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Author Topic: Post September 11 Economics
Babbler # 1441

posted 25 September 2001 02:26 PM      Profile for IndieJ     Send New Private Message      Edit/Delete Post  Reply With Quote 
I have been following the discussions in the U.S.A. of the economic consequences of the WTC destruction fairly closely and I find some curious oversights.

1) There is much talk about the average American families' net worth and income. In a nation where three individuals - Gates, Ellison and Wall - have a combined net worth equivalent to the total net worth of the bottom 100 million Americans, I doubt the validity of discussing the aggregate net worth or income and dividing it by the sample size to give an average value per family. Other estimates suggest that the top 20 percent of families own most of the equity in stocks and that the top 50 percent have 96 percent of the total net worth. Would it not be more insightful to divide the population into quintiles and analyse each segment individually?

2) There are comments from senior officials in the Bush administration that it is the patriotic duty of Americans to buy consumer products at a time when it has been expressed that the current family debt is at a historic high (see #1). At the same time the Congress working in conjunction with the major banks have a bill pending to make it harder for consumers to declare bankruptcy and start over.

3) Now that the market is in a 'dead cat bounce' some of the same commentators, who said in February that it was a good time to buy stocks are now saying that the market is about to bottom out. This argument is usually based on the P/E ratio. The problem is that the earning denominator is predicated on projected earnings and they do not articulate the derivation of these projections. If your P/E ratio is a 'good' 15 and the actual earnings are half of the projections then the ratio becomes a 'bad' 30.

Perhaps someone could clarify these points for me.

From: Scarborough ON | Registered: Sep 2001  |  IP: Logged
Babbler # 44

posted 25 September 2001 08:22 PM      Profile for Doug   Author's Homepage     Send New Private Message      Edit/Delete Post  Reply With Quote 
What you mention about consumer debt is perhaps the largest problem the US faces in avoiding going into recession, assuming that it isn't already too late. High debt on the one side used to be counterbalanced by growing assets - at least for mid-middle class Americans and above. The credit card bills were going up, but so was the value of people's homes and investments, which allowed consumer spending to continue to grow. Now, of course, that's not the case. The bills are still coming but the assets have dropped in value and continued employment isn't at all assured.

This is making attempts to stimulate a recovery either from the monetary or fiscal side quite difficult. Tax breaks aren't encouraging greater consumer spending, they're encouraging personal debt reduction - which may help spending later, but not now. Lower interest rates either aren't yet reflected in cheaper mortgages and credit cards or aren't having an effect because people are worried about their ability to service and pay down what they owe. Businesses aren't seeing the increased sales that would justify borrowing to invest no matter how low interest rates are. They're pretty screwed - and of course, 40% of the Canadian economy being exports, 80% of which are to the US, we're screwed right along with them.

From: Toronto, Canada | Registered: Apr 2001  |  IP: Logged

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