you go from one crummy part-time, iffy, on-demand job to another.
It's all designed to minimize benefit accruals and unemployment insurance impact. You never actually qualify for benefits or unemployment.
It's a different economy. Sweden doesn't have it, and nobody else does. They are where we were 25 years ago. We are the world's first giant on-demand service economy.
the 90-91 era the country was more manufacturing driven then today's service driven economy. The employment issue could play out differently this time given our changing employment landscape.
Also the Housing bust of the late 80's was centered in the Southwest while today's credit bubble induced housing crisis is national and not so easy to create a corral to contain the problem.
Conjure Bag says, "The employment dynamic has changed. This episode will not be comparable to previous ones."
rich, I can't disagree since I've made that argument myself several times. But I don't think losing hours a week is comparable to being unemployed. Actually this is one of the areas that I'm interested in seeing how it plays out (less of an increase in unemployment, more underemployment).
mp, OK, if Conjure Bag says so - and I agree, the employment dynamic has changed. I think the economy is constantly changing and in general that is a good thing.
Best to all.
"Swedens 1991 crisis" - I think he means the...
In 1985, the SAP deregulated the credit market. This, in combination with the excess profits created by the devaluation's, led to an orgy of reckless corporate borrowing and speculation in real-estate and stocks. When the bubble burst in 1990, all that remained was financial disaster (worsened by deflationary policies). Between 1988 and 1992, the total credit losses of Swedish banks and financial companies amounted to a staggering Skr 153 billion..
KINDA like where the US is now.
Frightening as I lived there, then. A truly wild time.
Is employment as big a problem as loss of say 400-600 billion a year of MEW? Which I estimate is equivalent to 10-15 million 40000 dollar a year jobs. This is about to be gone and ain't coming back. This would equate to 20-30% unemploymant.
Rich - If your hours change from 35 hours to 20 hours, you can get unemployment benefits in California. (There's some kind of sliding scale for partial employment). I know people who apply and get those benefits.
I'm pretty sure it shows up in the statistics as a "new filing."
What most dont look at that this recession/depression will mark the formal beginning of a secular shift of wealth from the West to the East. The simple fact is that the premium for American and G7 labor commands is simply not sustainable over the long term. Combined with ever increasing levels of automation, human labor is increasingly commoditized at ever higher levels of skill. The schools in the East may not match schools in the West but they are clearly catching up at very fast pace.
This development has been masked by the credit bubble and resultant financial economy over the past 25 years but especially since the dot com era. Given the fact that competitive infrastructure is now being built much faster in the East and that automation/machine dependent productivity is commoditized through easy and low cost availability of computer systems, the G7 edge in productivity is bound to vanish likely within the next decade. Salaries are not even close to reflecting such a reality.
I therefore dont expect this to be a short blip but part of a long and highly unpleasant adjustment of the standards of living in the West. Due to an ever growing competitive labor pool combined with ever increasing computing intelligence, real labor costs are bound to adjust downward for the foreseeable future.
The present problems are not of an apocalyptic nature but should mark the peak of Western economies and Western standards of living for a long time to come. I dont see how such an adjustment can happen without significant social unrest over time. Wars for economic reasons are not out of the question as Iraq amply demonstrates.
Barley -
What was the approximate ratio of Skr to USD?
I wonder if things will play out differently. Admittedly we've exported a fair number of jobs. I think that affects things in two ways. One, I suspect that the 'desired' participation rate is lower than measured. Meaning more people would like to work, but can't because of opportunities and such. So I wonder if unemployment is actually higher.
Two, I think we're exporting our real unemployment. This is probably happening now - this is the benefit (for the US) of exporting those jobs and outsourcing. In a downturn, many Chinese are out of work, but it's not felt that way here in the US.
So I think there's a good chance of a very severe recession, with fairly high employment rate. Add in the need of households to shore up finances via increased savings, and it seems unlikely (to me) that this will be a small recessio
If anyone's interested, the full paper by Reinhart and Rogoff that Krugman mentions is here:
http://www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf
RE- "...with ever increasing levels of automation, human labor is increasingly commoditized at ever higher levels of skill."
Fascinating. This topic was the subject of a 2-cigar after dinner conversation last night.
CMBX at new scary levels, double the scary levels a few months back.
mp,
I am baffled why this topic doesnt get a lot more attention but as alluded to in my post, during bubbles everybody ignores unpleasant realities that havent yet clearly manifested themselves.
"My view was the S&L crisis didn't cause the '90/'91 recession"
Then this implies that you don't believe Greenspan's rate cuts after 2001 caused the current RE bubble, then, because what we're experiencing right now is almost a duplication of the S&L crisis, except on a much larger scale.
RE- "I am baffled why this topic doesnt get a lot more attention..."
Why upset the masses with "unpleasant realities?"
jus me,
I recall that in late August of 1992 that the SEK-to-dollar ratio was about five to one -- that was when I was offered my postdoc at a university in Sweden.
After I accepted the modest but doable offer in early September as enough to cover my dollar-denominated student loan payments, the currency crashed, on its way to eight to one. It's around 6.5 these days.
But I had five great years there.
wasnt sweden richest worlds country at some point. irony
if you check the Bls for December
California is in recession 6.1%
MI is in severe recession 7.6%
Nevada is in R 5.8% (skyrocketing)
Ohio is in R 6.0%
Rhode Island is R 5.5% (skyrocketing)
and it's just the beginning
Broward Horne, I'm not sure what your point is. The entire sentence was:
My view was the S&L crisis didn't cause the '90/'91 recession, but I do think it left the economy susceptible to a downturn.
Maybe I'm wrong - no problem.
As far as my views on the causes of the housing bubble, I've detailed those many times - and the rate cuts clearly played a role - but there were other factors too.
Best to all.
Look at this fellows, (FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009 ). Table 1 under non-borrowed column.
This shows that banks money in Nov. 2004 was positive $42.2B and in January 08 it became negative $8.7B.
It looks very ominous, is not it? May be some of you with more expertise can elaborate more on this one.
julieng- "MI is in severe recession 7.6%"
Michigan is an absolute tragedy. Three weeks ago I was offered a fully-equipped 10,000 sq. ft. machine shop--including the building--for $50,000 by a tearful owner. He had been doing work for the auto manufacturers. I turned him down.
Although I didn't tell him, he was OVERPRICED.
Only once in the last 19 years has CA come close to breaking even on the balance of payments with D.C. Some years getting as little as 78¢ back for every dollar extracted.
Rob Dawg | Homepage | 02.08.08 - 9:45 pm | #
CA is not alone in that respect, NY, CT, NJ also regularly pay far more in than they get out of DC, oddly the states that are the reddest and most likly to rail against high domestic spending are the ones who always get far more back from DC
. . . oddly the states that are the reddest and most likly to rail against high domestic spending are the ones who always get far more back from DC.
Nothing odd about it. The current administration plays that way and always has.
yeah its also just like how down south in virginia makes fairfax county the California is this situation.
happens all the time every where. its the whole point redistributing wealth.
mp writes: Three weeks ago I was offered a fully-equipped 10,000 sq. ft. machine shop--including the building--for $50,000.
How can a fully equipped machine shop not be worth $5/sf?
I've never heard of anything like that.
The Swedish case has always been my best guess for how things would turn out here - massive debt bubble when companies borrowed too much and a huge housing bubble that collapsed.
Several very tough years followed as consumers raised their savings rate by several percentage points while housing prices crashed - many homeowners left upside down.
Then again, we'd probably be lucky if we got off so easy - the bubble's far bigger now then just a Scandinavian sideshow. A couple of years later, and Sweden resumed its normal role as a wonderful place to live (for those of us who enjoy snow).
How will unemployment be other than horrendous?
Household debt is now at $13T, disposable personal income (DPI) is at $10T, a ratio of 130%.
Back when this mess started (personal consumption and borrowing started taking off in '81), household debt was $1.5T and DPI was $2.2T, a ratio of 67%.
One's household debt is someone else's bond. Either the borrower cuts consumption to repay his debt or the lender writes down his bond and cuts his consumption.
We have excess consumption/excess debt of $7-10T to repay or write off. Do that over five years, and that is 10-15% of GDP --> big time unemployment.
We have a depression coming: either some people are going to repay their $7-10T debt or other people are going to write down their assets by the same amount. I don't know which is going to happen, but both have the same effect --> death blow to consumption.
Just for giggles, go to
St. Louis Fed: Corporate Aaa & Baa
and download the AAA and BAA series (1919 to present), subtract AAA from BAA ('risk premium') and plot such.
Nice big jump in the risk premium in the Great Depression, dwarfing anything since.
This is going to be 'fun.
mp writes:
RE- "I am baffled why this topic doesnt get a lot more attention..."
Why upset the masses with "unpleasant realities?"
mp | 02.08.08 - 10:55 pm | #
I am going to guess it is easier to say "All the jobs went to China". I follow the automation of industry with amazment.
IH has a engine plant outside Indy. At one time they employed 2700. In one fell swoop a few years ago they shut down and automated. 2100 jobs gone. None went to China. My cousin just helped his company move a decent size facility BACK from China. 150 approx employees reduced to 20.
Christ how many people have ever seen the inside of a fully automated storage warehouse...sight to behold.
As computing power increases and electronics get cheaper and cheaper this is going to accelerate...
Chris
From Japan, Lessons in What Policies to Shun - NY Times
From Japan, Lessons in What Policies to Shun
In broad strokes, the parallels are alarming. After a long boom, the Japanese economy in the 1990s, as Americas today, was jolted by a sharp plunge in the real estate market.
