patrick.net

Question

There are a 7 billion people on this planet. Each one makes how many transactions per day? I'm guessing 50? That is 35 billion transactions per day.

How should we govern those transactions?

mell says

http://market-ticker.org/akcs-www?post=220451

This simply cannot be refuted by the Keynesian voodoo machine - no matter how many insults you hurl at him. The US is falling behind countries who have adopted sound money policies, keep peddling that nonsense and shoving freshly printed money into the bankstas pockets ;)

I already refuted this. Debt take on has been a positive feedback loop. Consumption (corporate earnings) are higher than they would be under more sound money policies. Look at the chart I posted with Red, blue, and green lines. The red lines is what the economy would look like with debt taken out. It is workforce * productivity. Much flatter slope than the slopes of GDP and money supply.

Ergo, you get more bang for your buck with debt (leverage) helping you out in a growing economy. Since we have the power to increase money supply in times of credit crunch, normal problems of liquidity do not apply to us as they do in Greece.

We have debt/GDP of under 80%, and the projection is for this to fall slightly over the next ten years. Japan has Debt/GDP of over 200% and the interest on their 30 year bond is under 2%. The rumors of our demise due to debt load are greatly exaggerated.

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

Now, refute that, with logic or math, without resorting to "government numbers are lies" please.

david1 says

Look at the chart I posted with Red, blue, and green lines. The red lines is what the economy would look like with debt taken out. It is workforce * productivity. Much flatter slope than the slopes of GDP and money supply.

haha, what a joke. I'd like to know what methodology was used to calculate the hypothetical if that bridge to nowhere had not been enabled by debt . . . the same natural resources and labor could have been put to much more productive use, leading to more jobs and higher standards of living instead of the waste. The chart probably assumes that the resources and labor would just sit idle without the debt creation. . . in other words utterly wrong-headed assumptions.

tatupu70 says

mell says

The US is falling behind countries who have adopted sound money policies

Which countries are those btw?

Singapore
Poland
Switzerland
Germany (high debt-to-gdp but at least they are trying to contain it)
South Korea
Estonia
...

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

With the example of few outliers (exceptions always prove the rule) the countries with low debt to gdp are doing much better. Wait, where's Zimbabwe at? 202? Yes we can!

david1 says

We have debt/GDP of under 80%, and the projection is for this to fall slightly over the next ten years. Japan has Debt/GDP of over 200% and the interest on their 30 year bond is under 2%. The rumors of our demise due to debt load are greatly exaggerated.

I never said that doomsday is imminent, but if you are trying to tell me that Japan with its rising poverty has been doing fine since embarking on the Keynesian voodoo train-of-shit, then I have another debt-enabled bridge to sell you.

mell says

Singapore
Poland
Switzerland
Germany (high debt-to-gdp but at least
they are trying to contain it)
South Korea
Estonia

So how do you define "sound" money then?

Reality says

A person facing a 75% bracket can easily restructure the bulk of his pay into
stocks and stock options, thereby get the capital gain rate instead of the 75%
income bracket rate. That's what Warren Buffet has been doing: taking his income
as capital gains instead of salary income.

Of course. And that's why top tax rate also applies to capital gains.

tatupu70 says

mell says

Singapore
Poland
Switzerland
Germany (high debt-to-gdp but at least

they are trying to contain it)
South Korea
Estonia

So how do you define "sound" money then?

For a start, adopting a binding balanced-budget amendment with short term (i.e. per budget) and long term (absolute) upper boundaries of debt to income and debt to gdp ratios. This really isn't anything drastic or dogmatic and leaves room to mix-and-match different economic approaches.

indigenous says

Question

There are a 7 billion people on this planet. Each one makes how many transactions per day? I'm guessing 50? That is 35 billion transactions per day.

How should we govern those transactions?

Bueller, Bueller, Bueller?

Actually a tax on financial transactions would take the front-running, skimming algos out (who are currently paid for "providing liquidity" which they don't) and discourage too much flipping and encourage long-term investing.

The middle class doesn't get the loop holes just the other 2 extremes, we know about the upper class, but at the lower quintiles 30% of their income (not including the for cash) is not reported as income.

The overall point is that is quite cavalier to think that anyone could govern 1.5 billion transactions in the U.S. per day which are intimately connected with the 35 million transactions that take place in the world.

indigenous says

The middle class doesn't get the loop holes just the other 2 extremes, we know about the upper class, but at the lower quintiles 30% of their income (not including the for cash) is not reported as income.

