Turning Japanese: The Audacity of Reality (Part 3 of 3) 148 comments
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Bitter Medicine Needed
I know that many Americans are looking for President Obama to solve this crisis in a sound bite way, with no pain and no sacrifice. They want this to end like an episode of CSI with the murder solved within a one hour time slot. Instead we have a Jonestown massacre that will never be fully understood or solved. Was it mass murder or mass suicide? We have experienced a mass hysteria of debt accumulation by consumers, banks, corporations and the government. There is no easy way out. The debt must be paid off and/or written off.
The politically unpopular steps that need to occur are as follows:
- From an overall standpoint, when you have entered a recession due to fiscal irresponsibility, you don’t get out of it by becoming even more fiscally irresponsible.
- Housing prices need to drop another 15% to 20% to reach fair value. This will result in more foreclosures. When prices fall far enough, the houses will sell and inventories will fall. If you cannot afford the payment on your home, you should become a renter. Not everyone should own a home.
- The government and Federal Reserve need to shine a bright light on the bad debt within the financial system. The collateral or lack thereof backing up the government loans needs to be revealed by Treasury and the Federal Reserve. Covering up the worthlessness of these assets is contributing to the frozen system.
- The remaining mega-banks that have caused this crisis need to be put out of our misery. The shareholders and bondholders of Citigroup (C), Bank of America (BAC), Goldman Sachs (GS), Morgan Stanley (MS) and any other insolvent banks need to be wiped out. The bad banks should go out of business. The prudent banks that did not take financial system destroying risks should be allowed to succeed based on their merits.
- Failed companies with failed strategies must go bankrupt. If the American auto industry is propped up by taxpayer money, the capitalist process of rationalizing manufacturing capacity to final demand will never happen. Allowing companies to fail brings about restructuring and the remaining healthy companies buy the good assets.
- Only infrastructure projects that benefit the citizens of the country should be undertaken. These would include water pipe replacement, electrical grid upgrades and repairing structurally deficient bridges. If the money is spent on worthless make work projects, good investments will be crowded out.
- Tax rebate checks are just a redistribution of wealth from future generations to the spendthrift generation of today. A tax decrease today that is borrowed is a tax increase on our children. They will not stimulate spending.
- Keeping interest rates at zero in an effort to force savers to borrow and spend is penalizing the frugal to benefit the profligate. Borrowing our way out of a debt crisis will never work.
- Consumers should be encouraged to pay down their debt loads and increase their savings rate. The sooner this can be accomplished, the sooner the country can resume growth. Savings will lead to investment.
- The median 401k balance was $18,942 at the end of 2007, with 39% of workers having a balance below $10,000. Approximately 8,000 Americans turn 65 every day. By 2012, 10,000 people will turn 65 per day. Twenty percent of the U.S. population will be over 65 by 2030. An aging population with virtually no retirement savings must increase their savings and cut their consumption dramatically.
- The CEOs who brought down the entire financial system need to be brought to justice. Angelo Mozilo, Dick Fuld, Charles Prince, Jimmy Cayne, John Thain, Stanley O’Neal, Ken Thompson, Robert Steele, Martin Sullivan, Hank Greenberg, Richard Syron, Daniel Mudd, Kerry Killinger, Raymond McDaniel, Terry McGraw and probably a few I’ve missed, need to be investigated and prosecuted for lying to shareholders about the true financial condition of their firms.
- Fannie Mae (FNM), Freddie Mac (FRE), and AIG are wards of the state. The U.S. taxpayer is obligated to pay $150 billion to AIG and $200 billion to Fannie Mae and Freddie Mac. AIG is using these funds to undercut other insurance companies in pricing insurance policies. This will result in insurance companies that did nothing wrong being put out of business by the government supported goliath that almost brought down the financial system. Fannie & Freddie are being pushed by Barney Frank and his distinguished colleagues in Congress to provide more 3% down loans to people who won’t pay them back. The Fed then buys the loans and pretends they are good collateral, while not revealing the true value to the public. Sounds like good policy to me. These companies need to be euthanized and any decent assets sold to viable companies.
