The US Recovery

[DOR]

snapper,

No, it isn’t double counting. The concept of value added prevents that.

Buy a piece of wood for $1.
Buy a knife for $50.
Hire a carver for $25 an hour to work 10 hours to make a piece of furniture.
Materials + Labor cost = $310 (plus work space, insurance, etc)
Sell the furniture for $500.

Net addition to GDP: $190 . . . the value added to the materials and labor.

And no, DOR’s Furniture doesn’t treat the $500 revenue as profit. That would be a quick formula for bankruptcy.

[snapper]

Buy a piece of wood for $1.
Buy a knife for $50.
Hire a carver for $25 an hour to work 10 hours to make a piece of furniture.
Materials + Labor cost = $310 (plus work space, insurance, etc)

Ok this is for the furniture maker. Wood seller add toward his profit $1. Knife maker adds $50 and worker adds $250 - they all get counted as adding to GDP in their individual right too because the furniture maker has payed/employed them... so net GDP is really already including it in the wood sellers, knife producer and work mans accounts. What is a cost for one business is a profit for another - that's normal. But this new system is saying that my investments/costs do get double counted - there is no 'value added' when I pay for something, say a script for a film, that I subsequently never make yet as well as the script writers gain counting to GDP so do my (wasted) costs as the film is never made. Yet because GDP now includes my investment it also assumes that all investment will be productive. The retrograded revisions in GDP in future are going to be amusing to say the least under this fallacious system.

On another topic and back to more macro economic topics. 10yr bonds at 2.87 overnight up from 1.61 in May... Median US incomes still declining and mortgage rates rising. Do you taper or continue QEternity to oblivion regardless of the threat of a yuan reserve currency backed by gold that some say is in the offing? Personally I - or my broker - is shorting rallies in the bond markets at present on my behalf. What do you make of the taper idea? Do it or not? What are your thoughts regarding a yuan based hard currency threatening the $ as the world reserve?

[Doktor]

Snapper do you understand how VAT works?

[snapper]

Yes I do - it's a tax in real terms and has sod all to do with the "value added" that DOR is referring to. In his example the "value added" is gross profit before tax - ie after costs. Suppose DOR's Furniture makes 100 of these whatever they are's - say chairs - and makes a gross profit of $1,900 (though cost for buying wood are likely to decrease if bought in larger quantity). DOR Furniture then pays tax on that $1,900 which would be small as he's not made much gross profit - the rest he's left with after tax and costs is his net profit. He can then run away and buy more wood or knifes etc or spend the money. When he sells his chairs is when VAT comes in... The person who buys his chair(s) then has to pay an additional tax because DOR done well or we say "shhh never mind that cash in hand" in a free trade. If DOR doesn't register his sale of his chairs and it's not registered on the buyers side then nobody's the wiser and both parties profit.

In short Dok VAT is a lie - how come they can raise it from 5% to 6% or 20% with a mere decree? It has nothing to do with the gross profit that DOR was referring to. There is nothing 'value added' to the cost of producing an item - just the price of the item. Suppose I buy a designer dress and it costs me $10,000 when the cost of making this dress was $350 then I pay a lot more VAT for buying the name. I could also buy another dress for $1000 that cost $600 to produce and still pay the same percentage VAT. It has nothing to do with the cost of production or gross profit, it's just a tax on consumers and business's alike.

[gunnut]

Yay let's keep printing money.

If the US "recovery" were real, then why is Fed still printing money?

[Doktor]

Because it 'works'?

[snapper]

Define 'works'. Perhaps you mean inflates asset prices?

[DOR]

snapper,

I think you’re confusing different ways of analyzing an economy. In revenue terms, employee compensation, proprietors’ income and corporate profits are about 70-80% of national income. The actual sale of the end product is either private consumption or capital investment, which together are about 80-90% of GDP.

- - - - -

The reason VAT works is that like want it . . . very badly written phrase; try again: people want it. DOR Furniture’s wood carving knives go onto my books as a cost of doing business for which I’ve paid tax. If I don’t collect tax from my customers, I can’t claim back the tax I’ve paid to Snapping Blades, Pty Ltd.

In other words, I'm suddenly the end consumer, and that raises my cost of doing business. Cash transaction? No thanks, not if I’m big enough to collect and claim back VAT.

- - - - -

gunnut,

The unemployment rate is 7.3%.
Nominal domestic demand rose 3% in the first half, year on year.
CPI is rising 1.6% in the first eight months and the PCE deflator rose 1.2% in Jan-June.

That’s why the Fed it being cautious.
What would you do?

[snapper]

So the S&P reaching new highs immediately after taper was cancelled this month is just 'coincidence'? Then there was the gold spike and the bond rise simultaneously but all completely unrelated to the non taper announcement? All assets rose immediately after Bernanke chickened out and it's not related?

[astralis]

snapper,

i'm curious. what happened to the hindenburg thing? and the hyperinflation? and the crazy interest rates? and the collapsing housing market? hm.

[snapper]

snapper,

i'm curious. what happened to the hindenburg thing? and the hyperinflation? and the crazy interest rates? and the collapsing housing market? hm.