The overall point is that is quite cavalier to think that anyone could govern 1.5 billion transactions in the U.S. per day which are intimately connected with the 35 million transactions that take place in the world.

I think it would be enough and much easier to levy that tax on transactions on national stock exchanges only, less complicated and mostly effective. No loopholes.

Reality says

The chart probably assumes that the resources and labor would just sit idle without the debt creation. . . in other words utterly wrong-headed assumptions.

You could always click the link. I promise I won't correct any more of your latin if you do.

Reality says

There is nothing preventing Buffet from applying the Buffet rules to himself, now! The very fact that he is not is indicative that it's all empty talk and posturing.

Nice job pandering to the lowest common denominator here. You know very well the answer to that question. You play by the rules that are in place even if as you try to change them.

Reality says

Now look at Buffet's situation in more detail. Do you honestly think some nameless bureaucrats or lawmakers can spend and invest 75% of his income more wisely than he can with the money himself?

That's not the point at all. The purpose of the Buffet rule is not for the government to invest Buffet's money more wisely than he can. As you well know. The point is to redistribute wealth back to the people that will spend it.

Reality says

Get a brain for a change, if you really worship Buffet, figure out what he is doing, not just what he is saying and posturing.

Buffet is trying to change US tax code to ensure that the US economy is healthy for future generations. It'd be nice if you did the same...

Estonia sucks. Wouldn't want to be them, I'll say that. 9.3% unemployment. GDP per capita of $21k. GDP growth rate of .3%. Gini of 34.

The have national healthcare and a national pension though.

Why are we talking about how great things are in Estonia again?

tatupu70 says

Nice job pandering to the lowest common denominator here. You know very well the answer to that question. You play by the rules that are in place even if as you try to change them.

i.e. More excuses for why he doesn't want to live by his own rules first, but would like to have the rules enforced on others first.

tatupu70 says

That's not the point at all. The purpose of the Buffet rule is not for the government to invest Buffet's money more wisely than he can. As you well know. The point is to redistribute wealth back to the people that will spend it.

Another brain fart for simpletons. Buffet is one of the biggest beneficiaries of government redistribution. Think the bailout of Wachovia and Wellsfargo, along with Goldman Sachs.

tatupu70 says

Buffet is trying to change US tax code to ensure that the US economy is healthy for future generations. It'd be nice if you did the same...

No. Buffet enjoyed the government bailout, now he wants to stick the bill to the taxpayers.

mell says

Estonia

Singapore

Iceland

Most scandinavian countries

Switzerland

Estonia is 1.3M people, basically a city-state.

SG is 5M people on a rather small island (!) with basically a benevolent dictatorship running things, also a city-state

IS is the size of Stockton with a much bigger island to themselves, also a city-state

The scandinavian countries are 5M in size, except SE which is 10M (1/3 the population of CA with the same land area), arguably also city-states

CH is 8M in a small region but of course they have the global wealth transaction center thing going for them, pretty much a city-state too

European countries have the advantage of strong national identities, everyone's on their old homeland since time immemorial.

Germany is an interesting case more closely our parallel -- 80M people, sizable minority immigration (12%, 8% non-European) -- and maybe we've got a lot to learn from them.

I do think their high taxes on everyone keep rents down. But I see their land values are still pretty high I think.

When I meant "banking system" I meant banking system

What my above chart was getting at was there was nothing to stop a years-long continued cross-default collapse other than the Fed being the borrower of last resort.

I can simplify it a bit:

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

showing the Fed stopped the crash halfway into it.

Interest rates are a tricky topic as we know, so I can't speak intelligently what the interest rate environment would look like, but the System needed tons of money and DC was dysfunctional for most of 2009 and 2010 due to the exceedingly tenuous control of the levers of power the Democrats had, especially "liberal", blue-state Democrats like Pelosi.

Obama was doing stupid shit like setting up the Bowles-Simpson committee, and Brown took over Kennedy's seat in early 2010, making all legislation after that having to pass one of the Princesses of Maine's approvals to move forward, barring removing the power to filibuster from the Republicans.

Politicians also had to look to Nov 2010, and the general stupidity of the electorate -- how easy it would be for Republicans to paint all Dems as big-spending liberals should more fiscal attempts be tried in 2010 (on top of ARRA).

