patrick.net

@Troy, Explain it to me then. Why won't the government/fed allow market forces to work both ways? Everyone seems so content with inflation but so uncomfortable with deflation. Yes economies can become efficient at production which should lead to deflation (supply/demand). Why is the government having to step in and buy mortgage backed securities in the first place? Who put all the money out there that created the bubble? Banks? Yes. Who gave the banks the cheap money? The FED. Who is the FED? Essentially the government, and to deny that is to expose your severe lacking of the economy.

jkingeek says

Who gave the banks the cheap money? The FED.

Banks do not normally receive money from the Fed. Their loans are funded from the money their depositors give them.

The Fed just mandates how many times the same dollar can be lent out before it is required to be held in cash reserve. Currently this multiple is 10X or thereabouts. The Fed also controls lending by setting certain interest rates that drive what rate banks will lend out to customers, which is a basic throttle/brake mechanism the Fed uses to control the system's lending.

Of the $10T or so in the global money supply:

http://research.stlouisfed.org/fred2/series/M2

the Fed has funneled only $800B of money creation through the Treasury. Here is a chart of this activity in the past decade:

http://research.stlouisfed.org/fred2/series/TREAST

(the dip is the Fed exchanging treasury debt with allegedly AAA rated securities the banks needed to offload)

Why won’t the government/fed allow market forces to work both ways?

Deflation sucks on the macro level. If prices are going down, it removes any incentive to consume if you can wait for lower prices later. But consumers are also producers, and if producers can't sell their stuff, they eventually stop becoming consumers.

This is known as a deflationary spiral.

Why is the government having to step in and buy mortgage backed securities in the first place?

Lower interest rates support higher home prices, and the banking system needs higher home prices since it lent out around FIVE TRILLION DOLLARS based on these (now-nonexistant) valuations.

Also, since we are basically in a deflationary spiral still the money creation was not inflationary.

Inflation works both ways: too much money creation and not enough production, or NO money creation and declining production.

http://research.stlouisfed.org/fred2/series/TCU

So in essence, the Fed, by dictating how much banks must hold on reserve they (the Fed) are not creating money, they're letting the banks create money to an extent (10X what they actually have)? I don't see the difference.

jkingeek says

So in essence, the Fed, by dictating how much banks must hold on reserve they (the Fed) are not creating money, they’re letting the banks create money to an extent (10X what they actually have)?

No, actually, banks can only lend out 90% of what deposits they have, but the end result is bank loans becoming bank deposits, and the 90% lend-out results in a 10X money multiplier.

I don’t see the difference.

That's because you're soaking in it (the difference).

Part of the innovation of the go-go 1920s was the rise of consumer credit. Buy now pay later. But, alas, consumer credit isn't that big a deal compared to the real money-creators, which is commercial and private real estate lending.

Here's some more charts:

http://research.stlouisfed.org/fred2/series/REVOLNS?cid=101

vs:

http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101

vs.

http://research.stlouisfed.org/fred2/series/REALLN?cid=100

Land ownership is THE central economic sector, everything revolves around it. Land boom/bust cycles have been going on for hundreds of years -- Daniel Boone busted himself out in land speculation, as did the richest man in 18th century America -- Robert Morris, and these two American heroes didn't need the Fed to get themselves into trouble.

We can both agree that the present financial system is largely a scam, a big money pump to support skimming off of the actual productive members of society. The Federal Reserve was an attempt by The System to impose some extra/quasi-governmental technocratic regulation on the credit and monetary system, to get the benefits of a fiat-based money supply without the attendant political risk of printing our way to prosperity.

The system utterly, abjectly, and disastrously failed in the 2003-2006 timeframe. My personal suspicion is that the Powers That Be were willing to throw any switch and pull any lever to avoid a repeat of a one-term Bush presidency (and once they were on the tiger in 2003-2004 they dared not get off). Justices Roberts and Alito are sitting in some very expensive chairs.

