Today's news seems full of economic "talk." I'm not an economist, and only took macro and micro at University, so anything I say on the subject can be compared to those folks who have taken Psychology 101 and think they know who's nuts and who isn't.

I don't spend much in GOOD times, and I steer as far away as possible from credit card debt. I'll start with this article, simply because it's more readable than the others. [Believe me, they get longer, more involved, and more boring.]

I don't even expect a response to this thread unless someone is really knowledgeable on Economics and can explain it all to me. I guess we'll see if anyone here fits that bill.

-- Anita (Anita_S3@hotmail.com), September 30, 2001

Answers

If you have a cookie in place for the NYT, here's another article on the state of the economy.

-- Anita (Anita_S3@hotmail.com), September 30, 2001.

This one also requires registration to the NYT, and is the longest, most boring article I've ever read, lest tried to understand.

last one

-- Anita (Anita_S3@hotmail.com), September 30, 2001.

Suddenly jobless workers face uncertain future Airline slump ripples through Bay Area economy

BY JENNIFER BJORHUS

Mercury News

Diana Libardi's rent is due, and her car payment and credit card bills are waiting. But her paychecks will soon stop.

Libardi, 24, of South San Francisco, learned last week that she's among 400 United Airlines flight attendants around the Bay Area being laid off for at least the month of October. Upset, Libardi headed to two job interviews the next day. She can waitress, she said, and even take a second job.

``Definitely no luxurious shopping, clothes-wise or anything like that,'' she said.

The Sept. 11 terrorist attacks have wrought real pain for Bay Area workers. Thousands in the airline, hotel and tourism industries are facing layoffs or cutbacks in their paychecks as their employers wrestle with losses in business.

The drop in air travel, estimated to be 20 percent, has rocked the Bay Area's three airports. And the airports make up about one-seventh of the local economy, generating as much as $37.73 billion a year and supporting, directly and indirectly, a network of nearly a half- million jobs, from car rental shops to restaurants to T-shirt stands at Fisherman's Wharf.

The airline slowdown could mean a loss of $316 million to $625 million a month in the region, according to preliminary estimates by the Bay Area Economic Forum.

Not great news for an economy already smacked by the downturn in tech industry spending.

``You basically have a throttling of the economy,'' said R. Sean Randolph, president of the Bay Area Economic Forum. ``It's a very significant short-term hit.''

United has told Libardi her layoff may be for only one month, but she's job hunting anyway, just in case. ``There's no guarantees in anything,'' she said.

The airlines face an uncertain future. Together, the six major airlines employ at least 25,000 people in the Bay Area. Both United and American Airlines have announced plans to lay off about 20 percent of their employees nationwide. While the airlines say they don't know yet how many of the layoffs will be in the Bay Area, a 20 percent reduction here would mean 5,000 airline jobs temporarily lost or permanently gone. No one knows yet how many of the estimated 311,000 people whose jobs directly hinge on airport activity will be affected.

In addition to the 400 flight attendants that United is laying off in October, several hundred more are likely to be laid off for three months starting in November, union officials said. San Francisco International Airport is delaying projects or canceling them. Two terminal remodeling projects have been delayed indefinitely. The noise abatement office is scaling back and the new on-site airport hotel development has been delayed, said Mike McCarron, spokesman for San Francisco International Airport.

With tourism down, area hotels are on average filled to only 30 percent or 40 percent of capacity, estimated Gary Carr, spokesman for hotel consultant PKF Consulting, which tracks Bay Area hotel occupancy rates. Last year at this time, occupancy in San Francisco reached an average of about 88 percent.

San Jose hotels are averaging about the same 30 percent to 40 percent, said Sonya Bradley of the San Jose Convention and Visitors Bureau. Carr said that some hotel executive staff members are taking 20 percent pay cuts.