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

shows the system wasn't going to collapse to 0 altogether in 2010 -- there's always reversals in every major down move, and census hiring, ARRA's hundreds of billions of social spending, tax cuts, and a general "Summer of Recovery" attitude got the economy out of collapse mode.

I don't pretend to fully understand what happened with the Fed's injection of trillions since 2009, but my general impression is that without it, things would be as bad as what FDR was facing in 1933 already.

This historic monetary intervention was NOT in my thesis in 2009, LOL.

Bellingham Bill says

well, if the Fed hadn't done the stick-save of 2009-2011, we wouldn't have any banking system now

That's just silly talk. New banks free from the burdens of previous mal-investments would have emerged. In fact, that's exactly what happened throughout the first 120+ years of American history before the FED founding in 1913. Big established banks came and went, displaced by new banks when old big banks were found to be riddled with mal-investments. It is no co-incidence that the biggest banks today were mostly founded at the end of the 19th century. That was the last time when there had been cleansing, before the FED was founded. The FED has been a gigantic incumbent entrenching device.

1920 was a lot different from 1929!

WW I inflation had been a bitch, for one

"In December 1919 the rate was raised from 4.75% to 5%. A month later it was raised to 6% and in June 1920 it was raised to 7% (the highest interest rates of any period except the 1970s and early 1980s)."

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

blue line is purchasing power (down is inflation), red is some Fed rate I found on FRED

shows the typical pre-Greenspan Fed pattern of fighting inflation until the economy hits recession

They did the same in 1928, but the rot in the system after the roaring 20s was a lot different from the position of the economy after 4 years of war economy (we were the arsenal of democracy prior to our 1917 entry).

1920s were before the SEC, LOL. Lassez faire!

Reality says

i.e. More excuses for why he doesn't want to live by his own rules first, but
would like to have the rules enforced on others first.

Nope--he would like the rules applied to everyone equally. That's the only way it would work.

Reality says

Another brain fart for simpletons. Buffet is one of the biggest beneficiaries
of government redistribution. Think the bailout of Wachovia and Wellsfargo,
along with Goldman Sachs.

Buffet was among the folks that LOANED money during the crisis. It's a bit misleading to imply that he wanted or needed government funds.

Reality says

No. Buffet enjoyed the government bailout, now he wants to stick the bill to
the taxpayers.

Complete and utter lie. Like a lot of what you post here.

Bellingham Bill says

"In December 1919 the rate was raised from 4.75% to 5%. A month later it was raised to 6% and in June 1920 it was raised to 7% (the highest interest rates of any period except the 1970s and early 1980s)."

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

blue line is purchasing power (down is inflation), red is some Fed rate I found on FRED

shows the typical pre-Greenspan Fed pattern of fighting inflation until the economy hits recession

The rates you quoted were not inflation rates, but interest rates raised by the FED. The steeper raise after WWI was the reason why the onset of the early 20's recession was much more severe.

Bellingham Bill says

They did the same in 1928, but the rot in the system after the roaring 20s was a lot different from the position of the economy after 4 years of war economy (we were the arsenal of democracy prior to our 1917 entry).

The clamp down by the FED was less severe in the late 20's, as illustrated by your own numbers above. What caused massive unemployment was Hoover's policy of forcing industries to maintain wage levels and price levels. The market stopped clearing at those artificial levels when the FED made money much more dear by raising interest rate. Unlike Hoover's policies, Harding administration simply let the prices drop and market clear, so the economy found bottom within 18 months in 1922, and recovered quickly. That's why we don't talk about a great depression in 1921-22; it was avoided because the market was allowed to clear without government "rescues."

tatupu70 says

Nope--he would like the rules applied to everyone equally. That's the only way it would work.

He claims to believe the rich is not paying their fair share, yet he refuses to voluntarily pay what he (allegedly) thinks is fair. There is absolutely nothing preventing him from pay more to the treasury department voluntarily, just like numerous universities in the country voluntarily pay the sum equal to property tax that would be due on their acreage even as those educational institutions have no property tax liability under the law. Not only that, Warren minimizes his tax bill by actively taking his pay into forms that would have the lower tax bills! That's why his income tax is less than 18% whereas a typical person making more than $390k wage income would be facing 35% tax bracket.

tatupu70 says

Buffet was among the folks that LOANED money during the crisis. It's a bit misleading to imply that he wanted or needed government funds.