In Tokyo, the government bankers and policy makers were slow to recognize the scope of the problem. Bad loans piled up. The financial troubles rippled through the economy as consumer spending and job growth fell.
I think there are a lot more similarities than people are willing to admit, said Clyde V. Prestowitz, president of the Economic Strategy Institute, a Washington-based policy research organization that has long promoted American industry.
The American economy is very fragile now, said Mr. Prestowitz, who was a trade negotiator with Japan in the Reagan administration.
Good to see NYTimes talking about the Japan experience. Time will tell how similar things will be (esp. California vs Japan).
Since unemployment raises its ugly head again, let me again mention that like for like measures are important - across time and across geographies. Please, use the BLS U6 measure of unemployment, not their headline one. Here is a link:
Table A-12. Alternative measures of labor underutilization
Look at the last row. U3 is the headline number - U6 is much more akin to the metric used in Europe. Its also a much more honest number IMO - anybody know when they switched to using U3 and not U6 in the USA ?
-K
sportsfan- "How can a fully equipped machine shop not be worth $5/sf?"
Sportsfan, you have absolutely no idea of how BAD things are in Michigan right now. It is truly a depression there, and it's getting WORSE.
Also, the market for machine tools is collapsing. Many perfectly serviceable machines, eg, lathes, screw machines, horizontal and vertical mills, are being sold for scrap because of the cost of hiring riggers to move them.
yes mp this is very sad, even at 10K the
house will not be sold because the area has no future, the bubble just killed this state. Also lots of them are blue collars who worked hard their entire life.
The state was already weak like OH the bubble was the last straw
Aw, sk, you are going to scare people with that U-6 number.
I share that stat with my family members, and get the glassy-eyed stare.
There was a housing bubble in the late '80s that also contributed to the '90/'91 recession, combined with a decrease in defense spending (that hit California especially hard). Recessions usually have multiple causes.
CR, the length and depth of recessions often have multiple perspectives, too.
In my part of California both the local economy and RE prices continued to fall until 1996. It was a '90-'96 recession.
It still took a couple years after that to recover and eventually, of course, there was a RE boom here as elsewhere.
A major factor in the '90s was the closing of a local military base (which was a significant part of the local economy). A related factor was that the personnel were all sent to the Gulf War at the end of 1989 and never returned so, while the base didn't officially close for a few years, it was in essence deserted.
Defense spending cuts take various forms, not all of which are as official or as dramatic as closing the Lockheed Skunk Works.
Adding to the problems enumerated by tj&the bear, does anyone remember a large part of the collapse in the Soviet Union had to do with a capital-draining war in a country called Afghanistan? And now we have two of those, with a third threatening, plus a never-ending "war on terror", plus "star wars" technology, plus replacement of deteriorated military resources, etc., etc..
A budget of 1/3 of all federal spending--and much more than the spent by the remainder of the world.
Another 100 years for McCain? We'll be lucky if we can afford one more year.
Unemployment will be less than in past bad downturns, simple demographics. In the last 2 bad downturns, 74-75 and 80-83 (NBER counts 80-83 as 2 seperate recessions, but consider them together) the workforce was growing at an increadible rate. Baby boomers were entering the workforce and women dramatically increased their participation. Now the boomers are starting to head out to pasture, and the participation rate of women is almost as high as for men, not likely to rise much more. Thus in good times we had unemployment of 6%+ and we would head towards double digits when things got rough. Thus the relatively low unemployment rate of the just ending expansion was not all that impressive 9and to a lesser extent nor was the ultra low unemployment rate of the late Clinton years. Given current demographics an unemployment rate of 7.5% would be a very, very severe recession. Note that the official unemployment rate did not go up that high in the last recession. yeah this recession will be at least as bad as 74 or 82, you just will not see it as much in the unemployment rate.
As computing power increases and electronics get cheaper and cheaper this is going to accelerate... "
The double whammy is that even developing countries, for competitive reasons, now have to and can compete on the automation front. This drives down or at least limits increases in labor costs in countries such as China and India resulting in even higher pressure on labor in the developed nations.
The big leveling is on its way
I've never heard of anything like that.
sportsfan | 02.08.08 - 11:25 pm | #
I know where two are at right now in Ohio. Closed up with no work. The owners are paying the taxes but I have no idea how long they plan to try and hold out...
Chris
From Thinkprogress.org
Poll: to fix economy, get out of Iraq.
The heck with Congress big stimulus bill. The way to get the country out of recession and most people think were in one is to get the country out of Iraq, according to an Associated Press-Ipsos poll.
[J]ust 19 percent of the people surveyed said they planned to go out and spend the money [from the rebate checks in the economic stimulus package]; 45 percent said theyd use it to pay bills. And nearly half said what the government really should do is get out of Iraq.
Forty-eight percent said a pullout would help fix the countrys economic problems a great deal, and an additional 20 percent said it would help at least somewhat. Some 43 percent said increasing government spending on health care, education and housing programs would help a great deal; 36 percent said cutting taxes.
mp,
You're right. I have no idea how bad things are in Michigan right now.
I'm actually stunned to think that "perfectly serviceable machines" are being sold for scrap. That's our tool making base. That's equivalent to eating our seed corn.
I understand machinery is expensive to move and store, but at $5/ft for the building, there's no moving and the storage is a one time payment.
I'm just dumfounded by that story.
assuming you couldnt build anything for 5/ft, then the land and tools arent just free, its like they're paying you.
Sportsfan, I have many more.
Son of mp, for example, told me of an auction last week at a manufacturing facility in Tennessee. Two late-model machining centers, both less than three years old, sold for $1,000. They were $1 million+ machines when new. Two storage cabinets were sold for $100 each. The cabinets couldn't be opened because the auctioneer didn't have the keys. After sale, the cabinets were broken into and found to contain $970,000 worth of new carbide tooling.
None of the geniuses who run the S&P 500 want to be involved in manufacturing. There are a lot of reasons. I'm just telling anecdotes.
"...Now the boomers are starting to head out to pasture..."
I don't expect the trend for boomers to match your scenario. If you look at this chart (I haven't updated it since Dec 06), it becomes obvious that there is a surprsing development. The participation rate for "65 and Over" is increasing at a highly surprising rate:
Labor Force Participation Rate since 1990
mp,
Let's assume I'm not in the manufacturing business and don't live in Michigan, Ohio or Tennessee. Let's also assume I make modest investments as most folks here do.
Why shouldn't I be looking for these sales and auctions? Why can't I just compute the cost of maintaining the property and/or paying taxes for 5 or 10 years, add that to the purchase cost, and still end up with a great investment?
Ergo, why aren't others doing this now?
Are people thinking the U.S. will never need manufacturing equipment again?
The big leveling is on its way
RE | 02.08.08 - 11:42 pm | #
The wildest part...They skip the interim expense and move damn near directly to automation.
Dirk | Homepage | 02.08.08 - 11:41 pm
My company put out a questionnaire last Oct/Nov asking who planned on retiring in 08. Judging from the corps reaction I am going to guess a lot more people said yes than planned. We have a lot of people hitting 59/60 this year. If business falls off though we just won't replace em.
With the informal "parents friends" survey completed I came to the conclusion about half my parents friends will die with their workboots on.
Chris
sportsfan @ 12:00
My thought exactly as I read the comment from mp. Even given the changes in technology, a $1K machine -worth about $1M new - can still be resold in several years at a decent profit.
This might be interesting.
"Honey, can you park in the driveway for the next four years? I've got a $750K automated lathe in there for a while."
Is there anyone living near Vegas here ?
Things appears to be turning bad very quickly. They sold a lot of expensive so called master-planned community with guards and a fake italian style
Sportsfan, some people are doing that, but it's a very risky thing to do, particularly in Michigan because there is SO MUCH OF IT.
I am very particular about what I buy. For one thing, I'm not interested in buying a failed business. I'm interested in particular tools, like recent (meaning 10-15 year-old) Bridgeport Series II mills with DROs (digital read out). I have a use for that type of equipment, and am willing to move it, but see it scrapped ALL THE TIME NOW.
One additional fact, of which many are unaware. The US heavy manufacturing base isn't imploded, IT HAS ALREADY IMPLODED. According to my sources, the largest casting US industry can turn out now is 6 tons. The Japanese and Chinese routinely do 20+.
If this country ever faces another global conflict, or major regional conflict, it will be unable to produce the equipment necessary to fight it. Simple fact. Sorry.
Just continuing the anecdotal survey:
Here in barren desert California I was involved in the purchase of a 42,000 sf industrial building a few years ago. It had been used for cabinet making, mostly speakers, and had a seriously expensive dust collection system. Price (empty) was $35/sf.
Since then it's been rented at 35c/sf/month by someone who only needs half the space. That's $4.20/sf just to rent it for a year.
That's why I'm having trouble with the machine shop story.
"...base isn't imploded" should read "...base isn't imploding"
Fascinating information, mp. Thanks for taking the time to post about this.
Sportsfan, California isn't Michigan. Yet.
Its important to note that the desire for a mild recession is what can sometimes prolong the pain.
Mexico in 1995 and Argentina in 2002 are two examples of unmitigated economic disasters. Lacking any real choice, the countries made rapid adjustments in savings rates (higher) and current account deficits (lower). The pain was severe, yet two years later, both were on their way again -- not without their problems, but not with a Great Depression either.
We need to achieve the same adjustments: higher savings, less reliance on foreign capital. We can do it quickly, or we can fight it every step of the way with low real interest rates and spiking budget deficits.