The biggest hit for San Jose hotels came when the PalmSource Developers Conference postponed its convention scheduled for Oct. 23- 26. That meant 3,800 lost room nights, Bradley said. Bradley said her group plans to urge hotels to offer package deals to try to win back business travelers, but targeting visitors from the Central Valley -- what Bradley calls the ``drive-in market'' -- is probably the best short-term solution to immediately boost tourism.

About 2,000 members of the hotel and restaurant workers union in San Francisco have been laid off temporarily or had their work shifts drastically reduced, said Mike Casey, president of the Hotel and Restaurant Employees Union Local 2.

``Is it going to be six months or two years? That's the unknown,'' Casey said.

But layoff figures and data on lost revenue only hint at the true losses spinning out from the Sept. 11 terrorist attacks.

Ved Charan, 59, has all but been laid off from her housekeeping job at the Grand Hyatt at Union Square in San Francisco because of the decline in tourism. For 13 years she has tucked sheets and cleaned for guests, she said.

The hotel is her second home. Her co-workers are family. In fact, it was her co-workers she called first when she turned on the television and saw the news that terrorists had attacked Tuesday morning, Sept. 11.

``It's like it happened to us, too,'' Charan said. She has worked only four days at the Grand Hyatt since she was temporarily laid off a week after the attack. For now, she and her 32-year-old daughter are cutting back on groceries like meat and milk in order to pay rent.

Charan said she's worried about a laid-off co-worker struggling to raise five children. What's going to happen to her? Charan wonders.

-- (hmmmm@ughtoh.org), September 30, 2001.

Egyptians invent civilization, 6000 BC
Arabians invent number system, 4000 BC
Romans invent fiscal government, 600 BC
British invent colonialism, 1200 AD
Germans invent Ponzi scheme, 1850 AD
Americans invent “Federal Reserve” scheme, 1930 AD
New Yorkers invent derivatives, 1980 AD
San Franciscans invent New Economy bubble, 1995 AD
Terrorists invent Boeing 767 guided missile, 2001 AD

Panic of 2001, collapse of global economic system, 10 year depression, and/or Armageddon follows. What is there to understand?

-- Crow Knowlegy (know@it.all), September 30, 2001.

Charan said she's worried about a laid-off co-worker struggling to raise five children. What's going to happen to her? Charan wonders.

She could go on welfare to help feed and house her 5 kids.

OOOPPS!!! There ain't no more welfare. Guess she can go out on the streets and beg like the women in Afganastan do. At least she wont be killed in the socker field like they are.

Is she a victim of the attack too? Can her 5 children be given enough money to go to college 6 times over?

Or maybe the people who are still working can each contribute $300.00 in their next tax check to help feed and house her kids until she can find 3 jobs to support them in the fashion they were accustomed to when she had that great job with all the benifets cleaning hotel rooms?

And the Sterwardess can go out and use her credit cards to charge her rent and car payment and spend lots of money so the economy will rally and George W. doesn't get any flack from the country for making dumb decisions like giving away money that the economy didn't produce before it didn't produce it, and not leave enough for other items in the budget, much less leave anything in case of an emergency. After all, we still have that star wars project to fund to keep our nation safe from unfriendly nations who hate us for no other reason than we are free. *snicker*.

Geeze, instead of flying empty airplanes, the airlines could park half of them and save lots of money...after all, isn't business in this country based on supply and demand? or are big businesses guarenteed a profit, even if they aren't earning it? Gotta keep the corporations well fed and housed, even if the people aren't. They are after all, obligated to bring in big profits for their stock holders!

Do you hear anyone crying for big business right now? Geee, why not? Maybebecause they didn't mind screwing the common man when they had the chance, now they expect us to run out and spend what money they left us to bail them out? HUH! Like maybe people are saving up for Christmas, or for food and shelter in case they loose their jobs?

-- Cherri (jessam6@home.com), September 30, 2001.

Anita, could you perhaps frame some questions that you're looking to have answered. "Please explain the economy" is kind of broad. 8^)

-- David L (bumpkin@dnet.net), September 30, 2001.

