patrick.net

Call it Crazy says

Mark D says

how do you know the economy would not have gotten worse than it is now if it hadn't been for those QE's?

It would most likely have gotten worse, but how is printing money better in the long run? It just kicks the can down the road until the fundamental problems are fixed...

yes there are fundamental problems but making credit more available and creating jobs in the mean time is better than doing nothing and letting a big crash happen. this is the soft landing approach. you have to take the pills slow or all at once but you cant have both.

now this $40B buying of MBS per month is not literally "money printing." moving troubled assets off of the banks' books allows banks to have more money to lend to businesses, which is good for job growth.

when the economy gets better, the FED will sell these MBS and when this money goes back to them, it is destroyed. if things going according to plans, the FED will make money from this and the profit will go to the U.S Treasury. i hear they have been making money on selling AIG shares.

RentingForHalfTheCost says

Mark D says

when home prices have reached historic norms, something has to be done to prevent them from going lower. that's part of stabilizing prices.

Funny how the logic doesn't work the other way. Everyone seems to be fine when they break-away on the up side. That, my friend, is pure GREED. It is our enemy.

yes i agree that Greenspan got greedy and he should have stopped it early, using the same tools the FED is using now.

Philistine says

Mark D says

how do you know the economy would not have gotten worse than it is now if it hadn't been for those QE's?

I think the going theory back then was that if we had just let the mother burn, we would have already gotten all this out of our system and been on a real recovery by now--real recovery implying expanding middle class, corporations actually generating productivity instead of shifting money around in derivitaves and tax loopholes, and housing that's owned by the American populace instead of the rentier class.

Ahh, those were rosier days on Patnet back in the summer of 2007

some prefer the hard landing approach and i'm not saying which is better. i don't know. but the soft landing approach has been chosen and i think it is safer when all things have been considered.

i believe that those in power decided that it was too risky to let it crash and burn because we might not have been able to start it over again. yes they wanted to save their banker friends but at the same time, the status of the petrodollar was also at stake. a hard landing might have led to a currency collapse - when other countries lost faith in the currency and dumped it for the Euro or when China decided to sell our debts.

tatupu70 says

Call it Crazy says

Exactly..... I'm not a big fan of "can kicking". I rather just take the pain up front, get it over with and then rebuild from there....

Unfortunately, that's not it works. You would have ended up with a recession that was much deeper and likely longer than what we actually had.

That is what everyone says, but I don't believe it. Bring on the recession. We deserve it. Our economy shouldn't be so dependant on growth. Growth should be a blessing. However, we have used the growth to go deep into debt, I mean deep. Idiots economists that if they worked on electronics, then iPhone would last about 30 seconds with a full battery charge. Idiots full of greed I say. The problem is not that hard. Spend when you can. If we are so rich as a country then why do we need to sell bonds all over the world and to ourselves. Smoke and mirrors to hide how poor we have become.

RentingForHalfTheCost says

Smoke and mirrors to hide how poor we have become.

That is the scary possible reality. And also a possible reason for certain behaviours and policies.

There is no 20% increase in housing prices on the horizon.

These companies make money by getting people to invest. They have the properties as security, along with a hefty down payment for a hard money transaction.

One of the better groups here in Seattle will lend 80% LTV for a foreclosure auction sale, with 14% interest, a 3% commission, plus a loan fee, and a cash out in Six Months.

If you can't refi, or sell the property they take it back to resell.

RentingForHalfTheCost says

Bring on the recession.

I think one has to have never experienced a depression to say that. When it's you that has to live on the street and try to find a soup kitchen to serve dinner, you might feel a little differently. I'm pretty sure you wouldn't be so worried about quantitative easing at that point.

RentingForHalfTheCost says

The problem is not that hard. Spend when you can. If we are so rich as a country then why do we need to sell bonds all over the world and to ourselves. Smoke and mirrors to hide how poor we have become.

How does a depression solve that problem anyway? It only makes things worse. Less tax revenue, more food stamps. It would be a death spiral--feedback loop.