"Are people thinking the U.S. will never need manufacturing equipment again?
sportsfan | 02.09.08 - 12:00 am | #"
Sportsfan,
Oil patch story from a friend. He has 12 or so wells on his property. Each one is profitable at 35-40 barrel. He now would like to drill 50-60 more since oil is 90+. Guess what?? Long waits for drill rigs. Evidently when the oil industry collapsed in the late 80's everybody sold all the equipment for scrap...Only a handful of people wanted to sit on the stuff for 20 years till needed again. He has pretty much given up for right now(18 month wait).
Gotta love those booms and busts !!!!
Chris
Here is an example of why our economy is in trouble. Banks and brokerages have been funding hedge funds which are in trouble with huge January losses.
With banks required to report reserves this week we could see some significant selling to cover margin calls. This could be bad news for long term investors.
http://tinyurl.com/38uvhz
None of the geniuses who run the S&P 500 want to be involved in manufacturing. There are a lot of reasons. I'm just telling anecdotes.
mp | 02.08.08 - 11:55 pm | #
I believe it.
The million dollar MCs in Tennessee your son saw probably had bad spindles too... each exceeded the current value of the machines.
Moving & refooting the things also cost more than they were worth - building the footing probably many times more than the things were worth.
Finding folks who know how to 'cellularize' a bunch of mahines into a tight cell - also rare, that's a skill that will die in North America with the last of the boomers. You'll have to import them from Asia.
Yet if you could get the skills together, find the right location get folks to put sweat equity into the start up... they could all be millionaires in a few years. Its that kind of synergy that makes those worthless machines golden.
I saw it happen over and over in the 80s.
Even right now - if that Michigan plant were near John Deere it would be loaded - Deere is running 30-40% ahead of forecast in the Ag Div right now... we are talking many contracts in the millions each at decent margin.
But you had to be there in business with them BEFORE the boom. Its too late to chase that now.
Thanks mp for the anecdotal.
California isn't Michigan. Yet.
Yeah, that thought crossed my mind while pondering your story. I guess we could get 25c/ft just for warehouse space so long as someone still wanted to store something like, oh, recent vintage perfectly serviceable machinery.
But please don't tell me the Chinese are making our Abrams tanks.
)
I'd hate to think we need another war (in addition to all the other really bad reasons) to rescue our industrial base.
That's why I'm having trouble with the machine shop story.
sportsfan | 02.09.08 - 12:18 am | #
The MI building would rent for more if the machines were already gone...
mp,
You're gonna make me cry. There was the time that Bridgeport would leave the massive base castings outside for two years to stress relieve. You could hear tinking and popping from acres of future precision machines.
This alone is worth a few ticks on the ole conjure clock.
I can't help but reiterate a point I made several days earlier, that...
(a) since this is now a service-oriented economy, and
(b) services are much more discretionary than goods production
... then the workforce is much more elastic then ever before.
Once the consumer pullback is understood to be more than just a temporary phenomenon, just how many "associates" will those big box retailers really need? How about all those salons and day spas?? Restaurants???
Face it, people can quickly and easily stop buying toys, start cutting their own hair and painting their own nails, and preparing their own food.
p.s.: I like to joke that U-6 is regular unemployment, whereas the highly promoted U-3 is the "core" rate.
by the way, mp.
What time is the clock exactly?
You can't imagine the amount of Option ARMs that Mister Oompa loompa Mozilo sold in this state,
it's gonna be very ugly
"But please don't tell me the Chinese are making our Abrams tanks.
)"
sportsfan,
Actually we don't "make" any more m1a1's or a2's. All the tanks now are refurbs that go through Anniston,Al for the initial disassembly and repair. Then they are shipped to Lima,Oh for final assembly and finishing. So per say the chinese don't make our tanks yet...
Chris
Chris,
It's not just a shortage of rigs. The rigs that are out there are so old as to be falling apart. Investing in companies that produce drilling equipment and perform oilfield services is going to be an absolute no-brainer for decades to come.
homedad43- "What time is the clock exactly?"
Homedad, Conjure stopped giving updates on the clock. He said, "If you don't know what time it is by now, I can't help you."
dryfly,
I guess we have to assume the machine shop guy in Michigan isn't near Deere or anyone else who could give him some work.
Your idea is worth pursuing, though, if you can find the right guys to put it together. Maybe that's for the next generation to figure out once you clue them in to the possibility.
This summer could see the mother of all garage sales in the rust belt. Fortunes are made on the way down, too.
Friday night downgrades for MBIA RMBS.
http://tinyurl.com/3boykg
sportsfan- This summer could see the mother of all garage sales in the rust belt. Fortunes are made on the way down, too.
Conjure and I are on top of it.
(i was talking about CA for the Option ARM time bomb) i'am so tired gnight
mp, hope Conjure finds the deals he's looking for. Sounds like he's a little picky and probably tough when it gets to the bargaining phase.
julieng, I thought you said Vegas. That place is imploding pretty quickly, too.
check Nevada you'll be scared
https://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=NVUR&s[1][range]=5yrs
tj,
So true. Decades after we made the switch to a service economy, economists still treat services as an adjunct to manufacturing. The theory is manufacturing leads and services lag, manufacturing is volatile and services stable. Inventory cycles cause recessions, cap goods cycles determine their severity.
Isn't it obvious that entertainment, hospitality and retail employment are all based on discretionary, debt-fueled spending? Throw in overcapacity in real estate and financial services, plus a chunk of discretionary healthcare (botox), and you have the makings of a service-led economic downturn. What about manufacturing? Who cares. Maybe it will lag services, or maybe trade will save it. In the end, it won't matter.
yes vegas is the exploding now
https://research.stlouisfed.org/fred2/
type NVUR
tj & the bear | 02.09.08 - 12:36 am |
Thats what amazes me. The front end lead time on all the "stuff" the oil industry needs is crazy. Then when prices went to 10$ barrel we just junk it. And then people bitch when demand increases and the industry can't keep up.
This is a pet peeve of mine. While high energy costs bother me it doesn't hurt me all that much. I have the cash to afford whatever the costs are. Who do high oil/energy costs kill...Lower income/poor people. But then you have a moron governor like Charlie Christ that just axed a clean coal power plant here in Florida...Gaaaaaa fucking drives me nuts!!!!
Chris
mp:
no problem. I'll pull out my sundial.
I'm not picky. Put me down for a 4 1/2 axis and the laser engraving option. Auto clamp/feed would be ice. I've been kicking around some rock climbing and motorcycle and aviation accessory ideas. Something tells me 6061-T6 stock that's lost certs is gonna sell for scrap too.
Chris,
Not just poor people here; poor countries overseas. High energy prices may relegate many countries to permanent third-world status. Really ugly stuff.
julieng, if the condos or townhouses get back down to $125K, I'd start poking around. Until then, it's going to be a long way down. Vegas is way overbuilt and it hasn't stopped yet.
homedad, no offense intended, but some folks were becoming agitated by the Conjure Clock. Conjure understands better than me.
I guess it's kind of like being on a flight where the stewardess stands up and says, "Ladies and Gentlemen, grab your ankles, put your head between your knees and kiss your asses goodbye. This plane will crash in 11 seconds."
"Thank you for flying Total Bastard Airlines."
From previous (apparently dead) thread, but on topic here:
Yes we outsourced lots of jobs, and so some companies can idle foreign factories and workers that dont affect our unemployment. However, folks here in the U.S. have switched to other jobs (services) that will also suffer.
As burnside pointed out, lots of the service jobs weve created in the last decade are highly discretionary. That includes many government jobs, along with the personal trainers, massage therapists, doggy day-cares (not to mention dog-poop cleanup services) and the like.
In addition, I fully expect high-tech centers like the Bay Area (my home) to feel the effects of layoffs and business closings in foreign countries. Those are the very places that the tech companies are claiming will keep their orders coming during a downturn here.
yeah Vegas was the most irrational thing
they were literally gambling with houses
here is the chart at last
http://www.imagehotel.net/images/an28on5as9.png
Next week is yet another long weekend.
wawawa,
Here's a chart I mad of the 50 years of historical data from the Fed... it shows Reserve Requirements and Non-borrowed reserves..
Mainly, this data is just a visual representation of the special TAF thingy the fed came up with for the first of the year and is now extending indefinitely.
The TAFs are putting out about $60 billion short term debt and rolling it over "as long as necessary"..
Seeing the graph of the data... it just sort of puts what's happening in context. This sort of thing hasn't really happened before.
Granted.. who knows what it means.
hehe... "I mad" == "I made"
Vegas is beyond toast.
sportsfan, $125K is a house there, not a condo. Unless it's a "luxury" tower condo it should'nt even sniff six figures in Nevada.
I have had family there for 20 years and prices weren't even decent inflation hedges for three quarters of that. I fully expect LV prices to fall through the absolute floor, Michigan style, since there's simply nothing there to support prices even at pre-boom levels.
"Thank you for flying Total Bastard Airlines."
mp | 02.09.08 - 12:56 am | #
Hey,I think I worked for those guys at LAX in the late 80's. Cept I called em "Teeny Weenie Airlines". Nothing like the unions butting heads with Carl Icahn. Oh,the memories.
Chris
mp:
no offense taken.
I guess I'm surprised that some were agitated by the clock, since the Concerned Scientists group had their nuclear countdown clock for years, etc.
I'm just curious as to the insights that some of the posters here have and how they came about. I lurked here for some time before getting the cajones to actually post, although most of mine tend to the wiseass; my general thought has been that we've been seriously out of whack for years and will continue to be so...but I have no "mechanism" as it were to relate just how far along the curve we've come.