David L,

The scope of Anita's question didn't deter Cherri from rambling on and on nonsensically.

-- J (Y2J@home.comm), September 30, 2001.

J, in case you failed to notice it, there has been an imposter posting under Cherri's name and email address the past couple of days. If a posting lives up to your worst stereotype of a cartoon-Cherri, learn to mistrust it. It probably came from an imposter.

-- Little Nipper (canis@minor.net), October 01, 2001.

Little Nipper,

I had failed to notice it. But now that you mention it, there were only a couple of misspelled words in that very lengthy post. You are probably right; most likely it's an impostor.

-- J (Y2J@home.comm), October 01, 2001.

Shut the fuck up J you dipshit.

-- (mind your own @ god damn. business), October 01, 2001.

David: Fair question, to be sure. The first article I read was the third I posted [the one marked long and boring.] In that article, Japan's economy had been explained, with all the lowering of interest rates, etc. I'm not even sure I understand the lowering of the interest rates, although I'm aware when Greenspan undertakes such things. Is this set as a base for lending by banks, etc.? Does it have any bearing on the interest rates that folks get by placing monies in CD's, The Money Market, etc.? The article went on to discuss how Japan had lowered the interest rates down to zero. What on earth is an interest rate of zero? Isn't that equivalent to giving money versus lending?

The article then went on to discuss Liquidity something which is presumably associated with these low to non-existent interest rates. Do you understand what that means? THAT's the article I'd like clarified. I'm sure it's very interesting and informative to someone who understands this stuff, but I started to nod off as it all flew over my head.

-- Anita (Anita_S3@hotmail.com), October 01, 2001.

Anita,

I will do my best to answer your questions. I hope that if I make any glaring errors, someone better informed will correct me.

The interest rate that Alan Greenspan can set (actually it is the Fed's Board of Governors does this, not just Mr. Greenspan) is the rate at which banks can borrow from the Federal Reserve System.

"Is this set as a base for lending by banks, etc.?"

The Fed doesn't have any actual power to set the rates a bank charges its customers for a loan, but in a competitive system, lowering the Fed's rate has the effect of lowering the interest rate to bank customers.

When a bank can get money from the Fed cheaper, it can charge less for a loan and still make the same profit. So can the bank's competititors. This kind of forces the banks to follow the Fed's lead, since they could lose their customers if they don't.

"Does it have any bearing on the interest rates that folks get by placing monies in CD's, The Money Market, etc.?"

It won't affect the CD you bought before the rate cut. It will affect the CD you buy afterward. Money Market interest rates also tend to follow the same trend, but there is a slight lag.

"The article went on to discuss how Japan had lowered the interest rates down to zero. What on earth is an interest rate of zero? Isn't that equivalent to giving money versus lending?"

If my memory is correct, the Japanese rates never actually hit zero. But they came so close that it was the same net effect as zero. I'm not sure a central bank would ever set the rate at 0.00%.

"The article then went on to discuss Liquidity something which is presumably associated with these low to non-existent interest rates."

In case you don't know what Liquidity is, it is just money that is an easy to spend form, like cash or checking accounts, and a few other things. The measure of liquidity for any asset is how quickly you could get your hands on the money and spend it.

For example, your house is illiquid, because it could take you many months to sell it and get your hands on the money. Same goes for your car. OTOH, stocks are usually pretty liquid. At least, they are when the stock market has buyers. On a day when there are no buyers, the markets crash, prices dive and by the time you get your hands on the money to spend it, there's a lot less money to be spent.

Increasing liquidity means making more money available to people, so they can sell assets or buy them. As a result, illiquid assets like your house don't get to be frozen assets you can't sell for love or money. The reason low interest rates add liquidity is because banks find it easier to loan money at low rates. Things like car loans or home loans or vacation loans or whatnot.

This is where the 'magic' happens - or fails to happen in the case of Japan. The classic Keynesian analysis of monetary policy in the 1930s said that low interest rates only increase liquidity if people are willing to borrow.