Well said. Yes the financial system is largely a scam. btw I know the government isn't buying boats and I don't make shoes either. :)

Actually the government DOES buy boats... and planes, and trucks and cars, etc, etc, etc. Government also competes with private businesses for office space, land, construction...virtually everything - and it drives up the cost of everything while doing so (supply vs. demand).

In addition to consuming, oh - I don't know - 40%, maybe 45% of the countries GDP, the government produces nothing and contibutes NOTHING to our economy.

Do we need government? Yes. Do we need big, massive, bloated, corrupt government attempting to solve everyone's problems, micro-manage everyones personal behavior, and over-regulate every aspect of private industry? NO - NO - NO. Thats the road to socialism and ultimately to the destruction of our nation.

Honest Abe says

Do we need big, massive, bloated, corrupt government attempting to solve everyone’s proble

Maybe the big bloated government is beginning to learn they can't solve all the problems out there. Example: they've turned to Hollyweird to "plug the hole." That seems like a step in the right direction. LOL

Abe Babe and Rayray, please stop using our roads, schools, police, firemen/women, paramedics, airports, trains, buses, and US Dollars. Since you both want to continue to live in denial and subscribe to the weird fantasy that government doesn't produce or contribute anything to our economy you should both avoid these things because they may snap you out of your bizarre fantasyland quickly if you were to use them.

And I'm sure you must both be against "Don't Ask, Don't Tell," for the right of anyone to marry whomever they wish regardless of gender or sex, against repealing Roe v. Wade, and against forcing schools to teach "Intelligent Design" (a.k.a. Christian Biblical Creationism) since you both believe that goverment should stay away from telling us what to do in our personal lives. I'll expect to see you both to be at Gay Pride at the end of the month.

The key to a healthy economy is when people who are consuming something are also producing something of value back into the economy. This is why socialism and welfare states destroy economies. Too may people eating the corn and too few people planting it - results in a lot of hunger for everyone.

Massive government mismanagement has finally awakened the guy on the street (the new angry American) to see that he has been lied to, deceived and taken in by the absurd promises of sleazy, pandering politicians.

The sad thing about socialism is that if there honest money systems, low taxes, and very limited "safety-net" programs, most of the population would be far better off and not need the shackles and bondage of so called "government help".

Honest Abe says

This is why socialism and welfare states destroy economies. Too may people eating the corn and too few people planting it - results in a lot of hunger for everyone.

And I always figured Socialism didn't work because there was no incentive to increase productivity... Turns out they just don't plant enough corn. Who knew.

RayAmerica says

they’ve turned to Hollyweird to “plug the hole.”

typical of the confusion circulating among wingers -- James Cameron has more practical experience with deep submersibles than anyone without a Top Secret classification [edit: clearance].

Honest Abe says

The sad thing about socialism is that if there honest money systems, low taxes

also known as "high land values".

When I was doing research on Norway over the weekend I was quite amazed at the general competence with which its technocrats are running their partially-socialized economy.

The existence and real-world unqualified success of Norway's Eurosocialist system utterly destroys your thesis as you present it here. Even Alberta is trying to learn from the Norwegian example:

"The dismal state of the Heritage Fund is seen by many here as the result of years of mismanagement by successive Conservative governments. 'In some ways, they've had a bit of a bad rap, and in some ways, they deserve a bad rap,'"

http://www.theglobeandmail.com/report-on-business/article972257.ece

and:

"'Alberta would be better served,' said Todd Hirsch, chief economist with ATB Financial, 'if the government laid out a long-term plan of how we're going to deal with the surpluses, and not just for the current budgetary cycle.'

Instead, the focus remains short-sighted -- on keeping taxes low and using the energy windfall to fuel expenditures instead of saving and investing it. Economic booms do end -- as this one will one day. And sadly, Alberta will have nothing to show for it."

http://www.canada.com/calgaryherald/news/calgarybusiness/story.html?id=3eee7692-6b32-45b9-aa79-69078dd10673

Granted, running an economy of just 5M well-educated people with a 3m bbl/day oil production capacity is easier than a nation of 300M poorly-educated idiots scattered from sea to shining sea.