's cool.
Mandel's
BusinessWeek has learned of a gaping flaw in the way statistics treat offshoring, with serious economic and political implications. Top government statisticians now acknowledge that the problem exists, and say it could prove to be significant.
The flaw, reported by Buisness Week could be corrected if offshored factories and workers are idle.
tj,
Condos have a certain appeal if you're not a full time resident (or just a full time resident for tax purposes) or whatever.
I don't see it going back to the $72,500 days but that's because I think the dollar continues to deteriorate.
It's not an investment, agreed.
I remember reading an article in the WSJ in 2000 about people shutting down stripper wells because they weren't making money. Also had discussions of drilling rigs being scrapped or mothballed.
This was right in the middle of the dot com bust.
it was still going on but quickly losing steam.
Anyway, it had been 15 years since anyone had made any money in oil, and people were finally just giving up.
It was one of those articles that you just know you are at a bottom. I did nothing but think a little about how it would be too much work to actually figure out how to buy stuff. I would have gone for the mineral rights, but like everything else, a long learning curve.
REBear:
Are telling me that BLS data is totally bogus and our fearless leaders in Washington are flying blind into this economic storm?
sportsfan,
Always wanted a second place in LV to allow us to stay near family for extended periods without imposing, but never got around to actually buying. Figured either a townhome or gated home to allow us to just lock it and leave, just as you describe.
IMHO it'll take hyperinflation to keep housing from absolutely tanking there. Outside of tourism (which is very economy-sensitive), the largest employer was construction, and, well... that train's left the station and won't be coming back for a long damn time.
The Chinese don't make our tanks,but i believe they do make the guidance systems for our cruise missiles,and their newest generation of small arms is pretty impressive.
mp:
Productive machinery being scrapped.. what a horrific story.
We simply need a good, stiff recession to beat some sense into folks. I agree with all who mention there are huge problems with the US basing its huge economy on 'services' ... dogwalking, real estate, retail mall junk..
I think once the economy starts to really slide, we'll see some crazy bad unemployment, perhaps a dollar run, hard to say. But some sort of crisis is needed, so we can figure out how best to redeploy capital in a way that makes sense.
Matt Simmons predicts an energy short world. So he often talks of the need to relocalize agriculture, manufacturing, and rebuild rail and barge shipping.
Doing any of this will require huge capital and energy expenditures that we barely have.
We can't afford to keep using it to support the homebuilders. They need to dissapear. And productive machinery needs to be rescued for the future.
Good to hear you and Conjure Bag are on the job.
Carry on.
Norka West,
The myth of globalization is about to pop. Will it happen before the elections?
OT -
What's the consensus on long-term ag-business?
Apart from us burning all of our food to go to McD's, there are more articles discussing global cooling in light of sun's cycles and the coming need of the Chinese to start importing corn.
Just curious.
Nouriel's on fire again (although a bit hard to follow at times):
As one former senior financial official put in a private Davos session on systemic financial risk if we had today for the auto loans and credit cards an instrument similar to the ABX for pricing the value of subprime loans such form of market transparency would be self-destructive and lead banks to show massive additional losses, even larger than those warranted by the worsening fundamentals in the consumer credit market. In other terms, marking to market in a market where prices are discounted by illiquidity may be self destructive.
More Roubini:
While public policy should be concerned about a contraction of demand and economic activity that is in excess of what is necessary to restore economic and financial sustainability public policy should not aggressively prevent the necessary economic adjustment that is now required, i.e. a painful reduction of consumption relative to income and an increase in the saving rate that is necessary to bring the economy on a more sustainable growth path over the medium term.
Interesting anecdote from an out-of-town co-worker. He lives in Phoenix area, and is frustrated because he cannot re-fi his crappy mortgage (he used builder financing in order to be eligible for builder incentives on the house). Unfortunately, enough of his neighbors have foreclosed and lowered prices that he cannot refi.
The interesting part is this. The 2-3 houses that have foreclosures on his street have all foreclosed more than once in succession. Apparently, a bargain-hunter investor buys the house, then fails to sell it for a profit, and forecloses. The bank gets it back and sells it at a yet-again lower price.
So thats a little scary, the thought that a significant part of the pathetic current level of demand might actually be flippers still! I guess I shouldnt be surprised after seeing the recent stories about foreclosure bus-tours.
My buddy bought capped wells near land run by the big cats who had come up with better extraction processes.
Not only was he making money because oil blew up, but the yields increased as well. The mother of all coattail ridings.
He took the money from that and put it in coal pits that were a mess because of some back tax issues. Got those fixed and turned around & flipped it at a time when coal had blown up.
He's been busting his ass, but the last 5 years have been very good for him.
If the CRE bust in Phoenix happens, there's gonna be some good opportunities in niche offset printing. You can get the machines for next to nothing, but it's the footprint you need to make it happen.
Just curious.
homedad43 | 02.09.08 - 1:27 am |
Homedad,
As somebody who has been involved with ag and has family that still is I am pretty upbeat on it. Some of the best GMO stuff for grains is testing or just about ready. I think you will see some pretty incredible gains. The one thing thats hurts is the high cost of Natural Gas which is used in fertilizer...
Chris
I completely agree with Krugman, but I think it's a lot worse than he's letting on. I may not have his gravitas -- hell, or any gravitas at all -- but I care so strongly about this that I wrote it up into a little document. It's hosted on my corporate server because I'm ghetto 1995 and have no blog. Without further ado:
Liquidity Trap #2: Baseball Bat, Real Estate Face
404 Not Found
I'd really appreciate all your comments and feedback on my writeup. It's pretty amateur compared to the stuff here, but hopefully you'll find it elucidatingly entertaining anyway.
MP,
I will take your 5 axis CNC's, or we can sell them to asia....
I am going to line my jocks with foil after reading this thread.
Bring back conjure bag, i have some red meat for it...
tj,
Hope you get a place there some day, but it'll probably be a few years before prices are reasonable again.
mp,
Conjure's friggin scary. Check this out:
FT Alphaville » Blog Archive » CDO update: talk of firesale, liquidations begin
Neal writes:
From Thinkprogress.org
Poll: to fix economy, get out of Iraq.
The heck with Congress big stimulus bill...
Yeah..screw that 'Stimulus Plan' cuz most of it is gonna get sand bagged anyway. Why not do something more meaningful - like jack everyone's FICO scores up 100pts. That ought to help reinflate the economy lafin
Re: the last few replies concerning the value of firesale prices for high tech machine tools. I just finished a 40+ year run in 'high tech' - the last 30 yrs of which were with DEC/Compaq/HP. Back in the early 90's when DEC downsized a lot (most) of the capital equipment ended up in salvage. They gutted whole facilites and loaded the 'stuff' (computer rooms of VAX minis, solder machines, circuit board test stations - you name it) into trailers. There were 40-50 parked in the lots at some facilites. It got sold by the trailer load to the highest bidder. More often than not as salvage.
I recall dropping in at the local auto repair shop/salvage yard one Saturday to have a couple of beers with the owner. He dragged out a full height 5 1/4 inch hard drive (RD54) and asked if I knew what it was and how much it was worth. I informed him that the MSRP was perhaps $2500 but it was of no use to anyone other than those who had DEC gear. Why do you ask? Well, he said, I just got one of my trailers back and its got hundreds of these in it... It also held a bunch of storage racks (fully populated) and 10-15 VAX 780's. In the end he stripped the racks of the lead counter weights for their scrap value and gave the rest to an unsuspecting sucker who jumped at the chance to take it away for free. What I'm saying is that high tech stuff quickly depreciates from asset to liability.
I've been watching the country rip it's industrial heart out for my entire life as well. The part that worries me is that at 40 I'm the youngest guy in my department. When folks finally wake up and realize that we need to rebuild our infrastructure, there will be no one to do it.
At least when it happens there will be interesting jobs available to those with skills. Any ideas what the big
ones will be?
Turboelectric trains (coal fired condensing steam engines)?
Grid tied solar on every roof?
LNG terminals?
Coal gasification/liquification?
New housing insulation retrofit boom?
sportsfan,
Thanks! Change of plans, though. LV isn't totally out of the picture, but we're now thinking of places in San Diego and maybe Tahoe when prices hit bottom a few years out. Once housing is permanently relegated to non-investment status, things should be damned reasonable.
lots of cause for concern add to it thanks to our health care system we lose consumers to minor illness now.Look at the bankruptcy reasons not job losses medical bills. Health care is taking to big a piece of the consumer pie.and that is not going to improve. sorry to add another worry bead to the string, but that has to be a factor in consumer spending and it always gets a free pass .
You think Roubini is bearish? Check out Russ Winter:
A Road Warrior or Mad Max environment is close to what is developing.
I'm beginning to think I'm not bearish enough.
Thanks for all the manufacturing discussion. When the media in this country portrays manufacturing they generally talk about some guy on an auto assembly line. But there is that critical second layer of quasi-craftsmen doing tool-and-die or churing out low-volume speciality parts that gets overlooked, and that the CEO and MBA just don't understand.
beware Illinois is back with vengeance
https://research.stlouisfed.org/fred2/series/ILHVAC
tj & the bear | 02.09.08
I guess AOTC is gonna get to find out why the monoline failure is important sooner rather than later.
did you know that unemployment rate in Rode Island is already 11 years high ?
Chris/Cobradriver,
The one thing that hurts is the high cost of natural gas which is used in fertilizer.
