There is a tipping point in every economic cycle. No one really knows when it occurs. We do know it occurs during periods of euphoria. People have money, credit is readily available and there is a buying spree of everything from TVs to cars to houses etc. To meet the demand, factories produce more and more goods.
Then a Black Swan event occurs. The term Black Swan comes from a book by Nassim Nicholas Taleb entitled: Black Swan. Black Swan refers to a once in a lifetime experience. We see white swans for our entire life and then one day, out of nowhere, we see a Black Swan.
The Black Swan this time was the financial crisis. Banks were leveraged 30 to 40 times their capital and the housing market started to implode.
You are probably asking: "Where are we now?" During the good times, too many goods were produced and demand collapsed because of the crisis. Now we are faced with huge inventories, goods that must be sold so that new goods can replace the old. In simple terms, we have an inventory buildup.
The Commerce Department reported Tuesday that wholesale stocks fell by 0.7% to $424.1 billion in January after dropping 1.5% in December. The number to keep in mind is the $424.1 billion of unsold goods. There were big declines in durable goods with autos and auto parts falling 4.8% and home furnishing falling 3.5%. Sales of durables fell by 6.5% in January. Another indicator is the inventory to sales ratio. That rose to 1.30 from 1.27 in January. Factory orders fell 1.9% last week.
So until the excess inventories are worked down, there will be a drag on the U.S. economy.
Do you find that prices are coming down to move excess inventory?
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
Reader Comments (Page 1 of 1)
3-13-2009 @ 9:40AM
BHarrison said...
A prosperous and healthy economy is based on a delicate balance between income and expenditures of consumers. Everything rides on that delicate balance. Production and inventories are based on "stable consumption rates"
Normally, temporary changes can be reaily absorbed in a healthy economy. Our problem is that the FRAUDS committed by the CEOs with the "derivatives", etc. have so substantially undermined our economy that it is TOTALLY PERVASIVE throughout our entire economy. This IS unprecedented! It is even worse than the Great Depression.
The CEOs of the faied/failing financial institutions received TENS and MANY HUNDREDS of MILLIONS, and even a BILLION or MORE of dollars in salaries, benefits, and "other copensations" during the rpevious EIGHT YEAR build up to the implosion of these FRAUDS that they orchestrated and perpetuated.
These CEOs knew or should have known what they were doing . . . and I'm confident that they damn well knew it. Some say that we, as a nation, cannot afford to lose the "talent" of these CEOs . . . Are they insane? This is the "talent" that created and perpetuated the FRAUDS that have caused the devastation of our economy.
These CORRUPT CEOs are still in their corporate positions, being paid obscene extorbitant salaries and "other compensations . . . while MILLIONS of people are becoming unemployed and THOUSANDS or TENS of THOUSANDS of businesses are failing as a result ot the FRAUDS that these CORRUPT CEOs premeditatedly committed.
This is all such a criminal travesty. These CEOs should be indicted, prosecuted, and their ill gotten "wealths' should be seized and returned to the corporations (sic. to the stock holders) from which they were defrauded.
And the INEPT, INCOMPETENT and/or CORRUPT Congressmen who enabled and allowed all of these frauds should be purged from Congress by recall elections or voting them out of office.
The American people must seize control of their destiny by electing Congressmen and other politicians who have much stronger ethics and integrity than those who have betrayed our nation and people by "selling out" to the special interests groups. To accomplish that, BOTH the RNC and the DNC must be purged of those who curry to the interests of the special interests groups. We need three or four national political parties to break the sham "competition between the Republican and the Democratic parties.
The Americanpeople must take actions to protect their "best interests" or nothing much is going to change.
3-13-2009 @ 1:27PM
Iridium said...
I'd like to add that the only thing that matters to the economy is middle class jobs.
See the problem is that to the government the only thing that matters is the top 1% of all jobs. Since this top 1% pays more than 50% of all the taxes the government needs the rich to get richer to fill the bank account of Uncle Sam.
There is a reason that many of the top 1% are liberals using liberal financial policies. They are rewarded by playing the corrupt and fixed game. By using the mass of welfare peons to elect liberals to government the 1% get the rules relaxed so they can steal more money. While the liberal government declares that they will raise taxes on the rich they will only really tax a small portion of the 1%'s total income. Through relaxed rule these people will be able to hide vast fortunes.
The government doesn't want a real recovery becuase they will lose pwoer. The 1% doesn't want a true recovery because they will lose money. A true recovery will spawn a huge explosion of small business. The engine the 1% has spent the past 30 years destroying through mergers and aquisitions.
We can have a full and meaningful recovery with one easy step. A major tax cut on small business and the middle tax bracket. Hell even give the bottom 4 of the top 5% a major tax break. These are people that will use the extra cash to hire more workers.
It is the top 1% that can not be trusted. Thier chief purpose is to destroy the middle class. They control the influence and they control the government. This is the 1% that recieved the majority of the bailout, the people that run the corrupt enterprise.
The government is corrupted by the 1% so it will never act against them. Only the people can act and it is time. The middle class is dead and we are all on our way to becoming wards of the state.
Vikram Pandit and Jeff Immelt are fine, how are you? Are you close to losing your house? Do you know if you'll have a job next week? Do you actually think Obama has your best interest in mind?
You can't put your hopes into one person who is so corrupted by the system that he can never see your plight. Only people by themselves can cause change.