Do you think Buffet gets his high returns by sitting on cash unleveraged? Buffet's empire is primarily an insurance business. The cash is pledged several times over as reserves against insurance policies that his empire underwrites. The most potentially damaging underwriting in 2008 were puts on SP500. If not for the massive government bailouts, Buffet's empire may well have collapsed.

tatupu70 says

No. Buffet enjoyed the government bailout, now he wants to stick the bill to

the taxpayers.

Complete and utter lie. Like a lot of what you post here.

How is that a lie? Buffet enjoyed enormous benefit via WellesFargo and Goldman-Sachs when government bailout not only saved those two institutions but also gave Wachovia to WellesFargo with massive subsidy.

Reality says

That's just silly talk. New banks free from the burdens of previous mal-investments would have emerged. In fact, that's exactly what happened throughout the first 120+ years of American history before the FED founding in 1913. Big established banks came and went, displaced by new banks when old big banks were found to be riddled with mal-investments. It is no co-incidence that the biggest banks today were mostly founded at the end of the 19th century. That was the last time when there had been cleansing, before the FED was founded. The FED has been a gigantic incumbent entrenching device.

Yep.

Reality says

Buffet's empire is primarily an insurance business. The cash is pledged several times over as reserves against insurance policies that his empire underwrites. The most potentially damaging underwriting in 2008 were puts on SP500. If not for the massive government bailouts, Buffet's empire may well have collapsed.

Yep, I think so too due to the high exposure to insurance.

Reality says

There is absolutely nothing preventing him from pay more to the treasury
department voluntarily

True. But his goal is the change the system. And giving his forture to the government wouldn't change the system.

Reality says

How is that a lie?

Because you said he wants to stick it to the US taxpayer.

Question:

The point of any economic school is to gain an understanding of scarce commodities that have alternative uses.

The proof of that understanding is how well it predicts the economy.

Which school predicts the economy?

indigenous says

You do know that the war started in Europe in 1939, right?

US exports were 4% of GDP before the War. It was cash and carry until Lend-Lease which was in 1941. Exports are now ~6% of GDP.

That means the war in Europe had little to no effect on the US economy, until the US entered it effectively in 1942.

http://www.econdataus.com/trade05.html

indigenous says

Earlier in this thread you and David made the point that there was no
correlation between the tax rate and economic growth. Now you are arguing the
opposite. I'm confused

Not true. I argued there was no correlation between lowering tax rates and increased economic growth. I made no argument for the other side of the coin...

From here:

http://www.fee.org/the_freeman/detail/what-ended-the-great-depression#axzz2Sisv0oJ6

In short the Republicans and southern Democrats refused to give Truman his New Deal revival. Sometimes they emasculated his bills; other times they just killed them.

Senator Robert Taft of Ohio, one of the leaders of the Republican-southern Democrat coalition, explained why he voted against much of the program: “The problem now is to get production and employment. If we can get production, prices will come down by themselves to the lowest point justified by increased costs. If we hold prices at a point where no one can make a profit, there will be no expansion of existing industry and no new industry in that field.”

Robert Wason, president of the National Association of Manufacturers, simply said, “The problem of our domestic economy is the recovery of our freedom.”

Alfred Sloan, the chairman of General Motors, framed the question this way: “Is American business in the future as in the past to be conducted as a competitive system? He answered: “General Motors . . . will not participate voluntarily in what stands out crystal clear at the end of the road—a regimented economy.”

Taft, Wason, and Sloan reflected the views of most congressmen, who proceeded to squelch the New Deal revival. Instead they cut tax rates to encourage entrepreneurs to create jobs for the returning veterans.

After many years of confiscatory taxes, businessmen desperately needed incentives to expand. By 1945 the top marginal income tax rate was 94 percent on all income over $200,000. We also had a high excess-profits tax that had absorbed more than one-third of all corporate profits since 1943—and another corporate tax that reached as high as 40 percent on other profits.

In 1945 and 1946 Congress repealed the excess-profits tax, cut the corporate tax to a maximum 38 percent, and cut the top income tax rate to 86 percent. In 1948 Congress sliced the top marginal rate further, to 82 percent.

Those rates were still high, but they were the first cuts since the 1920s and sent the message that businesses could keep much of what they earned. The year 1946 was not without ups and downs in employment, occasional strikes, and rising prices. But the “regime certainty” of the 1920s had largely returned, and entrepreneurs believed they could invest again and be allowed to make money.

As Sears, Roebuck and Company Chairman Robert E. Wood observed, after the war “we were warned by private sources that a serious recession was impending. . . . I have never believed that any depression was in store for us.”