Would you take a look at a company developing alternatives? While it reads a bit 'new age', they've attracted some of the right sort of attention. U of Maryland is looking at this as well and has test plots in progress.
Eprida: Sustainable Solutions for Global Concerns
Apologies for OT. It's awfully late.
Bearerists!
heads up on credit and the economy. Yesterday I received the new Business Week with a cover titled: Credit on the Edge." A couple of elegant competitive ball room dancers are dancing on what appears to be the edge of the Grand Canyon. Maybe CR can post something from this issue of BW.
It seems that banks are getting very worried about credit card defaulting. The solution: "We are cutting your credit line from 15K to 2K and we are increasing your interest from 15% to 27%." ISn many cases, rates are going up and credit limits down on people who have been paying on time. Seems a little like ARM resets, although less predictable for the borrower.
Does this sound like a good plan to reduce the risk of credit card default? Might cause more "saving" and less spending in our economy. Sounds like the American consumer is waking up with a big headache.
Homedad, re the ag business.
CRB hit a new high yesterday. Wheat chart has gone hyperbolic.
I expect two things in the next year. First will be that these increased costs filter through to the US consumer.
Second is, with corn and wheat stocks at 2-decade lows, expect hypersensitivity to weather. An El Nino off the Cali coast this year and it could get very, very hungry in Chindia and Europe this year.
For people interested in benefiting from higher food prices without directly buying commodity futures check out "DBA." It is an ETF tied to the price of soybeans, wheat, corn and sugar. Check out the chart--it's great and probably less risk than a similar chart for equities.
Personally, I think any predictions made now on the impact of this recession are mere shots in the dark.
There has simply never been a set of circumstances like this. Six months ago, there were executives at Citi that didn't understand the workings of a SIV, but they had $100B of them. How can anyone pretend to be able to map the what lies ahead?
Then there are the real black swans, bird flu, another terrorist attack, etc.
These predictions of the ultimate unemployment peak are worth no more than the idiotic ditherings about a "48% chance of a recession."
I wonder who is going to buy anything when this great leveling with the East occurs? Maybe the north and south...
That said, if the same bright banking bulbs who sold off our country for debt scrap are slouching toward such a "leveling," I say be careful what you salivate for. Get an American fat and happy on fake wealth and they'll do anything -- gladly march off to a bad war, support a government that outsources their future, sign up for an overpriced house with a lethal mortgage, etc..but once they realize how they've been played you are going to have an angry, sober, perhaps even vengeful, populace.
Wave that level around in this town and you're likely to get shot.
And just think: all those computers that have been great for automating things are also splendid tools for organizing and communication. Angry people with a common mission can join forces as never before. And what with our war-making machinery outsourced, do we really want to go around creating unrest? Especially in our own back yards?
Re natural gas: there's a good chance prices will plummet in the spring. Inventories are way higher than ever. If oil falls 10%, I bet gas falls 25%.
Karl Denninger had two tibits last night that should be investigated by CR and this sites bloggers. First, it said that mortgage insurers are pulling out of CA, Nevada and parts of Florida. This would presumably mean 20% minimum down payments accross the board.
Second, it showed that AAA CRE spreads have skyrocked in the last few days. This suggests that something important and not good in boiling up in commercial real estate.
Go to
Over-the-Year Change in Unemployment Rates for Large Metropolitan Areas
which is the YOY change in the unemployment rate in the 49 largest metropolitan areas (population 1M or more).
Only one--Boston shows a significant decrease--0.7%
Only 5 show stable or decrease.
The remaining 44 show increases in unemployment.
27 of the metropolitan areas show increases of 0.5% or more.
11 show increases of 1.0% or more.
Tampa/St. Pete/Clearwater FL rings the bell at 1.7% increase in unemployment.
And this is from Dec 06 to Dec 07, during which denial in all forms was present.
Can't wait for an update.
I love the gloom in this thread! I'd like to do an age demographic for all those that seem to think that everyone now couldn't re-build a manufacturing base and that it's all in the past. It isn't. And I seem to remember all this talk when I was younger about Japan...now just substitute China and we're back in the same place.
If it becomes investment positive to build out manufacturing in the US it will happen full stop. An important point earlier was the automation argument, and that is key to some of what you see happening. Remember as the cost of oil goes up, so does tranportation costs, and that starts the process of re-patriation of some manufacturing. But if you're thinking this will translate into lots of jobs on lines, you are wrong. The type of job has shifted thanks to technology and are more likely to be IT-based than hands-on.
Have you ever been to a modern auto assembly plant? I was at the Chrysler plant in Mexico City...you could eat off the floors and everything was automated. Good jobs, but not as many of them as you'd think. The jobs are in the systems that make it all run, and to some degree the technical maintenace of the equipment. So what you are seeing, in my opinion, in a net shift in jobs, and you'll also aee a re-partriation of manufacturing here, and that's what's going to lead out of this resession. My prediction and I'll stand by it.
This summer could see the mother of all garage sales in the rust belt.
In terms of ACTUAL garage sales, I spent all last holiday shopping season sitting back and watching people buy stuff for me. "That's right, hon. Go right ahead to that electronics sale. Buy my shit for me. I'll come by to your garage sale next spring to pick it up."
"Grid tied solar on every roof?"
My personal favorite. A national project that'd bring jobs to nearly every local, with a real long-term payoff: cheap energy, and a much more decentralized grid.
All it needs is some political leverage and the right sales job.
BillD
Sounds like a formula for more credit card defaults. Lots of cut up cards returned to banks and lots of past due accounts.
Add to that, the attending decrease in consumption will make things still worse. Had to quantify in dollars at the moment.
RE- "...with ever increasing levels of automation, human labor is increasingly commoditized at ever higher levels of skill."
True: however you have to wonder if "financial engineering spreadsheets" that allow a quick determination of loan eligibility based on FICO scores is an advancement in the economic system.
Spending on infrastructure, localized manufacturing, rail, and neglected downtowns.
Again, when and if we have the money to do it. Ultimately, this makes sense. Highly capital intensive, large scale manufacturing won't generate enough jobs, or be competitive without high tariff rates.
The city and town of the future will look a lot like the cities and towns of the 1950s.
subtle wealth
enriches those
who embrace
the zephyr
Ipodius--
I agree, as the automation of manufacturing becomes more intensive and the flexibility of the automation of the manufacturing increases, total employment in manufacturing decreases.
Manufacturing then become the province of those large (sometimes flexible) operations able to assemble a line-up of killer automated equipment. Labor cost become relatively insignificant in the per part cost break-down. A plant could be anywhere, with perhaps the most important factor in plant location being shipping costs (in and out).
But in no way does it spell a revival of manufacturing jobs. As you say--picture a 100,000 sf facility with 10 people per shift working as machine operators--the remaining 40 or so in shipping and handling.
Not a recipe for a vital economy for the workers. Not a recipe for vital municipal, state or national tax receipts due to the "If you do that we'll relocate" hammer.
And the labor intensive parts-IT and technology--brains grow everywhere and can be connected by cable--so I don't see how a 50-100K a year programmer or designer can compete with 5-20K a year overseas option. The salvation that IT was supposed to be in the 90's will prove to be as ephemeral in the new century.
And the reality is, most Americans don't want the drudgery of sludging through the routine and essentially repetitive nature of manufacturing IT/technology jobs.
So, manufacturing returns, but the effect will be minimally positive and in no way recreate the 50's and 60's.
wasnt Sweden richest worlds country at some point
Still is, if you measure wealth in terms of beautiful women and world-class movie directors.
Very true yossarian. If you analyze the supply chain and costs, you will see that it is beoming more expensive to ship heavy and large items. Clothing, sure, but machines? Not so much anymore. And I truly believe oil will never come down past around $60 a barrel. So run some costs on shipping and moving items around the supply chain. It becomes cheaper to assemble here and ship. Then it becomes cheaper to build some one the components here.
If you look at a state like MI, for example, we've now destroyed the costs of labor and living to the point where you can get people to work for a lot less than they used to. Was this by design? I don't think so, but it is a result. So, you can get a factory for next to nothing, equipment for next to nothing, and have a labor pool that will work for less than half of what it used to. Now, whip out your spreadsheet and look at the costs. Do you go to China and ship or here? As costs begin to increase in China (which they are...clothing is already moving to Vietnam, btw) what do you do?
mp and Conjure are being quite shrewd. This is a manufacturing bottom in places. It's a good time to shop for the swing of the pendulum in the other direction. There is money to be made.
After reading all of the above, I have only one question: Is it better to buy semi-automatic rifles or shotguns for the coming feudal state we'll be living in? I could make the case for either, so I'm conflicted. I need an outside opinion.
And, Ipodius
China still first choice of multinationals for R&D_English_Xinhua
BEIJING, Feb. 7 (Xinhua) -- Multinationals have set up 1,160 research institutions in China by the end of 2007, according to figures with the Ministry of Commerce....62 percent of the global companies rated China as the most attractive location for prospective R&D, said a ministry official, citing a survey conducted by the UNCTAD (United Nations Conference on Trade and Development).
"China welcomes more international hi-tech companies to set up regional headquarters, R&D centers, procurement centers and training centers in China," said Zhang Xiaoqiang, vice minister of the National Development and Reform Commission.....Major industries include bio-medicine, aviation and aerospace, micro-electronics, photoelectron and software.
In 2006, the total revenue of the hi-tech industry exceeded 5.3 trillion yuan (706 billion U.S. dollars), with its added-value contributing 8 percent of GDP growth....