Bellingham Bill says

if we're talking 2002-2004, that was not on the table since the Fed's job is to raise rates on Democratic presidents and lower them on Republicans.

http://research.stlouisfed.org/fred2/graph/?g=dO7

Huh? Your graph shows what I meant. In 2001 it started in a flurry. Over the course of a little over a year the rate went from 6% to under 2% trying to create the allusion that our economy was better than it was. Democrats or Republicans? Doesn't matter, the enemy is stupidity on top of GREED.

tatupu70 says

RentingForHalfTheCost says

The problem is not that hard. Spend when you can. If we are so rich as a country then why do we need to sell bonds all over the world and to ourselves. Smoke and mirrors to hide how poor we have become.

How does a depression solve that problem anyway? It only makes things worse. Less tax revenue, more food stamps. It would be a death spiral--feedback loop.

So continues the same argument. If your only defence to doing what is right is Fear then you are part of the problem. Back away and let stable minds take over. ;)

RentingForHalfTheCost says

So continues the same argument. If your only defence to doing what is right is Fear then you are part of the problem. Back away and let stable minds take over. ;)

It's not fear, it's knowledge and logic.

RentingForHalfTheCost says

Huh? Your graph shows what I meant. In 2001 it started in a flurry. Over the course of a little over a year the rate went from 6% to under 2% trying to create the allusion that our economy was better than it was. Democrats or Republicans? Doesn't matter, the enemy is stupidity on top of GREED.

Yes, I responded to your:

"The problem was trying to hold onto housing values when they should have let it decompress in a downward market."

clarifying we were talking about 2002-2004.

Yes, "they" should have let housing continue its collapse 2002-2004.

But that's not what the Greenspan Fed was all about. Too many Republicans wanted Greenspan to save their asses in 2004, and he obliged them.

Problem was the boom of 2003-2004 became the bubble of 2005-2007.

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

The bubble wasn't due to fed rates per se, it was the suicide lending taking over the market, which is set at the margin -- what the greatest fool is willing to pay, if he can get someone to give him a loan.

(I didn't know about the suicide lending part until late 2006, when the Casey Serin story broke, then everything finally made complete sense)

robertoaribas says

what the heck should the fed be doing?

what they're doing now is on the pattern of Zimbabwe.

We may not be Greece since we have our own currency, but so did Zimbabwe:

RentingForHalfTheCost says

So continues the same argument. If your only defence to doing what is right is Fear then you are part of the problem. Back away and let stable minds take over. ;)

Again--how does allowing the country go into a depression solve any of the problems?

Call it Crazy says

I thought we already had our own currency like Zimbabwe..

http://research.stlouisfed.org/fred2/graph/?g=dOu

shows expansion since 2008 hasn't been out of the ordinary, actually.

Though they did suspiciously stop reporting M3 in 2006 . . .

http://research.stlouisfed.org/fred2/series/M3

tatupu70 says

RentingForHalfTheCost says

So continues the same argument. If your only defence to doing what is right is Fear then you are part of the problem. Back away and let stable minds take over. ;)

It's not fear, it's knowledge and logic.

Not true.

tatupu70 says

RentingForHalfTheCost says

So continues the same argument. If your only defence to doing what is right is Fear then you are part of the problem. Back away and let stable minds take over. ;)

Again--how does allowing the country go into a depression solve any of the problems?

It wouldn't lead to a depression, just a needed recession. Depressions are caused because of the argument you are now posting. Avoid recessions (which are a normal event) at all costs. Then eventually, when the gas cannot be contained anymore, we get an explosive depression. If we didn't try to save the slowing housing market back in 2001 then we would be much better off today. That is a fact and logical.

tatupu70 says

Call it Crazy says

Exactly..... I'm not a big fan of "can kicking". I rather just take the pain up front, get it over with and then rebuild from there....

Unfortunately, that's not it works. You would have ended up with a recession that was much deeper and likely longer than what we actually had.