- Moody’s and S&P should be banned from the rating business. They proved that a AAA rating could be bought. Pension plans, governments, companies, and individuals relied on their ratings. They colluded with the investment banks and must be punished. Their monopoly needs to be ended.
- The SEC needs to be disbanded. We need to push the start over button. They are in bed with Wall Street. They are unable to enforce their vast array of regulations, ignore proof of Ponzi schemes, and are a revolving door to top Wall Street jobs. The organization has failed miserably. An agency that does not work needs to be scrapped.
Easy Button Solutions
The solutions described above are too politically difficult to implement. There are not enough courageous people in Washington DC to do what is right and necessary. They want a way out that is easy and painless, like the Staples commercial. The easy solution is to print a trillion dollars, hope the Chinese, Japanese, and oil exporting countries continue to buy our debt, and try to inflate our way out of this mess. And that is just what will happen. The following steps will be taken by our cowardly, short term, blundering politician leaders:
- Despite the fact that this crisis was caused by the Federal Reserve keeping interest rates too low for too long, investment banks leveraging their balance sheets 40 to 1, banks marketing 120% loan to value mortgage loans on overpriced houses, consumers borrowing at obscene levels from their overpriced homes and credit card companies handing out credit cards like candy, the solution will be to keep interest rates at zero, force banks to lend, prop up insolvent banks, stop foreclosures, and give consumers tax rebates so they can resume spending.
- The Democrats controlling Congress will use the remaining $300 billion of TARP funds to allow people who are living in houses they can’t afford to not be foreclosed upon. They will encourage bankruptcy judges to reduce mortgage balances. This will result in a reduction in mortgages available to credit worthy people with higher rates to cover the possibility that a judge could adjust the loan amount in the future.
- With banks not willing to lend, the government bureaucrats running our financial industry will force Fannie Mae and Freddie Mac to make additional bad mortgage loans to unworthy borrowers and guarantee more bad loans from other unworthy borrowers. The Federal Reserve will then buy these bad loans at full price and hide them on their bloated balance sheet.
- Rather than letting the bad banks go bankrupt and allowing good banks to rise up and replace them, the U.S. taxpayer will continue to pump in hundreds of billions into these zombie banks for years before their toxic waste balance sheets are cleaned up. The “Bad Bank” created by the government will overpay for worthless assets and pretend that they will eventually recover the cost. This will be done because the people running the Treasury go to the same Manhattan cocktail parties as the bad bankers and Congressmen have their campaigns financed by these bad bankers.
- General Motors (GM), Chrysler and Ford (F) will come back to Congress in March with restructuring plans that are dead on arrival. They will explain that conditions have deteriorated and they need another $20 billion to keep going. The Democratic led Congress, who is beholden to the UAW, will give them our money. Plants and dealerships that need to close will remain in business.
- Whenever I hear the term “Shovel-Ready” projects, I’m reminded of a line by Paul Newman in Butch Cassidy and the Sundance Kid. “Don't ever hit your mother with a shovel. It will leave a dull impression on her mind." The U.S. taxpayers are about to be hit in the head with a shovel. The States say they have thousands of projects that are shovel-ready. If an infrastructure project is to the point where it is shovel-ready then it has already been funded. The infrastructure spending by the Federal government will just replace the funding that was already in place. This will produce zero stimulation.
- President Obama has vowed that there will be no earmarks. Who needs earmarks when the bill already has this much non-stimulating pork:
- $44 million for repairs at the Agriculture Department headquarters in Washington.
- $200 million to rehabilitate the National Mall.
- $360 million for new child care centers at military bases.
- $1.8 billion to repair National Park Service facilities.
- $276 million to update technology at the State Department.
- $600 million for General Services Administration to replace older vehicles with alternative fuel vehicles.
- $2.5 billion to upgrade low-income housing.