Zhang Weixing, an official from the Chinese Science and Technology Ministry, said this January that China's invention patent applications amounted to 210,000 in 2006, the fourth largest in the world. More than 40 percent of these applications came from foreign companies.
Neal, I can tell you from my own experience that connecting IT workers by cable and programmers too is NOT the cost-effective measure people think it is. Frankly, I've NEVER had an outsource project (and I've used people in Eastern Europe, Russia, Ireland and India) that didn't require a whole lot of brain on this side of the cable in terms of quality checking (their code in India and China is generally AWFUL), management and general baby-sitting. And most I talk to have had similar experience.
The issue is that after the tech bust, we just can't find people here. That will change. Again, the reason to outsource is NOT to save money. You don't. So yes, I agree that manufacturing jobs will not return but manufacturing will. The jobs will just be different and require different skills. Tis always the way...look at the changes in the last 100 years. Displacement happens every other generation or so.
Neal, on that article...the actual worry is not what China is doing there in terms of outsourcing, but in terms of not providing a net inflow of talent here in the US for us. A lot of our tech talent comes from immigration because the opportunity is better here and life is better (or at least thought of that way there). What happens when they keep their talent at home? Do we get the workers we need? And THAT is the lever for outsourcing...you can't find what you need here so you have to supplement elsewhere, not the cost.
So I'm worried that the policies of immigration which are hamfisted (just try to get H1B visa for people that you really do need because you can't find them) will stop the infow, that China and India will retain people there, and that we won't be able to produce the talent in the numbers we need here.
Another look at San Diego Jan. defaults and foreclosures (NOD's are defaults, NOT's are foreclosures).
January's Foreclosure Explosion | Piggington's Econo-Almanac | San Diego Housing Bubble News and Analysis
This is a major development, IMO. One year after the subprime blow up, foreclosures are reaching some of their highest rates of acceleration. What could cause such a ramp if not subprime? The recast on Option Arms is one reason for sure, but that alone may not explain it. Clearly, if you look at the chart, we're reaching not only unprecedented but also undreamed of levels, even though unemployment in San Diego is still relatively low.
What gives?
The spikes are a consequence of declining 2nd lien availability, IMO. No seconds means no cash-outs. No cash-outs means families must face the reality of their budget: they are unable to service their debt, much less maintain consumption, at current income levels. Once families project this conclusion out into the future, there is but one logical choice for those underwater:
Walk away.
By renting, they reduce housing expenses by 40% without sacrificing quality.
Yes, Ipodius, but the economic effect of a handful of babysitters and checkers here doesn't replace the economic effect of a building full of "sludge and drudge" employees.
All economic dislocations are painful Neal, look at the industrial revolution and the early part of the 19th centry with the assembly line. This is no different except the revolution is in connectivity. This is our version of it.
ipodius | 02.09.08 - 10:32 am
I find same thing: with my software engineering job in Orange County, CA, I have to work with a team in India and they do a great job of making charts and spreadsheets but the actual quality of work is rather poor and often delayed. And I shudder to think that we (the team in the US) have to take over the product after they (India) are done....
India and China WILL restrict departures of qualified IT/Tech workers for the reason that those workers are the ones providing the way forward for their economies.
CA is not alone in that respect... oddly the states that are the reddest and most likly to rail against high domestic spending are the ones who always get far more back from DC
That includes SC, home to senator Jim DeMint, who would cut federal funding to Berkeley's education and nutrition programs over the "No Marines" flap. In 2003, SC received $1.36 in federal dollars for every $1 paid in taxes. In the meantime, CA received 79 cents for every dollar in taxes delivered to the federal treasury. DeMint can go suck an egg ... or better yet, have HIS sons and daughters enlist in the Marines.
Neal, for a period of time I was involved with the machine tool industry, in particular the cutting inserts which were produced in them and used by them. A major change occurred in the production of the relatively simply shaped carbide inserts with the introduction of sophisticated automation.
When carbide inserts were first produced back in the 1930s, making an order of 100K inserts might have required a plant with 500 grinders and several thousand employees working for a month to produce the order. Even by the early 1980s, the production needs would still have required maybe 100 grinders and a thousand employees. By the early 1990s, controlled grinding cells existed which took up about 1000 square feet of space and which could produce 100K inserts over a weekend - without anybody doing anything other than loading the pallets of blank carbide, removing the finished inserts and making sure the machine was running and had fluids.
That was fifteen years ago. The new computer systems and sensors would enable this technique to grind more complex forms and shapes. We're never going back to the old processes, so we need to determine just how we maintain a middle class when manufacturing has gone the direction of yeoman agriculture in the last fifty years. Otherwise, we have way to many guns in this country.
I agree, it will be painful--just as there were winners and losers in the industrial revolution, there will be winners and losers here.
The problem for the US is that the middle class is populated with workers that will most likely be displaced in the globalization of the economy.
Not everyone can be in IT and technology.
PrahaPartizan
Yea, you are sooo right. The only way I know is high taxes and lots of public service work. Say saving forests in the name of green house gases or public health or research.
But the thing I find interesting is the party that wants to concentrate the wealth in the hands of the few also wants to put lots of guns in the hands of the victims.
PrahaPartizan, dobry den
I'll give you where they are but no one seems to notice. My job is to head up the software engineering side of the house and the IT/Infrastructure side. When we talk about it we, in rather veiled terms, look at it as the blue collar side and the white collar side. All the blue collar jobs are the network and infrastructure jobs. The people that would have done the grinding and loading and now doing the racking and stacking. The people that would have run the machines and now running networks. All you need is a certificate from Cisco and some certifications and there you go...you now have the blue collar equivalent of the job that used to exist at the GE plant not far from where I live. That's the ticket to the middle class now.
The white collar side is the software side which requires CS degrees and a whole lot of critical analysis and management skills. The pay structure for these things bears this out and, actually, good "blue collar" networking people make probably more than they would in the past loading a lathe machine. Again, it's a shift and all shifts require change in thought and skills.
Actually Neal, I fear that the US is loaded with WHITE collar workers that can now be displaced. That's actually the real problem and fear, isn't it?
Ipodius--yes there may be blue-collar job equivalents in IT, but what is the absolute percent of total employment of those involved as opposed to the total employment of those in the hey-day of manufacturing.
I think you will find an order of magnitude difference.
Ipodius, I agree with your assessment of the net migration of manufacturing jobs given overal energy cost, but I think two additional factors need to be included in the mix: time and certainty. Right now, high-speed maritime transportation allows huge numbers of cargo containers to be shipped from the far PacRim to North America on a regularized basis with a high degree of certainty that those shipments will actually arrive within a pretty tight window of time. That allows the modern physical and fiscal control systems to minimize costs of shipment and inventories.
What happens when the shipping lines can't get fuel and the freighters can't sail or must sail at a fraction of their designed speeds? What happens to the models when twice or three times as much inventory must be kept in the pipeline just to account for the uncertainties of shipment? That will change the make-here/buy-there equation. We're not quite there yet.
"Actually Neal, I fear that the US is loaded with WHITE collar workers that can now be displaced. That's actually the real problem and fear, isn't it?"
That is true, we have run through the illusion of IT saving the economy and now the illusion of finance and real estate transactions saving the economy.
Don't even begin to talk about health-care saving the economy--thats the snake eating it's own tail.
Ipodius, I agree with your assessment. Unfortunately, few want to address the issue that the number of new jobs requiring the advanced skills will likely by less than the number of old, lower-skilled jobs which will be destroyed. The political system is structured right now to avoid spreading the benefits of the new systems and to enable it be concentrated in the hands of fewer people. Such a political system is on the fast track to disaster, as we've seen from periods in the past. Only, now, with the weapons available to even the dullest peon, the outcome can come even faster and more violently than in the past.
I'm familiar with the GE plant of which you speak. Few know just how influential they were in creating new production processes during the middle decades of the last century, not just in making light bulbs, turbine generators, washing machines and refrigerators.
I know Praha! That plant was so busy and bustling...now a shadow. The interesting thing is that they kept all the buildings and infrastructure. I always said that they were moving out the jobs to re-set the wages for the union. Perhaps I was right at the time.
@PrahaPartizan,
Multiple guns for multiple situations. You need a selection to use the best tool for the job.
So, manufacturing returns, but the effect will be minimally positive and in no way recreate the 50's and 60's.
Neal | 02.09.08 - 10:22 am | #
Most mfg jobs today resemble tech jobs more than what you would think of as mfg - guys in plaid shirts & khakis running highly automated machines. These are very good jobs.
For everyone of those there are a dozen folks supporting him/her in an office somewhere - procurement, logistics, quality, engineering, IT, AP/AR and eventually marketing & sales.
While front & back office can be anywhere if you offshore the mfg it becomes logical, almost imperative to offshore the offices too. Likewise as work comes back, look for major int'l producers to start buttressing previously stripped down support operations. They really go hand in hand.
My adviser in college wrote an excellent book on this called 'Manufacturing Works' after a decade long study on communities with and without manufacturing. Those with were far more prosperous on average than those without IF you exclude major money centers like NYC & SF.
People who are removed from mfg think it is still Henry Ford's assembly line - that's been gone before Motown was hot. It is different today.
This isn't a silver bullet or the only thing that will turn the tide against recession. It won't. But if a healthy mfg environment returns in any kind of meaningful way it will be a significant offset to the downward pressures of construction & finance. Get enough of those other sectors kicking in & the whole trend changes.
I knew things weren't right when walking the streets in DC I noticed the manhole covers were made in India.