No, you would have ended up with a short and hard recessions and as soon as the bad debt is cleared you would actually have had a sustainable recovery. This is just an endless recession, call it stagflation or what you will. Nobody in their right mind can advocate a recovery while the percentage of Americans on food stamps grows by the month. You can still extract money however from where credit is injected if you are smart - may help you, but definitely not the economy.

mell says

No, you would have ended up with a short and hard recessions and as soon as the bad debt is cleared you would actually have had a sustainable recovery

thing is, I think the dotcom recession was the beginning of the back-end trades we had made to get what growth we had in the 1990s.

Our trade deficit was just getting rolling in 2000:

http://research.stlouisfed.org/fred2/graph/?g=dOF

mfg was beginning to crack:

http://research.stlouisfed.org/fred2/graph/?g=dOG

the dreams of dotcom-generated stock wealth were crashing:

http://research.stlouisfed.org/fred2/graph/?g=dOH

Gini was rising back then too::

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

so the housing bubble wasn't the "hair of the dog that bit us" -- rather, it was a new intervention to get something like the 1990s going again.

http://research.stlouisfed.org/fred2/graph/?g=dOI

shows consumers arguably didn't have much debt to "clear" in 2001. That came with the 2002+ boom-bubble.

tatupu70 says

It's not fear, it's knowledge and logic.

Sounds like fear to me. Your Q.E.D. is some kind of soup-kitchens-and-street-groveling scenario. So be it. As I stated, if we had done the hard landing, we would have been in a much better position to rebuild on solid ground by now and have actual long term, authentic productivity that benefits all of society. As we are now, the 2.5% own everything and the rest of us are winding down on our ability to cover the cost of living. That's what Extend N' Pretend got you.

I suppose most societies are faced with a fear-versus-liberty proposition at some point. Most choose fear and comfort, so I don't blame you. The French did have a Revolution before their embarrassing debacle in WWII.

Philistine says

I suppose most societies are faced with a fear-versus-liberty proposition at some point.

That's bullshit framing.

The problem is the corporate press has controlled the debate in this country since the 1980s.

Tune into talk radio to see how that's going.

It's not fear that's keeping this country from doing the right thing -- raise taxes a lot, cut military spending, institute Canada-style or better health reforms, it's all the bullshit.

Philistine says

The French did have a Revolution before their embarrassing debacle in WWII.

No they didn't. The Third Republic lasted from 1870 to two weeks after the armistice was signed.

Bellingham Bill says

It's not fear that's keeping this country from doing the right thing

I agree, and the between-my-lines says as much. I guess it's all too nuanced for a post-by-post forum thread. I would submit that Greed and Ignorance are the culprit.

Bellingham Bill says

No they didn't. The Third Republic lasted from 1870 to two weeks after the armistice was signed.

Huh? The French Revolution was in 1789. What is this non-sequitur of the Third Republic?

Barely two years ago, Brucey Boy also predicted double digit interest rates:

http://www.jasonhartman.com/bruce-norris-%E2%80%9Ci-believe-we-will-approach-the-day-when-we-reach-double-digit-interest-rates%E2%80%9D/

tannenbaum says

Barely two years ago, Brucey Boy also predicted double digit interest rates:

http://www.jasonhartman.com/bruce-norris-%E2%80%9Ci-believe-we-will-approach-the-day-when-we-reach-double-digit-interest-rates%E2%80%9D/

i think 20% is unrealistic, but to be fair, he didn't say when.

mell says

No, you would have ended up with a short and hard recessions and as soon as the bad debt is cleared you would actually have had a sustainable recovery

But how is the bad debt cleared? That's my point. As the recession got "harder" as you call it, the debt problem gets worse not better. When people have no jobs, they certainly don't pay down their debts. Or get current on their mortgages.

Unless you have a debt jubilee, I don't see how a hard recession helps clear bad debt.

tatupu70 says

mell says

No, you would have ended up with a short and hard recessions and as soon as the bad debt is cleared you would actually have had a sustainable recovery

But how is the bad debt cleared? That's my point. As the recession got "harder" as you call it, the debt problem gets worse not better. When people have no jobs, they certainly don't pay down their debts. Or get current on their mortgages.