- $400 million for NASA scientists to conduct climate change research.
- $426 million to construct facilities at the Centers for Disease Control and Prevention.
- $800 million to clean up Superfund sites.
- $6.7 billion to renovate and improve energy efficiency at federal buildings.
- $400 million to replace the Social Security Administration's 30-year-old National Computer Center.
- The tax rebates of $500 for individuals and $1,000 for couples will sail through unopposed. Just as the previous rebate checks were used to pay off debt or saved, these rebates will not be spent. Therefore, we will have just transferred money from future generations to the current generation.
- The Federal Reserve will keep interest rates at zero, buy up bad assets from financial institutions, buy bad mortgages, buy Treasury bonds to artificially depress rates, and keep printing money until glorious inflation comes back to save the day. Everyone has faith that they will turn the spigot off in time. Their past record of seeing crucial turning points should give us all a sense of calm.
- Timothy Geithner has fired the first shot across the bow of China. He accused China of currency manipulation. Hopefully, this is just rhetoric. When you owe someone $500 billion and you need to borrow an additional $2 trillion in the next year, it isn’t too smart to piss the lender off. Whiffs of trade restrictions and tariffs are reminiscent of Smoot-Hawley and the Great Depression.
Source: Wikipedia
- Rather than scrapping the SEC, Congress will significantly increase their annual budget, hire more bureaucrats, and increase the regulations on businesses. Sarbanes Oxley has cost U.S. companies in excess of $1 trillion and has done nothing to make accounting more transparent. The lack of transparency is the main reason the financial system remains frozen today.
- Congress will hold hearings where they embarrass CEOs, but will not prosecute anyone. They know that they are just as culpable in the financial disaster and would not want to shine too bright a light on the subject.
- The single biggest dilemma facing President Obama is something he has absolutely no control over. The American public has been traumatized over the last year. They have been misled by the government, lied to by Wall Street, and now they are losing their jobs by the millions. Their homes are worth 20% to 50% less and their retirement funds are worth 30% to 50% less. Consumer spending has made up 72% of GDP for the last few years. Based on the trauma they have experienced and having their illusions shattered that home price appreciation could fund their retirement and stocks will go up 10% per year, they have wisely begun to pay down debt for the 1st time in history.
- The combination of devastating losses to their net worth, minuscule retirement savings, and rapidly aging population will change the entire dynamic of U.S. society. Baby-boomers have been hit over the head with a shovel and it has knocked some sense into them. Fear is a great motivator. The government cannot influence this dynamic in any way. Americans will pay down debt for the next decade and increase their savings rate to 10% because they have to. They have no choice. They either reduce consumption and increase savings, or go hungry in their old age. This is the same conclusion that Japanese consumers came to in 1990.
Source: Mike Shedlock
We know what should happen and we know what will happen, but the ultimate result will be far different than the Japanese experience. Owing to their large trade surpluses and high rates of saving, the Japanese have experienced a lethargic economy for two decades, but it has grown with relatively low unemployment in the 3% to 5% range for most of the two decades. They have been able to muddle through. The U.S. will refuse to muddle through. We still see ourselves as the leader of the world, and will not acknowledge the reduction in status that would transpire from a decade of reduced spending. America will choose to follow Neil Young’s advice that, It’s better to burn out, than to fade away.
With an annual trade deficit of $700 billion, a National Debt that will surpass $12 trillion next year, a banking system that will need $2 trillion of additional capital, foreigners owning $3 trillion of our debt, zero percent interest rates and a weakening currency, something has to give. The Federal Reserve will do anything to defeat deflation. Deflation is fatal to a debt ridden society. There will be many more stimulus packages after this one fails. Eventually, we will reach a tipping point where too much debt will result in a hyperinflationary crash. It may be in two years or ten years. I don’t know. Ben Bernanke, Timothy Geithner, and Barack Obama also don’t know. It will catch us all off-guard, just like the current crisis caught them off-guard. Turning Japanese would be a best case scenario for the U.S.