Regarding outsourcing IT, you have to, and this thread has begun to, make a sharp distinction between IT vs. software engineering to analyze outsourcing as a thread. However, I think the analysis of both leads to the same conclusion: outsourcing is not worth it.
IT is relatively simple at the entry level and becomes more complex from there, but can be learned by experience. Seems ripe for outsourcing on its face. However, a lot of IT involves physical presence: racking servers, physically trouble-shooting networks and bricked boxes, etc. Anyone who thinks IT involves sshing into a box to restart the samba server once a week is kidding themselves. And the time-loop of outsourced IT can (and does) cost companies real money as their workers sit idle. As US wages continue to depress against foreign wages, it will be less and less worth the hassle of outsourcing this type of work.
Software engineering was never a good fit for outsourcing: it requires highly skilled professionals (which are available in much more limited numbers abroad than most business people assume) and the most difficult part of it is exactly what outsourcing hurts the most: communication. Without a constant feedback loop between the consumer and producer of software (ideally with physical presense/whiteboarding) you are almost guaranteed to end up with crap. Teleconferencing doesn't do it. Email doesn't do it. You need to be able to have micro-conversations when a spec is incomplete or ambiguous. You need the developers to see what the consumer sees, to see how he or she works and understand what he or she is most held-back by. These are things that cannot be written down in a spec sheet and sent off to India or China for implementation. Unfortunately, the Y2K fix, which was a rote search-and-replace of COBOL in most cases, convinced U.S. companies that they had found the software development silver bullet. Most are learning, painfully now, that there is no silver bullet. If only someone had written an essay on this topic twenty years ago. Oh, wait: No Silver Bullet Essence and Accidents of Software Engineering
Anyway, while I agree it isn't large enough to keep america spinning (I'm in the ultra-bear camp, if only for fun) I don't think the IT/Software Engineering industry is as threatened by outsourcing as many do. OTOH, I have a vested interest in it not being threatened, so perhaps I have blinders on.
Cheers,
prat
ipodius | 02.09.08 - 10:51 am |
I am a blue collar guy. I am a A&P mechanic who also is a ASE Master Tech. Right now I could loose my job and find work in less than a week. And get a raise. How do I know this? My brother just called and said his company is looking for A&P's and starting pay is approx 40.00 hour...To many people refuse to roll around in grease or work third shift for the good jobs...
PrahaPartizan | 02.09.08 - 10:30 am |
After 4 years in the Corps and having my brother spend 12 years with Army Spec Ops(160th SOAR) I am kinda opinionated on this.
A current employee who lives in Tampa almost was killed a couple of months ago. 13 gangbangers kicked in his apt door(nice place) and bedroom door and beat him to a pulp. He had no defensive training ever. The assholes were looking for the guy 3 doors down.
The cops are only to clean up the mess.
Chris's final rule...If you are in my home and not family you WILL leave in a body bag. Period. The police can clean up when they arrive...
Chris
P.S. - Did I forget to mention PRACTICE ???
The only thing I can add to this thread is that I've never been to another city in the world with better looking women than Stockholm.
Don't even begin to talk about health-care saving the economy--thats the snake eating it's own tail.
Or education. There is going to be a real shake out of universities in this country over the next 20 years according to the health of their endowment. Not the famous ones, of course, but think about how many colleges you pass driving down the highway. Probably will be able to buy some campuses cheap, if you are willing to deal with all the deferred maintenance.
Chris,
Unfortuntely, in some places (e.g., CA) just owning an AR-15 in any configuration is illegal.
In some really weird places (e.g., CA) it just as illegal to own 20 or 30 round magazines.
However, they haven't tried to outlaw 12 gauge or double ought buckshot . . . yet.
"so I don't see how a 50-100K a year programmer or designer can compete with 5-20K a year overseas option..."
OK, fine. But wait till that 50-100K a year salary in the USA deflates down to 30K-50K. While we're at it, riddle me this- what happens when your offshore providers aren't necessarily willing to take dollars in exchange for their work?
The Hindu Business Line : Wipro’s Atlanta unit to groom local engineers
Neal and all - effective birth control didn't exist in the 19th century. And, yet you can see how birthrates fell precipitously. It did exist in the 1970s but it was not easy to obtain it or use it.
Women have so many options to restrict childbearing today. And, they are doing it. Look for a further drop in numbers should the economics worsen.
Europe is basically at full employment for its European population through this means - though its immigrants are not at that level, certainly.
I'm done with worrying about race or ethnicity. My spiritual take is that the world needs a certain number of humans to celebrate it (the world). It doesn't need my genes - others will do just as well. The population must shrink, one way or another. If capitalism can't succeed without ever increasing numbers of people, then it will perish and it will deserve to perish.
But, more to the point, how do you all figure in a shrinking workforce?
ADD has kicked in this morning:
We're fixin' to relearn why there are universal cultural taboos against greed and hubris.
How will they control the masses while the National Guard is deployed elsewhere? Blackwater.
Rifle or shotgun? Both.
"This is America - things like that don't happen here." Been to NOLA. lately? Remember: these people were described as being, "too stupid to get away from a hurricane." The same will be said of the unemployed. Meet the new Okie, same as the old Okie (except not as 'OK').
There are rational, reasonable, and realistic governmental responses to our economic problems, but we will not avail ourselves of them until the social fabric is torn, ad then it will be too late. Maybe if we elect Huckabee, Jesus will come down and save us. Just gim'me some old-time religion.
Every number and statistic generated by the Government/Industrial complex is false. Every. One. Who ya' gonna believe - them, or your own lying eyes?
It's time for an independent audit.
In 2005, I saw my neighbor's kid - a full-time student attending the local community college - at he shopping center. He was driving his new Mustang 5.0, wearing $100 tennis shoes and fancy sun glasses, sporting his cell phone and his ultra-chic girlfriend. He was buying some party supplies for the weekend. Until that moment, I had no idea my neighbor was rich.
Hey! Let's all put our retirement money into the Stock Market!
Hey! Let's all buy a house!
When hard times come, the wealthy will support the poor because their highly-developed sense of patriotism will require them to. It's all about values.
I'll be back with more...
sportsfan | 02.09.08 - 11:45 am |
I was stationed at El Toro and worked at LAX for about 10 years. So yep,I know all about cali's goofy gun laws. I am one who prefers to vote with my feet. What was really funny was leaving to Ohio and within 6 months going "Holy crap,were did all is extra cash come from". I was young and had not really realized how insane all of the fees,taxes and other bullshit out there were...
Chris
!!!CONJURE COMMUNIQUE!!!
Some of the readers on this blog seem to think that Conjure Bag is forecasting the end of the world as we know it. THIS IS NOT CORRECT.
Although Conjure thinks a global financial meltdown likely, that does not mean a global depression as some have falsely attributed to him.
Conjure thinks the depression scenario is worthy of consideration only because current economic circumstances have made it POSSIBLE, NOT LIKELY. Conjure is always searching for new information and calculating the costs associated with opposing courses of action. That is why he enjoys the most excellent writings of CR and Tanta at Calculated Risk.
Having said that, Conjure is struck by the level of fear, paranoia, and naivete here. In other words, CHILL OUT!
Anybody catch the recent CMBX? Here's AAA, fergawdssake:
Products and Services Overview
Look at what it's done the past few days. Parabolic!
Someone must have slipped CB some Kool-aid. I liked him better when he was realistic.
mp: Tell him he can have either the Kool-aid, or the dog balls. Not both.
mp | 02.09.08 - 11:54 am |
Oh,I agree. I honestly think we will muddle through this mess over the period of a few years. I look at my parents. Mid to late 60's. They bought their first new car in 20+ years last fall. Dad is already lookin at maybe another new one this year. After all the years of saving they are finally starting to enjoy spending some of it...Like i said in a previous post,roughly half of their friends are able to retire,the other half will die on the job...This includes people from all walks of life.
Chris
Yeah, I stand by my statement from last night: it wont be so bad.
Many of you seem to be suffering from some kind of great depression already!
I am reading a book that describes a scandaled ridden GOP administration, productivity gains going to the wealthy, wage stagnation for the masses, and a world view point that the market place knows best. Economist supported this with various theories. Policy support low interest rates and globalization.
2008?, naw 1923.
It is true that we have smart folks with tools, but when ideology blinds them the tools are meaningless. The interesting piece of news in the last week was the GOP blocking the extension of UE benefits for ideological reason when all the research and academics supported the extension. The depression will happen because of the lack of leadership, not past economic theory or an appeal to the recent past.
Cobra,
"1. Pistols are backup weapons only.
2. Nothing smaller than 12ga with double ought buck in the chamber.
3. I prefer a short barrel supressed carbine(ar15) with a 20-30 round magazines. The suppresor will keep you from going deaf if used indoors.Seriously.
4. Take a tactical home defense course from someone like Thunder Ranch,Blackwater etc.
5. Practice.Practice.Practice
6. Did I mention Practice?"
I knew there was a reason I liked ya'.
Going practicing with my 10 mili glock and Browning 12 gauge m5 semi auto. 00 and slugs.
Cheers,
Cobradriver,
My first post.
"1. Pistols are backup weapons only.
2. Nothing smaller than 12ga with double ought buck in the chamber."
Preaching to the choir. We have a ranch and a great place on the river, both stocked rather well. My wife has her
pump by the bed and that sound of her racking the load is wonderful to my ears. Nothing like the snick - click to put the fear of god into anyone.
Blair
It wont be so bad.
No, it'll be much worse.
There's a lot more than just two bubbles at work here.