Unless you have a debt jubilee, I don't see how a hard recession helps clear bad debt.

It would have taken the debt away instantly through defaults, individual defaults followed by corporate defaults, instead of bailouts. For the individuals, it would have destroyed their credit bur relieved them form their debt (and possibly house) instantly. Defaulting banks would not have been an issue for small and medium investors as fdic insurance covers up to 250K per account (if you have more than that you need to have multiple accounts at different institutions and/or hoard some precious metals). The best part though is that everybody defaulting would have lost their LEVERAGE which would mean a return to sustainable budgeting and appropriate rates/risk management reflecting the current risk of default. LEVERAGE and injection of credit (it's not money, it's credit) is destroying the US.

mell says

The best part though is that everybody defaulting would have lost their LEVERAGE which would mean a return to sustainable budgeting and appropriate rates/risk management reflecting the current risk of default. LEVERAGE and injection of credit (it's not money, it's credit) is destroying the US.

But pensions would have been wiped out. And that was a great excuse to print and give trillions to people who have never produced a thing in their lives.
The same people who think they can succeed in business if only they can borrow enough to buy up the world and run a monopoly.

mell says

LEVERAGE and injection of credit (it's not money, it's credit) is destroying the US.

I never thought there would be an exit strategy to what the Fed is doing, but I think I can see it now.

If the Fed can continue to convert the debt they buy from short term to long term, make a profit by selling off the holdings they have, then everything goes back to normal.

The one thing that no one looks at is the amount of cash in the system today. If that cash maintains value we could have a very strong global economy in the next ten years.

As for housing, I don't see that as an economic driver with all the building we have done, globally, in the past ten years. I think housing will be another expense for the consumer, but has lost it's wealth factor, other than the equity the borrower gets by paying off debt.

mell says

It would have taken the debt away instantly through defaults, individual defaults followed by corporate defaults, instead of bailouts. For the individuals, it would have destroyed their credit bur relieved them form their debt (and possibly house) instantly. Defaulting banks would not have been an issue for small and medium investors as fdic insurance covers up to 250K per account (if you have more than that you need to have multiple accounts at different institutions and/or hoard some precious metals)

I think you're forgetting that every debt has a lender as well. When you wipe out the debt, you wipe out the savings of someone else. Every bank has owner(s) and the large ones are all publicly owned. You're talking about wiping out the retirement funds of a lot of people. I fail to see how that solves anything. And how that would make the recession any shorter.

tatupu70 says

mell says

It would have taken the debt away instantly through defaults, individual defaults followed by corporate defaults, instead of bailouts. For the individuals, it would have destroyed their credit bur relieved them form their debt (and possibly house) instantly. Defaulting banks would not have been an issue for small and medium investors as fdic insurance covers up to 250K per account (if you have more than that you need to have multiple accounts at different institutions and/or hoard some precious metals)

I think you're forgetting that every debt has a lender as well. When you wipe out the debt, you wipe out the savings of someone else. Every bank has owner(s) and the large ones are all publicly owned. You're talking about wiping out the retirement funds of a lot of people. I fail to see how that solves anything. And how that would make the recession any shorter.

Yes, wiping out some retirement funds will be part of the harsh reality. But it will force people to diversify. not to blindly trust banks/corporations/governments, and realize that "guaranteed" 8% pension returns don't exist and shouldn't exist and that hey have been stealing from their own children and continue to do so. The lesson learned here is, don't invest in criminal enterprises and don't trust any government on "guaranteed" returns, use solid hedges for inflation/deflation and diversify your assets, don't heloc your homes, save in regular savings accounts which are fdic insured (backed by money printing aka credit injection if need be) and don't just give your money to somebody who tells you they can manage it better than you could. Stop buying useless tech gadgets and designer clothes, stop buying christmas presents because society tells you so, focus on good nutrition and your and your families health, bring up your kids without materialism/consumerism, teach em the right values. Bailouts is teaching them the wrong values and putting all that debt on their shoulder without them having any say in it. Lastly, arrest the banksters and claw back bonuses and salaries as much as possible - apply the rule of law!

mell says

Yes, wiping out some retirement funds will be part of the harsh reality

Again--so your moralizing aside, how does wiping out people's savings make a recession shorter? Or signficantly reducing demand make a recession shorter?