When borrowers disappear it's mainly because they're afraid. They want to hang onto their cash and not go into debt. Next thing you know, the economic engine freezes up and low rates won't add any liquidity. In that economic climate of fear, when people hang onto their money and fear debt, buyers dry up. Prices in every market crash, just like in the stock market. Money (liquidity) disappears at a fantastic rate.

The big trick when that happens is how to reliquidify. Keynes says, the only answer is to MAKE borrowing happen. If the man on the street is rationally avoiding debt for personal reasons, then a low interest rate won't ensure liquidity. Instead, the government must go into debt, rationally, to break the log jam. It must borrow and spend. That will reintroduce liquidity come hell or high water.

Classical economists hated Keynes for this. They still do.

-- Miserable SOB (misery@misery.com), October 01, 2001.

I have just a few comments to add after Miserable SOB's accurate (to my reading) and startlingly clear answers to Anita's questions. I've just finished the allegedly long and boring NYT article written by Paul Krugman.

I think Keynes would be horrified by our massive Federal debt. Keynes advocated building surpluses during prosperous times, and using those surpluses to finance deficit spending during lean years so as to restimulate the economy. One effect of this strategy would be to constrain economic cycles from going to extremes, either upward or downward.

Contemporary economists such as Professor Krugman seem to think that the government can use gimmicks (my label, not his) to evade economic cycles. My lack of formal training in the discipline notwithstanding, I think they are deluding themselves.

-- David L (bumpkin@dnet.net), October 01, 2001.

Thank you both.

-- Anita (Anita_S3@hotmail.com), October 01, 2001.

I read and I learned. Thanks, Anita, for the post and thanks to all who provided some explaination.

I understand Greenspan will, today, cut the interest rate again. That puts us at what, 2.5%? Not too far from Japan's 0.00%.

-- Debra (Thisis@it.com), October 02, 2001.

explanation

-- Debra (Thisis@it.com), October 02, 2001.

"That puts us at what, 2.5%? Not too far from Japan's 0.00%."

What sticks in my head is that Japan's central bank took the rate down to 0.15% for a while. Don't quote me. I could easily be wrong about the exact figure.

At one-quarter percentage point intervals, the Fed could bump down from 2.50% another nine times before it gets to 0.25%.

I don't think that would be needed. Once mortgage rates fell to around 5.50%, there would be a lot of mortgage refinancing going on - for those with an income. That frees up a good chunk of that income for other stuff.

If folks are really fearful, that freed-up income could all go to pay down credit card debt and then into savings, not spending. But Americans are pretty high-powered shoppers. I doubt they will turn into rabid savers overnight.

-- Miserable SOB (misery@misery.com), October 02, 2001.

I guess I should have waited a few days on this one. Debra: Here if is in visual form, and it seems to correspond to what we've been told.

-- Anita (Anita_S3@hotmail.com), October 03, 2001.

Finally, the Dick and Jane reader of economics! I could've used this when I was in college.

-- Jack Booted Thug (governmentconspiracy@NWO.com), October 03, 2001.

Anita, et al,

Of course, it's just not that simple. For if it were, then the Fed could simply lower rates to chase away any economic hobgoblin that dared to show its ugly head.

No, the economy is much more complex than that simple flow chart makes it out to be. Didn't you the notice the caveats? Three "may"s, one "could", and one "might". LOL.

-- J (Y2J@home.comm), October 03, 2001.

Anita,

No one here can answer your question. But, you already knew that, right? You would have to ask Mr. Greenspan, but I know that's impossible. Consider this; TPTB try to keep things on an even keel.

Which is the way things ought to be.

-- (LadyLogic2000@yahoo.com), October 03, 2001.

Jane you ignorant slut. A college want to be all your life and you do not know economics? Give us a break Anita. You are as dumb as a rock. Then again you always were.

-- (LadyLogic2000@yahoo.com), October 03, 2001.