1) Housing
2) Credit/Debt
3) Finance/M&A
4) Currency/Fiat
5) Derivatives
6) Boomers
7) Consumption
8) Cheap, plentiful energy
9) Government
10) and on, and on, and on...
Yes. This time feels worse. Feels scary. A lot of people never noticed the dotcom or the S&L situation. This time, millions of households are hitting the wall after a decade or more of outspending income. Our government is hitting the same wall. We are at the mercy of foreign creditors, which is also something new and scary, and something our leaders don't understand.
Partly because of housing costs, many or most two-parent households are two-earner households, far more than in past crises. That might seem to offer a bit more household resiliency, but in a low-pay service economy, both those jobs are essential to house and car payments. What happens when there are no longer enough dead-end service jobs to go around, as the retail sector implodes?
Then there are all those one-parent households.
At this point, a plain-vanilla recession looks pretty good to me. There are reasons to think we may be on the brink of a significant and prolonged drop in what is called "standard of living." This is actually a good thing, since by "standard of living" we mean consumption, and we consume more than our share of limited global resources. But the transition is going to be painful. It's going to be a forced transition, because most of us have refused to even think about it, much less plan for it. So now it's just going to happen to us.
John Stark,
"many or most two-parent households are two-earner households, far more than in past crises. That might seem to offer a bit more household resiliency,"
No it actually offers lees resiliency. During the 30's, it was often that the wife could find some work while her blue collar husband struggled. Employment often bounced back and forth. NOW if one loses a job...the fit hits the shan.
And whilst I find CB and mp humorous, no analysis is ever offered. As an aside I suggest mp stop feeding bong water to CB.
Cheers,
Misean, Conjure's forecasting accuracy is a matter of record here.
Wow, that's some default rate, D-P-. I'm very happy that I'm on the sidelines here in SoCal, renting.
Aw, mp, it IS going to be a depression! Guaranteed! All, no need to be depressed, just be prepared.
Cobradriver, I don't mind smoking an intruder, but I have neighbors here, as our homes are rather closely spaced in our modest part of La Jolla. We make do with birdshot in a short 20 gauge, and a nice baseball bat. We'll be getting a second 20 gauge for my son, too.
If I see that we are moving to the Mad Max scenario -- a possibility -- we'll upgrade our weaponry.
...and, more importantly, we'll move.
I imagine bad folks think of La Jolla as easy pickings. Probably right.
This will be the wrong place to be if things get bad. Not easily defensible, my neighborhood. Very pretty, but not easily defensible.
Bear market, bear predictions. Easy. Bull market, bull predictions, easy.
1999 gold 250, silver 4. Buy? yep. Why?
I wrote a paper on it.
Cheers,
jg
Get the short stocks for them there shotguns, but otherwise a good choice.
OO is for long ranges, at short ranges, say 10' or less the shot ain't going to spread out much so it don't matter if you get hit with an ounce of 00 or birdshot. The area of impact is about the same.
Not to mention that there is something about a big hole pointed at you that even an assault rifle cannot compare to. The alleged crazy might think he could dodge a bullet from that tiny tinny barrel, but think twice about a shot gun.
Besides a shot gun can be used for hunting and not as likely to attract crazies wanting arms.
One small reason that mfg is going to China: Alibaba Manufacturer Directory - Suppliers, Manufacturers, Exporters & Importers The US govt should set this up for US companies.
mp: do you have any links for machine auctions?
Unfortunately, enough of his neighbors have foreclosed and lowered prices that he cannot refi
Like if nobody in the neighborhood had been foreclosed, prices wouldn't have gone down? Please.
Foreclosures are the result of falling prices, not the cause. While prices are rising you don't get them because the owner can sell and walk with cash.
That said, once price declines get moving, foreclosures do add to supply and speed up the decline.
P.S. - Did I forget to mention PRACTICE ???
Practice is almost everything as it is many things.
I can carry concealed. I usually don't. Why? Weight, need, I go to a lot of places staffed non-rent a cops.
People skills and communication have worked for me. I have been shot at, twice for real. It is not like the movies. I also do not like the mind set that goes with carrying a weapon.
My personal fear is that a lot of gun crazed white suburbanites will seize on a "event" to act out their paranoid end of the world fantasies and get people hurt.
Organize your neighbors - don't shoot them.
Prat,
Great description of the difference between IT and Software Engineering. I worked for a company for about 10 years that went full circle from developing everything in-house to trying to outsource some of the "commodity" work (Java back-end systems, scheduled updates of a very mature code base), and back to developing and maintaining everything in-house. The big problems were communications and quality on their end, and understanding how to manage a project 12 time zones away on our end.
Now I work at a place where everything is developed in house. Even the customer support functions are located here in a location that is VERY expensive. Quality is high, delivery is timely, and people are happy because they're not looking over their shoulders wondering if their jobs are going to India. We're also doing a lot of hiring of people fresh out of school. There still may be hope for those that pursue a CS education.
jg,
Totally correct on shotguns. Why I like slugs. An ounce 0f 8 shot may kill, and will hurt...a slug...now that's a hole.
Cheers, I'm off.
SC- do you have any links for machine auctions?
SC, believe it or not, there is no easy answer to that question. It depends on what you're looking for and how big of an operator you are. Personally, I do not go "window shopping." There's too much available out there. I know exactly what I want and go searching for it.
The best source for finding small quantities is Craig's List followed by EBay. Generally speaking, EBay equipment has high reserves and the machines are usually overbid by serious hobbyists. The sellers know this. Many of the large auctions are advertised on EBay, but they tend to attract machinery dealers.
I tend to lurk at machinist boards. The people there have their ears close to the ground and generally know what's going on. You can get advance knowledge this way.
Also, a lot of machinery dealers are beginning to hurt and are looking to offload inventory.
Needless to say, beware of "Rustoleum Rebuilds." If you're going to play this game, you need to know something about machine tools, lest you buy a piece of junk, and you must be prepared to move it when the deal is made. In short, they want it gone. Many, for example, have building leases expiring and they must clear the facility. You must also be prepared to deal in cash, the green kind. Nothing illegal here, it's because there are a lot of folks hurting, and they're always willing to give an additional discount for green.
I imagine bad folks think of La Jolla as easy pickings. Probably right.
This will be the wrong place to be if things get bad. Not easily defensible, my neighborhood. Very pretty, but not easily defensible.
jg
La Jolla not easily defensible?, You have geography working wonders for you; the ocean on 1 side, mountains to the East providing natural choke points.
Barriers along the north at La Jolla Vilage Drive, at the south at Colima.
Restrict road access to points at La Jolla village drive, Soledad Mtn road & La Jolla pkwy.
All you need is 3 people who can operate a bobcat.
"Why I like slugs. An ounce 0f 8 shot may kill, and will hurt...a slug...now that's a hole."
The first round or two: slugs for distance. If you miss, or there are multiple targets, 00 as they come closer.
That's what I carry on the boat.
yogurt,
Not sure what you're all worked up about. Foreclosures are merely responsible for marking prices down more quickly. The guy who cannot refi (as a result of the foreclosures) might have been able to refi if there had been no transactions. That's not to say prices won't come down eventually.
Misean, you quoted me out of context. You agree with me. Here's the complete sentence:
(Two-income households) might seem to offer a bit more household resiliency, but in a low-pay service economy, both those jobs are essential to house and car payments.
Yossarian writes:
Spending on infrastructure, localized manufacturing, rail, and neglected downtowns.
Again, when and if we have the money to do it. Ultimately, this makes sense. Highly capital intensive, large scale manufacturing won't generate enough jobs, or be competitive without high tariff rates.
The city and town of the future will look a lot like the cities and towns of the 1950s.
Yossarian | 02.09.08 - 10:19 am |
Yossarian,
A big IF.
When your flat out penniless broke you HAVE NO MONEY TO SPEND. That is what broke means and that is what awaits the US.
Have you ever seen the Mad Max movies?
I tend to lurk at machinist boards.
mp - would you mind sharing what boards those are? Thx.
Gatsby, you obviously have never been to Rio in Brazil...the only place where I lost my composure with women...so beautiful that you will write bad checks if you don't focus..
My sense is that it will come as quite a shock to most Americans in and after this recession that the so called "service" economy will prove an abject failure at providing the income and spending power needed to bring about any meaningful recovery.
The last recovery was a result of massive malinvestment in housing stock and all things that go with it, along with reckless consumption provided by the household ATM. Those options to a large extent will no longer exist this time.
So in this recession, if US consumption collapses and wages / incomes remain stagnant in low paying jobs , or even continue falling , from where will come the kind of demand that might cause manufacturing to grow?
"Again, when and if we have the money to do it."
Of course we have the money to do it. Just calculate what is spent on:
Frankly there is more money than most people know what to do with. It's simply a matter of priorities.
diogenes,
I will humbly add Moscow.
Makes sense, vader and M-.
Hey, you know the lay of the land here, Alec!
Nova, very wise words. I don't bear arms or rattle on about armageddon, but I do live in NYC, and I'm not fooling myself about how far you can push a populace down before things get ugly.
Also not fooling myself that the very rich are wise, long-run thinkers. Get out your history books. They have a long history of squandering and exploiting until they crumble governments -- and often their own fortunes.
The saving grace of the U.S. has aways been that occassionaly our government wakes up to this and takes countermeasures. I think this is probably the only reason our republic has lasted this long.
These times might not require guns and bunkers .. but I suspect they require a wake-up call of historic proportions.
It seems like a real endgame here: So, we'll have an economy based upon dog-walking and nail-painting, fueled by entirely automated plants in China that employ almost no one. How, exactly, is that going to work long-term?