A deeper recession on the Horizon?

[DonaCatalina]

But when gasoline costs consume as much as 8% of a household budget, recession might be inevitable. So says Jim Swanson, chief investment strategist at MFS Investment Management. He considers $4.15 a gallon the tipping point, and notes that it preceded recessions in 1974, 1978, 1981, 1991 and 2008. Gasoline is now at a 33-month high near $4 a gallon, and is poised to keep rising.

[Merlin the Elder]

We were already well into a recession in 2008 when gas spiked, it's just that certain government officials weren't willing to admit it. If gasoline is 8% of the household budget, there is something terribly wrong besides the price of gas. I spend more on dog and cat food in a month than I do in gas, unless I'm traveling.

We're faced with problems that aren't going to be properly addressed because there are basically two political parties, and neither of them has the brains to think, and neither gives a tinker's damn about America—their only concern is their party winning. The radicalism we're seeing these days isn't helping at all, and in fact is further dividing us.

The economy is grossly affected by political climate, whether you want to admit it or not, and the climate right now sucks. It's time to stop playing king-of-the-hill and start taking care of business.

[Mairte]

AGREED.

[Capt Spleen]

This country is officially in a Double Dip recession.

[Merlin the Elder]

It's difficult to know what to expect, but we as a country are terribly spoiled, and terribly frightened and paranoid. It's nothing new, and it cannot be laid at the feet of any single administration or party. So this isn't about politics.

What do you do when you can't afford something? You don't buy it, that's what.  Why is Arkansas not in the list of 40+ states that are in danger of default? Because our constitution states that we have to have a balanced budget. Sure, this state is way behind in a lot of ways, but if the rest of the states hadn't over-extended themselves, they might not be top of the list of states with the highest-paid state employees, and be in trouble financially.

We (Nim & I) made some serious sacrifices in the past, and when I saw what was coming, I tightened things up even more. I'm not an economist, and even I saw the handwriting on the wall in early 2007. I got all my ducks in a row. If we can't afford it, we don't buy it, but in the midst of this recession, we are at the most stable financially that we have ever been. Why? Because we're paying attention.

I'd like clarification on why Social Security is considered socialistic "entitlement" when I've been paying into it since I was 15. Between my wife and I, we added nearly $20,000 to the Social Security Administration coffers last year alone.  The defense budget is considered a sacred cow and nobody wants to touch it, but I also want an explanation of why the US defense budget makes up more than 50% of the entire planet's defense budget when we are less than 5% of the planet's population.

It would be a dangerous time for some, but in addition to cutting expenditures—in all areas—taxes need to increase. I don't  say that lightly, believe me. I don't like taxes any more than anyone else, but Houston, we have a problem, and it's been a long time coming. Everyone is going to have to bite the bullet.

Somewhat of a ramble, but there it is...

[The Rabbi]

Well said good Merlin. i too agree our country is indeed spoiled and in need of a major wake up call. As a Veteran/Soldier I will admit to being hesitant at attacking our military budget however when we are placing our American Men and Weman in harms way playing referee in nations that have little or no interest in our being there but the United Nations have deemed to place us in this situation I feel that this is not only a waste of time, effort, money, and our Soldiers. The Military no longer is self sustaining but now outsources everything to independant civil contractors another huge waste of resources and money. We as a nation would well pay heed to Airline instructions "in case of emergency mothers are instructed to first place oxygen mask on themselves then thier child." We need to take care of ourselves first and then take care of others in need. How can the mother put an oxygen mask if she is blacking out from lack of oxygen. This is not a political party problem but an American problem and one I fear will take more knowledge then I have to solve.

[Merlin the Elder]

It's certainly not about putting our military at risk. I wouldn't want that at all. But, our military shouldn't even be at risk at this point. It seems we didn't learn from our mistakes in the 50s and 60s.  We keep training these people that come back and bite us on the butt.  And I'm not saying that it's all been for naught, but I truly don't believe it's been worth the losses.

For an economy to grow, there has to be something there to grow. It can't grow if we're paying the corporations' taxes for them while they send all of their jobs overseas. We don't manufacture like we used to, at least the American manufacturers. The companies that were once pillars of industry are nothing anymore.  If I want a quality vehicle, I have to buy one from a company based in another country. They're built here, so we are benefiting from it, but why can't the U.S. build a reliable, well-engineered car?

When they built the interstate bridges around here, they bought the steel from Japan. The U.S. couldn't compete, even though all of the raw materials came from the U.S., were shipped to Japan, and Japan shipped the finished product back to us.

[Edmund Howard]

I'd like clarification on why Social Security is considered socialistic "entitlement" when I've been paying into it since I was 15. Between my wife and I, we added nearly $20,000 to the Social Security Administration coffers last year alone.

Ah.  A common misconception.  You're thinking Social Security is a savings plan.  You put it in, the money collects interest and builds up, then you get to take a payout.  Like a 401k, bank CDs, or an annuity. 

Its nothing of the sort.  Its a pay as you go scheme.  There is a huge pot of money in the social security trust fund.  For now.  The new payments - what you and I pay in - and the returns from the trust fund are used to make payments to the people currently drawing social security payments.  Both the payments into the fund and the payments out of the fund are dictated by various laws.  Of course those of us paying the tax want the tax to be lower, and for this year at least, it has been lowered.  The people getting payments want higher payments.  If the total of the payments made to retirees is more than the incoming taxes from workers plus the returns from the trust fund investments, then the shortage must be made up out of the trust fund.  That's exactly the case right now.  So, every penny you and I are putting in from our paychecks is going directly to some retiree.  There's no savings going on at all.  This is, plain and simple, a tax on workers that's used to make payments to retirees. 