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This article has 148 comments:
mish is in the mix, i see...
get this stuff on tv an get it out there in front of the people...
it's a long road that has no turning...turn this sucker around...
In terms of stimulus, we could look at the country as if it were a business firm. Parts of its capital stock are depleted and could benefit from being refurbished. This means that investment in growth producing capital goods is the order of the day. Spending for its own sake, as you point out, is part of the problem rather than the solution.
The important distinction that one hopes (I have little confidence) the authorities will keep in mind, is the difference between spending and investment. The "projects" detailed in the essay are too much of the former and too little of the latter.
Well now, that much can be said for Citi, BAC, AIG, Freddie, Fannie, GM, Ford, Chrysler, JPM...shall I continue? I'm all for having a positive perspective, but let's be pragmatic at the same time. Let them all go down and let the more responsible businesses take there rightful place, "Long live capitalism!"
All you Cornucopians should bow at this man's feet. There is nothing but cold hard facts and truth in this article, which the Main Stream Press, Wall Street, The Banksters and our Government are INCAPABLE OF DOING!
I encourage everyone to reread this several times to digest it all. Recommend it to friends and relatives and link up to eveyone web-site imaginable.
And if I may add, the chart on page two showing how our GDP has flattened over several years, I encourage everyone to go to this link at ShadowStats.com which shows why that GDP curve has flattened......
www.shadowstats.com/al...
Scroll down to the bottom and you can see that not only has the percentage gain year over year shrunk but we have actually been in recession since late 2004-early 2005 if the FEDS counted GDP like they used to before Bill Clinton change it to make his administration look even better. Even worse, they have not updated the chart yet to reflect today's GDP report showing an unrevised 3.8% DROP in GDP. Look for that number to be revised downward later on.
That's why there were all those articles about how so many people felt like they were being left behind even though the housing market and all the money being made from it and its derivatives was in full swing.
That's how fake the last several years have been. A major multi-year recession (technically does that qualify as a Depression?) has been masked by 100's of TRILLIONS of dollars of absolutely fake valuation.
And now this leperous lie has been suddenly, even horrifyingly revealed.
Recovery in mid-late 2009?
More like revolution.
But the U.S. national debt as a percentage of GDP was more than 120% at the end of WWII. Not fair to compare the U.S. today with the U.S. then? Certainly more appropriate than comparing us with Argentina in 1998.
Unless we bring our manufacturing jobs back we're not going any where.
giving people tax rebate checks so they can buy a Chinese made product is not going to help this country.
Seeking alpha and its writers need to get off the American auto industry's and the uaw's rear end...the American auto workers are the only people left that have any buying power in this country the wal mart wages that this capitalistic society has created is not going to dig us out ...people can't pay their debts and save any money unless they make money...is that so hard to understand?
It still amazes me when people want to debate those minor points previously mentioned as they still miss how grave this really is.
Thank you for taking the time to lay it all out in an easy to understand format with graphs.
Now maybe all those in denial will start to think for themselfs and ask the real questions they have been avoiding all this time since it started.
WAS THIS EVER SUSTAINABLE???
Noworries.
Adding the author to the list of people who use the word "socialist" without understanding what it means...
"How about well thought out, deliberative, and effective?"
Let me just point out that the Great Depression lasted for a decade while politicians took deliberate actions to cure it. It was only when WWII happened along, and government spending went parabolic, that the Depression was ended.
"Every single dime of the $1 trillion will be borrowed. The government will borrow $1 trillion from foreign countries..."
Rhetoric. There are lots and lots of domestic buyers of Treasuries.
"Barney Frank and Charlie Rangel will force insolvent banks to lend money to companies, consumers, and deadbeats in foreclosure proceedings..."
Alarmist nonsense.
As usual, an excellent article filled with relevant data.