With freer markets, balanced budgets, and lower taxes, Wood was right. Unemployment was only 3.9 percent in 1946, and it remained at roughly that level during most of the next decade. The Great Depression was over.

indigenous says

Those goods that were sent overseas were produced by someone?
Is it just a
coincidence that unemployment dropped at the same time the war started in
Europe?

They were produced in the US. But they did not increase is a way significant enough to affect the larger economy until we entered Lend-Lease in 1941 and the War in 1942.

Yes, it is coincidence. We didn't increase exports.

C Boy says

Military personel are not considered as part of the labor force and were actually considered unemployed up until 1987 ( the reasoning is that they contribute nothing to the GDP).

Then what is the reason for Unemployment going down?

Is it possible that more people were employed in manufacturing weapons in the private sector?

Unfortunately cronyism can be part of any "ism" system. For example in soviet union the equivalent of cronyism was a word called "blat" which can loosely be translated as "hookup". The soviet gliterrati may not have been financially well off by western standards, but that nomentclatura lived in a parallel universe of luxuries compared to some downtrodden "worker". Communism was famous for shortages in basically everything that matters yet those with "blat" had access to food at discounted prices while a regular person was advised that there is no food at the so called "store". Same thing for getting dibs on some pathetic vehicles like moskvich. And then there's access to the best sanatoriums and the latest antibiotics...

dublin hillz says

Unfortunately cronyism can be part of any "ism" system.

Cronyism grows where there is monopolistic power. Market competition minimizes cronyism.

Worth noting is that the company that hires the CEO decides how much they want to pay the CEO. Cronyism definitely plays a part in the decision but that does excuse poor performance. Some might say that anyone could do the job but the reality is that very few are capable of this job. E.G. Rodger Smith almost destroy GM by stupid decisions or John Sculley decides Apple needs to fire Steve Jobs. The reason they pay so much to these guys is because they produce an organization that create many times more profit than the company pays him. In other words the company is not stupid on this subject.

The most important cronyism in CEO hiring is not whether the CEO knows someone on the board, but whether the CEO gets the job because he/she has connection to the government regulators. That's what makes the Crony CEO especially worthwhile to the shareholders.

Reality says

Cronyism grows where there is monopolistic power. Market competition minimizes
cronyism

This is interesting. So by inference, market competition minimizes monopolistic power?

Reality says

The most important cronyism in CEO hiring is not whether the CEO knows someone on the board, but whether the CEO gets the job because he/she has connection to the government regulators. That's what makes the CEO especially worthwhile to the shareholders.

You would appear to underestimate the potential gain or loss from the actions of the CEO?

david1 says

Reality says

Cronyism grows where there is monopolistic power. Market competition minimizes

cronyism

This is interesting. So by inference, market competition minimizes monopolistic power?

Minimizing monopoly is the very definition of market competition (i.e. giving consumer choice). Now you are probably going to bring up the old canard "natural monopoly"; there is nothing natural about alleged "natural monopolies," which usually are results of government licenses. Economies of scale and scaling in a competitive market place is usually disrupted by new technology breakthroughs sooner or later (usually sooner). That's why Stalinistic white elephants (or that of Henry Ford's) always became money losers without government bailouts.

indigenous says

You would appear to underestimate the potential gain or loss from the actions of the CEO?

There are indeed visionary CEO's who are worth every penny they ever got from the board or shareholders; the late Steve Jobs was a classic example of that. However, there are also many CEO's chosen due to political connections. That's what I was addressing. The former kind tend to take equity positions instead of enormous salary (like Jobs' $1 salary, and hundreds of millions in stock appreciation), whereas the latter kind tend to be more interested in guaranteed pay during the stint, before moving on and pillaging somewhere else.

Edit: re-read my previous post, and added the word "Crony": that (political connection) is what makes the Crony CEO especially valuable to shareholders. Just to avoid the confusion whether the statement was addressing all CEO's or a particular type of CEO's chosen for their political connections.

Reality says

There are indeed visionary CEO's who are worth every penny they ever got from the board or shareholders; the late Steve Jobs was a classic example of that. However, there are also many CEO's chosen due to political connections. That's what I was addressing. The former kind tend to take equity positions instead of enormous salary (like Jobs' $1 salary), whereas the latter kind tend to be more interested in guaranteed pay during the stint, before moving on and pillaging somewhere else.

Fair enough. I suppose that speaks to the skills of those doing hiring