Singapore and Hong Kong are also examples of semi-socialized economies with long-term economic success.

If you want to ruin an economy, just lower taxes. One would think the recent Bush tax cuts of 2001-2003 would be of sufficient demonstrative power.

Does anyone remember the fable of the grasshopper and the ant?

Let's see we've got Honest Abe and RayAmerica in this corner and tatupu70 and simchaland in that corner. Do we need government? I think we can all agree that yes we need government: military, police, firemen, etc. I think the real argument here is do we need a big government nanny welfare state? I'd like to hear tatupu70 and/or simchaland provide a logical argument for it without using your already demonstrated inclination towards sarcasm.

Um, yeah, I'm not for a big government nanny welfare state. I am a Liberal and I like our form of representative democracy and I want it taken back from the corporations. I do believe in having a basic social safety net because we all need a little assistance sometimes. And I believe in workers having rights and being paid a living wage for good work. I also believe in some protection for the environment because, well, I'd like to continue living and eating and breathing and drinking clean water.

And why wouldn't Abe Babe and Rayray have to prove their side with a logical argument? I've yet to read anything logical or rational from either of them supporting their insistence that we should have no government.

So, jkingeek when Abe Babe and Rayray ever pony up and provide rational and logical arguments about anything, I'm game. But don't hold your breath, it may take a while...

There you go again with the sarcasm, you just couldn't post a response without putting in a jab. "don't hold your breath". The whole point of this thread was to point out (I think, correct me if I'm wrong Honest Abe) that the current system is unsustainable. The only way it has gotten this far is by debasing the purchasing power of our dollars with the stealth tax (inflation).

If the system is to be maintained how is it going to be paid for?

jkingeek says

Let’s see we’ve got Honest Abe and RayAmerica in this corner and tatupu70 and simchaland in that corner. Do we need government? I think we can all agree that yes we need government: military, police, firemen, etc. I think the real argument here is do we need a big government nanny welfare state? I’d like to hear tatupu70 and/or simchaland provide a logical argument for it without using your already demonstrated inclination towards sarcasm.

No sarcasm? Now, where's the fun in that?

But seriously, your question is already loaded and shows your bias. No one wants a nanny welfare state. So, if you ask it like that, then it's a strawman.

jkingeek says

There you go again with the sarcasm, you just couldn’t post a response without putting in a jab. “don’t hold your breath”. The whole point of this thread was to point out (I think, correct me if I’m wrong Honest Abe) that the current system is unsustainable. The only way it has gotten this far is by debasing the purchasing power of our dollars with the stealth tax (inflation).
If the system is to be maintained how is it going to be paid for?

What "system" are you refering to?

People who prefer limited governmernt seem to prefer autonomy, good will, mutuality, initiative, industry, self-reliance and seek from a competent government protections that insure freedom of opportunity, freedom to live by his own choices and the ability to relate to others by mutual consent without oppressive government intervention.

Others seek a dominant governments's guaranteed safety, security and dependency over their enitre lives. They demand through the power of the state to redress all trama, injustice, helplessness, and humiliation. This is achieved through countless laws, rules, statutes, civil codes and regulations that indulge their impulses yet exempt them from the proper obligations of a mature adult. They seek a society that is heavily regulated, controlled, shaped, manipulated and administrated by the Modern Parental State (aka the Nanny State).

The state gains traction by daming "villians" for exploiting people yet deny they are manipulating people. They become ruthless while appearing innocent, devious while appearing truthful, obstructive while appearing helpful.

Their over-riding thought appears to be: "TO MAKE THE WORLD HAPPY, WE MUST INFORM THE MASSES AS TO WHAT IS GOOD FOR THEM, AND REGULATE THEIR LIVES FOR THEIR OWN BENEFIT", because they must be incapable of doing so for themselves.