I would pick one factor as most important for the Japanese malaise: failure to clean out insolvent banks. Those banks sucked up monetary liquidity for over a decade and the after effects still persist today. This Japanese failure was widely criticized by economists and U.S. government officials throughout the 90's. With some of the same economic policy makers returned to Washington with Obama, we will not make the same mistake, right? So far, wrong, wrong, wrong. Paulsen and company started a process to "save the financial system" by saving the banks. Obama's team seems committed to following the same path.
STOP!!!!!
We can not save the forest by saving the dead trees. These are just fuel for the forest fire that will destroy the entire forest. CLEAN OUT THE DEADWOOD!!!!
I fear a problem is that the policy makers confuse saving their friends at C, BAC, AIG, etc. with saving the U.S.A.
Mr. Quinn, you are doing a great job. Thanks.
So, your advocating a world war to end our problems. Is your contention that WWII which killed 50 million people, was a good thing?
70% to 80% of all our newly issued debt is bought by foreigners.
My BS detector senses an ultra-liberal Obama disciple who believes government can cure all of our ills.
On Jan 30 09:28 AM BS Detector wrote:
> "This process is unacceptable to the socialist politicians who are
> in domination of the United States today."
>
> Adding the author to the list of people who use the word "socialist"
> without understanding what it means...
>
> "How about well thought out, deliberative, and effective?"
>
> Let me just point out that the Great Depression lasted for a decade
> while politicians took deliberate actions to cure it. It was only
> when WWII happened along, and government spending went parabolic,
> that the Depression was ended.
>
> "Every single dime of the $1 trillion will be borrowed. The government
> will borrow $1 trillion from foreign countries..."
>
> Rhetoric. There are lots and lots of domestic buyers of Treasuries.
>
>
> "Barney Frank and Charlie Rangel will force insolvent banks to lend
> money to companies, consumers, and deadbeats in foreclosure proceedings..."
>
>
> Alarmist nonsense.
On Jan 30 09:31 AM Philly Jim wrote:
> Getting rid of the bad banks by letting them fail will cost taxpayers
> more than letting them survive and repaying their debts.
HENRY PAULSON.
Re: Philly Jim "Getting rid of the bad banks by letting them fail will cost taxpayers more than letting them survive and repaying their debts"
That is what Goldman guys pay the government to tell the media.
When a bank fails, there is indeed a violent ripple effect. But the end result is that debtholders take possession of the bank.
I personally lost a ton in a company that loaned stock to Lehman. Do you want to send me a check, since you think it would cost taxpayers less? It sure would cost me less. No, because YOU paying off MY loss is ridiculous!
Charging every child $7000 in taxes to borrow (other people's non-existent) money for the purpose of collapsing the dollar costs a lot more than letting some corrupt banks be possessed.
Let the failures fail, and let debtholders take control. It has worked a hundred times in history.
One thing is for sure, our current crisis will be a pure experimental test of Keynsian theory. In both the great depression and Japan's lost decade, Keynsians say that the government attempts to prevent an economic chain reaction meltdown were too little, too late - a tepid response held back by the fearful proponents of classical theory which, in the long run, resulted in higher debt than would have been accrued if the fire had been firmly extinguished from the start. According to Keynsians, it was the equivalent of using a garden hose on a house fire due to fear of wasting water, whereas the blast from a fire hose would have used less water and resulted in less damage anyway.
Classical economists have their own counter-narrative. To them, the attempts by governments to stabilize the economy only prolonged a crisis that would have naturally resolved itself through liquidation.
In both the depression and the Japan examples, these two sides had to compromise with each other, so they could blame each other for failure, and still do. Today's crisis, however, is being managed from a pure Keynsian perspective, and if that continues either the classical perspective or Keysianism will die within the next 5 years depending on the result.
It seems we live in interesting times!
... Flash
Socialism should be seen as having corporations paying for the externalities they use funded by the public to be more competitive (roads, airports, trains -infrastructure, political stability, law enforcement)- it is undeniable they all add value and profit to any businesses bottom line and so they must repay the public coffers -which they benefit from and pay their fair share. Instead -it is the US/ so-called capitalist countries that subsidize business profits by removing the burden of taxation from corporations that benefit from the public good and encourage a poor business model.