The S&P was falling most of August. The inflationary problems are partly absorbed by the $ carry trade; people borrow $s for nothing and invest abroad to better yield, hence money left 'emerging markets' on taper speculation. Ten year bond yield rose from 1.6% in May to 3% in August and slumped from 2.9% to 2.7% immediately post FOMC. I notice you do not answer my question but let's try an easier one; after Obama fiscal 'stimulus' unemployment was supposed to be 5.6% but was 8.3%. Monetary stimulus was then used - with both fiscal and monetary stimulus over $6trillion of direct stimulus. Thanks to the fractional banking system you can times that by around 25 yet 1.8 less people are employed now than in 2008. What of those who are not banks or don't own equities etc? They are all poorer...



Unemployment is now said to be 7.3 (although the statistics are blatant lies) and Bernanke says it must reach 6.5 before interest rate rises can be contemplated. What happens next time the bubbles burst?

[gunnut]

gunnut,

The unemployment rate is 7.3%.
Nominal domestic demand rose 3% in the first half, year on year.
CPI is rising 1.6% in the first eight months and the PCE deflator rose 1.2% in Jan-June.

That’s why the Fed it being cautious.
What would you do?

Labor participation rate is at a 5 or 6 decade low. Lots of people sitting around, collecting welfare and unemployment insurance. We need to make job creation easier, welfare and unemployment insurance less enticing, to get the economy going.

Obamacare is killing job creation. EPA is killing job creation. High minimum wage is killing job creation. Every single extra cost we tack on to the employers is a drag on job creation.

It's interesting how liberals always bash Reagan for his "trickle down" economics yet now they are doing the same thing. We pump money into the biggest institutions, hoping money will flow down stream.

[antimony]

Labor participation rate is at a 5 or 6 decade low. Lots of people sitting around, collecting welfare and unemployment insurance. We need to make job creation easier, welfare and unemployment insurance less enticing, to get the economy going.

Obamacare is killing job creation. EPA is killing job creation. High minimum wage is killing job creation. Every single extra cost we tack on to the employers is a drag on job creation.

It's interesting how liberals always bash Reagan for his "trickle down" economics yet now they are doing the same thing. We pump money into the biggest institutions, hoping money will flow down stream.

Obamacare is not as responsible as the tremendous sense of uncertainty. It is shocking to me that each quarter Congress threatens to bring the government to a standstill by not paying bills, even by promising not to pay for costs already incurred. Businesses are more roiled by this sense of uncertainty and dysfunction than anything else.

[gunnut]

Obamacare is not as responsible as the tremendous sense of uncertainty. It is shocking to me that each quarter Congress threatens to bring the government to a standstill by not paying bills, even by promising not to pay for costs already incurred. Businesses are more roiled by this sense of uncertainty and dysfunction than anything else.

Businesses don't want to hire because they don't know "what's in it." Large businesses can afford to hire legions of lawyers to pore through tens of thousands of pages of regulations and edicts from HHS. If you're a small business owner with a few dozen employees, you'd sit on your current staff and budget to see how things turn out. Once you understand certain regulation or edict, then you have your accountant to find out exactly how much that regulation or edict will cost, both implementing it and not implementing it. Plus you will try to find out another way around it.

For example, employer's mandate, that was famously delayed for a year by Obama's edict. What does that do? It mandates that employers of more than 50 full time workers to provide government approved health coverage (possibly more cost) for them. There will be a penalty/tax if this is not followed.

Let's take it from the top? What is "full time?" Here's what I found out from the internet:

What Constitutes Full-Time Status Under Obamacare? - Expert Columns - Convenience Store News

Who is a Full Time Employee Under ObamaCare? | NJ Business Lawyer, Scott Magliochetti

With all these scenarios and restrictions, employers are hesitant to hire anyone full time, or at all. Any additional time devoted by the employers to figure out exactly how this rule impacts them is a cost. Cost is a drag on profit, therefore businesses. People don't run a business just to lose money. They do it to make money. If it's too hard to make money running a business, then they would quit. It's like if your job is too tough for the pay you get, what do you do? You'd quit.

Observe, we are only touching a single aspect of Obamacare. And already I have a headache on determining the cost for a small business with 50 workers or more.

Let's talk about the 2nd thing that comes to mind. Why 50? Why not 37 or 64? Why not everyone? What happens if you run a business with 47 full time employees and need to expand? Do you hire more which will put you at 50 and subject you to the employer mandate? Or do you go with some part time workers? What is the impact of hiring 4 part time workers in addition to your 47 full time employees as far as Obamacare is concerned? Let's find out....

Gee...more research on the part of the employer to comply with these rules. Do you want the owner of this small company to be a lawyer? Accountant? Or run his business? Does he have to hire a lawyer and an accountant? Where's that money coming from? Lawyers and accountants ain't cheap. That could be the budget of one full time worker or 2 part time worker he needs to expand his business.

Obamacare is a drag on business because no one fully understands the overall impact it has on any one entity for certain. Any additional time spent on understanding it is productivity lost.

[astralis]

Lots of people sitting around, collecting welfare and unemployment insurance. We need to make job creation easier, welfare and unemployment insurance less enticing, to get the economy going.

Obamacare is killing job creation. EPA is killing job creation. High minimum wage is killing job creation. Every single extra cost we tack on to the employers is a drag on job creation.

i must have my history all wrong. i guess bush favored high taxes, government control, and welfare then, because unemployment went from 4.1% at the beginning of his administration and ended at 7.8%. obama, too, must be super business friendly because under his administration he went from 7.8% to 7.3% today, with a likely unemployment rate of 6-6.5% when he ends it...

i'm so confused... :)