Federal debt tops $13 trillion mark
Spending reaches an alarming $4.9 Billion per day
By Stephen Dinan
9:38 p.m., Wednesday, June 2, 2010
The federal government is now $13 trillion in the red, the Treasury Department reported Wednesday, marking the first time the government has sunk that far into debt and putting a sharp point on the spending debate on Capitol Hill.
Calculated down to the exact penny, the debt totaled $13,050,826,460,886.97 as of Tuesday, leaping nearly $60 billion since Friday, the previous day for which figures were released.
At $13 trillion, that figure has risen by $2.4 trillion in about 500 days since President Obama took office, or an average of $4.9 billion a day. That's almost three times the daily average of $1.7 billion under the previous administration, and led Republicans on Wednesday to place blame squarely at the feet of Mr. Obama and his fellow Democrats.

tatupu70 says

The entitlements such as welfare, social security, medicare, etc. are overwhelmingly supported by the general public

"Should any political party attempt to abolish social security, unemployment insurance, and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group, of course, that believes you can do these things. Among them are H. L. Hunt (you possibly know his background), a few other Texas oil millionaires, and an occasional politician or business man from other areas. Their number is negligible and they are stupid." -- Eisenhower

RayAmerica says

At $13 trillion, that figure has risen by $2.4 trillion in about 500 days since President Obama took office, or an average of $4.9 billion a day.

We're only 9 months into his first fiscal year, which began Oct 1. Way to lie with statistics, Ray.

At any rate, budgets can't be turned around on a dime.

Public debt was $8.5T on June 1, 2010 and $7.5T on Oct 1, 2009, a rise of 13.3% over the first 9 months that Obama is on the hook for.

Over the previous nine months, from Jan 1 2009 thru Sept 2009, public debt rose nearly 18%.

So Obamanomics has already reduced the run rate nearly 500bps or over 25%. Praise the Lord!

While the above numbers are true, they don't really explain things.

The Bush tax regime established 2001-2003 really f---ed up this country's finances. Bush inherited a public debt of $3.3T in 2001 and ran it up to $6.3T on the day he left office (with that other $1.2T waiting to hit as his last budget year unfolded over FY09). His fiscal policies managed to more than double the public debt. Golf claps around for that managerial brilliance.

Publically-held national debt, real terms in ( )

1961: $238B ($1.7T)
1969: $278B ($1.6T) -- Kennedy/LBJ lowered the debt
1977: $550B ($1.9T) -- Nixon/Ford raised the debt
1981: $790B ($1.8T) -- Carter lowered the debt
1993: $3.25T ($4.76T) -- Reagan/Bush raised the debt
2001: $3.3T ($4.01T) -- Clinton lowered the debt
2009: $7.5T -- Bush raised the debt

Granted, the respective Congresses deserve a great deal of the blame/credit for the growth/decline of the national debt

Interested thread.

I live in a region that is solidly conservative, probably has plenty of people who are firm supporters of the Tea Party movement and politicians in the makings of Ron Paul.

When i listen to them, there is merit in some of what they say and I can respect that, but what I find most interesting is that these same types, mainly farmers and ranchers who are the grass rooters or america, are the same ones who are the first in line when a government farmer welfare program comes along, and you better get out of the way or you would darn near get ran over when the line forms by them.

People love to sing the praises of limited government, programs, etc. until it comes home to hit there wallets. How many of those Tea Party types at the rallies protesting government involvement in there lives don't find it kind of ironic that they are receiving Medicare at the same time, and would fight tooth and nail to not have it repealed or have the age for Social Security raised?

I also find it kind of funny that all this "hatred" of government spending didn't seem to go into full wacko mode until Obama came into the office. I figure those types were probably too busy at the time waiting for there government checks during the Regan and bush years...

Cain, you're right in a lot of what you say, IMHO. Thats part of my point - government subsidies, farmer welfare, hand-outs, write-offs, etc. should be limited to safety net standards only. Why on earth, for example, pay people NOT TO GROW CORN, or wheat, or anything else for that matter. See what I mean? Too much of the government's nose in other peoples business - most always with the opposite result as intended (aka "unintended consequences").