How many US cars does the state,county, federal and local agencies purchase/lease for decades solely because they are American? This hidden reserve of massive sales ensures continued poor management as profits are locked in and accountability and competitiveness decline to incompetence and false confidence. How many civil and criminal suits against corporations are over-turned or not given true justice because we mistakenly believe the 'business of america is business'. Causing again poorer corporate governance, structure, and competitiveness because their mismanagement will be subsdized by a co-opted government which ensures them that being competitive is not as important as being connected. How many fake patents will be churned for small incremental not patentable steps of other nations discoveries (HIV test) for the benefit of US corporations to hegemonize profits they don't deserve!
As for the homeowners- why shouldn't they be helped out? Why must Halliburton, Blackwater, McDonnel Douglass, Ford,GM, Chrysler etc be awarded fat contracts on the taxpayer dime which ultimately leave this country bereft of its true life blood - a hard working, ambitious middle class to support the insouciant, lazy upper class who receive education, opportunity and over-compensation as did the nobility in centuries past!?
America stands for the opportunity based on merit- but most importantly the ability to survive in dignity and a higher living standard. This is how -the US is able to siphon off the best minds of the world for decades. Engineers, doctors, PhD's all who by merit are in the top .001 percent of their countries come to the US precisely for this very reason. If the support of the middle class standard of living is gone -you can kiss the innovation of the US goodbye. With out the fulfilled promise of opportunity to live better if you work hard - this country can kiss its future goodbye.
Homeownership has been proven to be an effective wealth builder for lower/middle income people and this is what America is about. Not those barren intellectuals who by immersing themselves in unproven premises and pseudo-science use ideology to mount specious arguments that buttress a priveldged lifestyle and become a flawed intelligentsia to ensure there current standard of living. Only in capitalist countries do you find the effect of increasing education leading to an increase in moral turpitude. Who needs this kind of education?
Bill Gates won't have 30K to buy DOS from a Chinese programmer -because the Chinese programmer will be in Russia or China or India. NASA won't have legions of Indian/Chinese/African minds because they won't be here. Silicon Valley would not exist.
The US must realize that its secret to survival is to be the most effective and existing government that represents the ideals of the people's struggle. If it continues on the path of exceptionalism, war and elitism- it is doomed. Because its best and brightest citizens will become and have become the product of a polluted system where being educating only ensures that the citizen participates i the cannabilization of his own country. Look at Wall Street, Medicine, Corporations and sadly the Armed forces.
The Protestant Work Ethic has been replaced by the Judaic interest ethic. It is the culture and values that provides the foundation of leadership and a good society. How any economist, scientist or educated person can think otherwise -only goes to show -how riddled our society is poison of materialisn and we lack the anti-dote of disciple, character and most importantly critical thinking.
3 years ago DELPHY fyled for bankrupcy...they were loosing millions$ they blamed the worker's wages and benefits...3 years later worker's wages are 60% lower they have little benefits and DELPHY still loosing millions$.
the DELPHI plant in my town used to employ 3900 workers...now they are down to 900 they shipped the work to Mexico...3000 jobs gone!
Penn. furniture had a plant close by, lazy boy bought the plant and moved operations to china 2500 jobs gone!
these are good paying jobs...jobs that have been taken from the American middle class...when jobs like this are gone people ability to pay their bills is also gone...corporate America and wall street need to stop biting the hand that feeds them!
First off, why do you call "zero interest rates" Keynesian?
"Between 1990 and 2000, the Japanese government instituted 10 fiscal stimulus programs totaling $1 trillion."
Let's see, from 1990 and 2000 (inclusive) Japan's total GDP was $46.5T (www.indexmundi.com/jap...). Which means the stimulus as a percentage of GDP was much lower than what we're talking about doing here. Note, I'm not saying a word about the "quality" of the stimulus, which makes all the difference in its efficacy.