I understand you don't like debt. Fine. But don't pretend that it would make a recession shorter.

tatupu70 says

mell says

Yes, wiping out some retirement funds will be part of the harsh reality

Again--so your moralizing aside, how does wiping out people's savings make a recession shorter? Or signficantly reducing demand make a recession shorter?

I understand you don't like debt. Fine. But don't pretend that it would make a recession shorter.

It makes it harder but much shorter and it restores the values and principles needed to avoid future recessions/depressions by incentivising prudent risk-management and de-incentivising greed/fraud/financial crime. Also it puts the responsibility on the people who caused this instead of the ones who didn't or haven't been born yet.

mell says

It makes it harder but much shorter

That was then, this is now.

Yes, Obama could have let the economy crash, and that may have been a good thing, except for how fragile Europe was.

I think Obama made all the right moves at the right time, including today.

David Losh says

Yes, Obama could have let the economy crash, and that may have been a good thing, except for how fragile Europe was.

Was Europe fragile? Or was the European Union fragile?

I think that letting things crash had a high risk of leading to a depression. There was a lot of talk of this. Bernanke wrote a thesis on how loose monetary policy could have prevented the depression. Bernanke did what he could.

Obama campaigned in 2008 on the idea that taxes should remain low (Bush levels) on everybody except those making > $250,000. http://money.cnn.com/2008/06/27/news/economy/obama_wealthy_taxes/index.htm
He campaigned in 2012 on basically the same line. He won two elections on the same campaign idea in 2008 and 2012. Let's get on with it.

In 2008, I never thought that Obama would be reelected. I was sure that the stock market and economy were going to go into the crapper way more than they did & way more than would allow O to get reelected.

mell says

It makes it harder but much shorter

You've said this many times, but saying it doesn't make it so. I'm wondering how making a recession into a depression makes it shorter? How does making more people unemployed shorten the duration?

And there seems to be others who agree with you. So anyone--how does making a recession "harder" shorten the duration?

RentingForHalfTheCost says

Our economy shouldn't be so dependant on growth. Growth should be a blessing.

An economy built on growth makes me very nervous. I remember a video that was floating around about the destruction of resources on the planet. It was basically saying that we have allowed corporations and advertisers to fuel a growth based economy by glorifying self-ish, hyper-consumption. This has resulted in a criminal destruction of resources on the planet. We fuel the growth and the concentration of wealth by literally destroying the things that keep us alive.

Bellingham Bill says

That's bullshit framing.

The problem is the corporate press has controlled the debate in this country since the 1980s.

I think greed and entitlement fueled by a corporate press are like a virus.

When I say entitlement, I don't mean benefits to the poor. I mean entitlement to have and consume more. The "Baby, I deserve it!" culture is a toxin.

YesYNot says

He campaigned in 2012 on basically the same line. He won two elections on the same campaign idea in 2008 and 2012. Let's get on with it.

there are always a lot of "obstacles" in congress, all they do is hinder progress.

Mark D says

there are always a lot of "obstacles" in congress, all they do is hinder progress.

True, but I am surprised the repubs are not getting the message. They lost two elections where the economy was one of the biggest issues. The other guy won both with the same message. You would think that the repubs would see the writing on the wall, and go with the flow.

YesYNot says

Mark D says

there are always a lot of "obstacles" in congress, all they do is hinder progress.

True, but I am surprised the repubs are not getting the message. They lost two elections where the economy was one of the biggest issues. The other guy won both with the same message. You would think that the repubs would see the writing on the wall, and go with the flow.

there are also a lot of lobbyists and dark forces working behind the scene.