In my opinion there was an ample outpouring of anger (rightfully so) on Bush's fiscal mismanagement. However Obama QUADRUPLED (if I'm not mistaken) the spending of Bush. Thats probably the origin of today's current "unhappiness".

Honest Abe says

However Obama QUADRUPLED (if I’m not mistaken) the spending of Bush

LOL. What do you think the chances of you being mistaken on this assertion are?

You'd probably be way wrong about that, too!

Bush took the $300B defense budget of 2001 and turned it into a $700B monster.

Bush recklessly added Medicare Part D in a brazen pandering to seniors and price support to Big Pharma.

Bush took the $640B of discretionary spending of 2001 and left us with a $987B request for 2009, plus another $800B cherry-topper to patch the f---ed up financial system his minions had allowed to wreck itself 2002-2007.

Bush's last budget called for $3.1T in government spending plus the bailout resulted in a $3.9T expenditure.

Obama's first budget calls for a $3.6T expenditure.

Thats probably the origin of today’s current “unhappiness”.

yup, never underestimate the power of agit-prop on fools.

Obama-Bush-Obama-Bush..... I'm so sick of it. Politicians are politicians! The point here is that government spending is spiraling out of control. I think just about everyone reading this agrees. If you don't, I'm sure you'll speak up.

Well, I googled: OBAMA QUADRUPLES BUDGET, the very fist article was titled "After Tripling Deficit in 2009, Obama On Track to nearly Quadruple Bush Deficit in 2010". So apparently my memory did serve me correctly. As bad as Bush was, Obama is even a bigger spender. Yup, that's probably the origin of a lot of today's current unhappiness.

What's that TV Quiz show, "Are you as smart as a 5th (6th?) Grader"? I bet all the kids would be able to answer this question correctly: CAN YOU SOLVE A DEBT PROBLEM WITH MORE DEBT?

I would say this: Never underestimate the stupidity of Congress - none of them is as dumb as all of them.

Honest Abe says

Well, I googled: OBAMA QUADRUPLES BUDGET, the very fist article was titled “After Tripling Deficit in 2009, Obama On Track to nearly Quadruple Bush Deficit in 2010″. So apparently my memory did serve me correctly. As bad as Bush was, Obama is even a bigger spender. Yup, that’s probably the origin of a lot of today’s current unhappiness.

Well, if the interwebs says so, then it must be true...

tatupu70, I'll let you have that one.

Honest Abe says

CAN YOU SOLVE A DEBT PROBLEM WITH MORE DEBT?

http://en.wikipedia.org/wiki/Triffin_dilemma

you may get your gold regime someday, Honest Abe : )

Awesome! $250 Billion SDRs "created" and distributed by IMF....

Honest Abe says

Well, I googled: OBAMA QUADRUPLES BUDGET, the very fist article was titled “After Tripling Deficit in 2009, Obama On Track to nearly Quadruple Bush Deficit in 2010″. So apparently my memory did serve me correctly. As bad as Bush was, Obama is even a bigger spender. Yup, that’s probably the origin of a lot of today’s current unhappiness.

The budget and the deficit are not the same thing. The budget is what is spent, the deficit is the shortfall between spending and revenue. Read what you posted again. Obama quadrupled the deficit not the budget.

Obama and Bush both are out of control spenders.

Troy says

We’re only 9 months into his first fiscal year, which began Oct 1. Way to lie with statistics, Ray.

I love the way you lefties always accuse people of "lying." Uhhh, I copied and pasted the article, so it wasn't me that said anything. Furthermore, he says nothing in it about "fiscal year" as you claim. What he does say is that we, I mean Obama, is spending at a $4.9 BILLION per day clip. I really wish you people would READ and try to comprehend what is being said before you rush off and call someone a liar. It would go far in establishing at least some semblance of credibility on your part.

bob2356 says

but his spending is still outrageous

how so? Be specific.