"If Japan had faced up to the bad debt on its banks' balance sheets immediately, they would have experienced a short painful recession of a couple years."
Or perhaps Japan's financial system would have completely collapsed, leading to a period of dramatic deflation and a collapse of the economy as a whole, which might well have led to world-wide recession - kinda like what we're facing now. Hard to say.
"By not honestly assessing the true extent of the bad debt and propping up insolvent banks and corporations, Japan sentenced itself to two decades of stagnation."
Monetarists have a clear argument that Japan's lost ~decade (which ended in about 2002) was due to a cascading failure of monetary policy, and that letting loose the printing presses would have cured the problem at any point. Japan's quantitative easing, began in 2001, led to a much steadier price environment, and real GDP growth doubled in the 2003-2008 period compared to the 1990-2003 period.
"Japan entered this difficult period as a net exporter, with consumers who saved 12% of their income, and a government that had leeway to increase governmental debt. The U.S. has entered a more dangerous period with none of those advantages."
Japan's societal bent towards saving was certainly no advantage in a deflationary environment. A society that responds to incentives to save will do more of it if prices are declining. As for "government with leeway to increase... debt," Japan's national debt stands at somewhere between 175% and 200% of GDP. If Japan had leeway, then we've got a good $15T of leeway.
STOP BLAMING THE WORKERS, STOP BLAMING THE HOMEOWNERS, STOP BLAMING THE MIDDLE CLASS.
THIS IS A MESS CREATED BY WALL STREET AND CORPORATE AMERICA'S GREED.
STOP BLAMING THE AUTO WORKER'S WAGES.
THE LAST ADMINISTRATION SUCKED THE WORKING STIFFS OF THIS COUNTRY AS DRY AS THEY COULD... JUST LOOK AT EXXON MOBIL'S PROFITS...THAT IS WHERE OUR DOLLARS WENT!
IT'S AS SIMPLE AS THAT!
1) Open California, Florida, and New England to drilling - WIDE OPEN!!! This creates US jobs and reduces trade deficit.
2) Streamline and encourage construction of many new nuclear power plants. This also creates US jobs and reduces the trade deficit. Specifically change the spent fuel recycling regulation that leaves us with tons of unspent radioactive fuel. THIS IS THE PROBLEM!
3) Create more tax breaks for business investment in this country and remove tax credit for investment in foreign countries.
4) Eliminate the corporate income tax.
All of these have one thing in common: NOT less government, but less government burden.
A good example (but certeinly not the only one) of the many biases included here is the claim that:
The debt level in 2008 is catastrophic vs 1980 debt levels.
However, the relevant comparison would be DEBT SERVICE LEVELS, as the cost of debt currently is much much lower than it was in 1980's (10 year treasuries are now 2.8% vs 12-14% in the early 1980's). Therefore, the debt levels are not nearly as bad as this article implies.
Conservative classical-theory economists, on the other hand, offer much the same outcome in the long run through the short-term liquidation of banks, companies, and homeowners and the long-promised shrinking of government.
The end result they both offer is what consumers/voters want: a return to the lifestyle of the past - 2,500 sf houses, big luxurious $40k cars, posh office jobs, rising stock markets, and historically low taxes.
Neither perspective considers an option that is a politically unpopular: that we cannot forever consume more than we produce, so standards of living in the US have to fall. Record levels of consumer, government, and corporate debt signify the shortfall between our productivity and the total costs of our lifestyles. We're living the high life on borrowed funds at the government, corporate, and consumer level.
Can an economy where everybody provides services for each other while using up the physical goods that were produced by others (oil, cars, equipment, toys, electronics, etc.) last forever? Or must it eventually revert to the mean productivity of that economy. We are a nation of consultants, salespeople, and administrators instead of a country of manufacturers, engineers, and scientists, so a correction to Latin American living standards could be shocking to those of us who got used to the idea that we were entitled to our quality of life by being US citizens.