[Merlin the Elder]

It is at least a contractual obligation by the government, in my humble opinion, even if nothing more than verbal. I have been told for years that I WOULD be getting x-number of dollars in return. If they renege on that, they are in for some serious backlash. 

[Edmund Howard]

I would agree that it is a very real obligation made by our government to its citizens.  Nothing comes for free, though.  The money has to come from somewhere, and that somewhere is taxes.

This situation is far worse for many cities and states.  They've given their employees pension plans that are woefully underfunded.  Again, this money is going to have to come from somewhere.

[DonaCatalina]

Take your own conclusions from this; but the tax rate for the top brackets is almost the lowest percentage that it has been since 1963.
Regardless of what you hear from pundits on the left or the right, the tax rates for the wealthiest in America have been going down for nearly fifty years.
The rates for the bottom and middle brackets have fluctuated up and down.

[SirRichardBear]

The problem isn't the tax rate its the loopholes politicans put in place to buy votes.  You could cut the tax rates by 2/3 and if you closed all the loopholes politicans have given their special donors you would double the money the government takes in in taxes.

I expect the second dip of the present recession will hit some time around Oct maybe Nov.  The next five to six years are going to be very rough.  Expect people to see thier home value to drop another 20% and unemplyment to go from the present 18-20% to  25-30%.  Inflation could hit 30% too. 

[Merlin the Elder]

Sir Richard, unemployment is that high only in a very few markets, at least for the moment. Nationally, it's sitting at around 9% (Source: US Dept of Labor), and in Arkansas (my home state), it's 7.7% (Source: Ark Dept of Workforce Services).

Home values here have been going up and down, and we're currently in a second downward trend, but the swings have been much more moderate in my area—and state—than in some others. Statistics for my town showed a peak average home price of $192k in April 2007, and hit its bottom during the housing collapse in January 2009 at $181k, not at all a drop I would consider catastrophic. But that's more the exception than the rule. The most damage seemed to come where the housing prices had been overly inflated, or where industry collapsed, which is where the high unemployment numbers will be found.

The major tax loopholes, if you look at what they are, are loopholes that tend to favour those who are more well off. And Doña Catalina is correct on the top tax bracket. There was even a time some years back when the top tax rate (%) actually dipped down below the second-from-the-top. The tax code is bloated, and totally aimed at the middle class. It most definitely needs a complete overhaul, simplification, and firing of all the people who are there to keep it complicated.

If Social Security has failed, it's due to mismanagement, and robbing Peter to pay Paul. S.S. should have been self-supporting. There is NO excuse for it not being such. How can my other retirement account be worth twice what I've put into it? Social Security has had many more years, much more diversity available. I hear what you're saying, Wheatie, but it's a failure of the government to live up to its obligations. It's done the same to our soldiers for years.

Whatever your party affiliation is, you need to make it clear to your people in Washington that it's time to make things work like a business instead of like a hunting club, or carnival, or whatever. Whatever percentage you want to cut from one program or budget, you need to cut that from ALL budgets. Some budgets are already being subsidized by money that is SUPPOSED to be earmarked for that program (read: Social Security). Others, like the defense budget, are sucking the life right out of the budget without giving anything in return. 

[Capt Spleen]

Social Security: The biggest legal? Ponze scheme. When times were good, Politicians said, "Hey, look at all this surplus, we'll use it for a, b, c, ......... x, y, z."  And now we're in depletion mode, as all those who paid in are retiring at an accelerated rate.

Taxes were 1-2% in 1913...... what happened, taxes inflated? No, gov't inflated.  And as gov't made these small increases everyone said, "Well it's only a little bit more." And each generation saw the tax creep, but it was never that much more than a little bit at a time.

I'm all for less taxes. Not no taxes at all, but less taxes and less gov't.

We can all complain about it, but I have solution at least to the 14 Tril National Debt:

You cut gov't jobs...... yep I'llbe hated for saying by those employed by the gov't but there it is......
But I said "cut", NOT terminate......Instead of shutting the gov't for 2 weeks as was done in the past, I say they cut the gov't work week. I propose gov't workers take a pay cut, AND a work time cut. Less work, = less pay.
The start on Monday morning at 10 AM, and get out early on friday at 3 PM. Late start - early end.
They can party on Sundays and start partying ealier Friday.
And they still make a living, AND have benefits.
And the country moves forward without too much disruption.
We'll just have to adjust our habits those two days.
OH, and rescind the politicians pay and benefits back to 1967 rates. 
Do this until we start moving debt rate backwards until it get fixed. However long that might take.

There are private sector jobs that get "laid off", "No raises", "pay cuts", Or just shut down as companies can't afford to continue OR get a loan from big banks. In the private sector, if they don't make make money jobs are at risk.
With Gov't they may institute a "pay freeze", but they seldom lay off (it does happen).
 

[SirRichardBear]

Merlin the Elder the real unemployment rate is around 18 to 20 percent the reason the government reported rate is half the real rate is that the government doesn't count people whose unemployment has run out and are not activity looking for jobs.  Home prices are getting ready to take a major dive again due to the fact that commerical property is getting ready to drop like a rock.  which will pull all property down.

Yes the major of loopholes are for corporations and the rich which is why they pay so little in taxes the problem is not the tax rate but the loopholes.  evertime they rise the tax rate they add new loopholes so that the corporations and the rich end up paying less taxes.  Like GE not paying any taxes.  What needs is the lower the rate down to 20% or so and close all the loopholes then the government would get twice the taxes off the rich and corportations. 

Social security is failing because it was always been a pyramid scam depending on increase the number of people paying in than taking out.  Once we got into a flate population curve the system had to fail.