Was it the $50B bailout of GM?

Obama inherited a system that was in total meltdown Jan -> Mar 2009. What the RayAmericas of the world intentionally refuse to understand is that the nation pushed up a $5T plus debt bubble on itself 2002-2007, and this debt bubble was fueling CONSUMPTION 2004-2006 to the tune of $400B or more a year.

It's still all going to blow up badly. The government has some power in determining when, where, and how we crash, but not if.

Anybody who thinks they have a workable answer to the problem is talking out of their ass.

OK, here are some ideas for fixing America:

(1) Prohibit deficit spending

(2) Make it easier to start and operate a business

(3) Put an absolute restriction on money growth

(4) Privatize all government entities that are operating at a loss

(5) Eliminate all redundant government programs

(6) End the Federal Reserve System

(7) Reestablish sound money

(8) Outlaw stimulus and bailout plans

(9) Reduce military spending to no more than 5% higher than China's military budget

(10) Only taxpaying US Citizens should have the right to vote.

Plus I've got at least 25 more ideas to add to the 10 above.

Political leaders are the ones that need regulation. America needs a rigid structure of fiscal responsibility built on a solid foundation of truth, trust, the rule of law, and sound money principals. Unfortunately, our morally weak leaders (and those that support them) would much rather make policy that erodes our financial stability and passes the financial burden to future generations who are too young to vote or haven't even been born yet. I think that is unacceptable and morally bankrupt.

Others will think that is perfectly acceptable...those are the ones who are OK with the socialization and destruction of America as we know it. UGH !!

Interesting thread. I have a hard time envisioning the end of fiat money, as the government requires taxes to be paid with dollars. If you go totally grey market in your personal economy, I suppose its possible. A couple of thoughts:
1. Local currencies. These usually boil down to a base unit of the currency being equivalent to a man hour of work. This, of course, does not account for specialization and differentiating between more valuable outputs from the work being done. At the same time, it's very applicable to every day life. I've never hired a babysitter, but my wife and I go out a least once a month. We have an informal co-op with two other couples and rotate babysitting duties. This exchange of services is not taxed (Yet!). But imagine, if you will, plugging into the more formal structure of organized co-operatives throughout the world. Now imagine, instead of their 'accounting' system being just internal to the co-op, there is a hierarchy that allows an interchange between co-ops (using the Intertubez). At a certain point, you can imagine the flow of both goods and services without fiat money changing hand (at which point, I'm sure, the gov't steps to value those goods and service and get their cut).
2. BTU dollars. This, I don't think, has been practical because of mankind's ability, in the past, to exploit increasingly concentrated stores of energy. In another words, EROEI (energy returned on energy invested) has steadily increased as humans progressed from an agrarian culture to an industrial society. At this point, though, its hard to envision EROEI getting any better than the soon to peak Ghawar oil field in Saudi Arabia. We've got a lot of fat to cut with efficiency measures, but, I could imagine (at a certain point in the future) when 'energy units' are no longer an inconsequential part of goods and services produced. In another words, the value of an energy unit rises to the point where a 'BTU dollar' could become a medium of exchange. No idea what that looks like, though. But hey, if we're telling the majority world to cook with biogas from their waste, no reason households here couldn't become energy producers. Perhaps this looks like charging our neighbor's electric car with solar panels (or a fuel cell) and getting a credit in a networked accounting system (instead of on our PG&E bill).

Cool. But, I don't see where it says she's grossing $500K a year...

I see. Not bad for re-selling Chinese made plastic. Assuming the stuff is made in China as nearly everything is these days.

http://www.zerohedge.com/article/guest-post-extend-and-pretend-guide-road-ahead

thoughts?

jkingeek says

Assuming the stuff is made in China as nearly everything is these days.

Chinese are trying to move up the ladder and avoid having to make this meaningless plastic crap. . .

http://www.nytimes.com/2008/08/01/business/worldbusiness/01factory.html