If that is the truth, no politician will ever be elected by admitting it. People will fall for quick-fix ideologues for the same reasons they fall for lose-weight-quick scams: what we believe is determined by what we want to believe.
On Jan 30 12:20 PM BS Detector wrote:
> "The Japanese tried every trick in the Keynesian playbook. Zero interest
> rates, public works projects tax rebates and tax decreases..." <br/>
>
> First off, why do you call "zero interest rates" Keynesian?
>
> "Between 1990 and 2000, the Japanese government instituted 10 fiscal
> stimulus programs totaling $1 trillion."
>
> Let's see, from 1990 and 2000 (inclusive) Japan's total GDP was $46.5T
> (www.indexmundi.com/jap...).
> Which means the stimulus as a percentage of GDP was much lower than
> what we're talking about doing here. Note, I'm not saying a word
> about the "quality" of the stimulus, which makes all the difference
> in its efficacy.
>
> "If Japan had faced up to the bad debt on its banks' balance sheets
> immediately, they would have experienced a short painful recession
> of a couple years."
>
> Or perhaps Japan's financial system would have completely collapsed,
> leading to a period of dramatic deflation and a collapse of the economy
> as a whole, which might well have led to world-wide recession - kinda
> like what we're facing now. Hard to say.
>
> "By not honestly assessing the true extent of the bad debt and propping
> up insolvent banks and corporations, Japan sentenced itself to two
> decades of stagnation."
>
> Monetarists have a clear argument that Japan's lost ~decade (which
> ended in about 2002) was due to a cascading failure of monetary policy,
> and that letting loose the printing presses would have cured the
> problem at any point. Japan's quantitative easing, began in 2001,
> led to a much steadier price environment, and real GDP growth doubled
> in the 2003-2008 period compared to the 1990-2003 period.
>
> "Japan entered this difficult period as a net exporter, with consumers
> who saved 12% of their income, and a government that had leeway to
> increase governmental debt. The U.S. has entered a more dangerous
> period with none of those advantages."
>
> Japan's societal bent towards saving was certainly no advantage in
> a deflationary environment. A society that responds to incentives
> to save will do more of it if prices are declining. As for "government
> with leeway to increase... debt," Japan's national debt stands at
> somewhere between 175% and 200% of GDP. If Japan had leeway, then
> we've got a good $15T of leeway.
Saludos desde Mendoza Argentina
On Jan 30 12:47 PM OstrichHater wrote:
> Interesting article, but only because it provides the opposite point
> of view of the wall street analysts. However, this opinion is just
> as biased as the talking heads on CNBC!
>
> A good example (but certeinly not the only one) of the many biases
> included here is the claim that:
>
> The debt level in 2008 is catastrophic vs 1980 debt levels.
>
> However, the relevant comparison would be DEBT SERVICE LEVELS, as
> the cost of debt currently is much much lower than it was in 1980's
> (10 year treasuries are now 2.8% vs 12-14% in the early 1980's).
> Therefore, the debt levels are not nearly as bad as this article
> implies.
"The chart above shows that we enter this financial crisis with total U.S. debt at record levels as of the end of the 2nd quarter of 2008."
Without better sourcing and methodology, this chart and the rest of the national debt discussion in this section is nonsense. According to the Economic Report of the President, the national debt reached 120% of GDP at the end of WWII, and stood at 65.5% at the end of 2007.
"At the end of the 3rd quarter, total U.S. credit market debt was $51.8 trillion."
Again, no source. Also no discussion of the assets related to that debt, which are substantial.
"Japan entered their “lost decade” with total debt of 260% of GDP."
Again, unsupported. Japan's debt has been climbing into uncharted territory in recent years. (www.freerepublic.com/f..., www.japannewsreview.co...).
"Their biggest advantage over the U.S. was that they did not have to convince foreign nations to buy their debt."
Treasurys have been at historic lows throughout this period. I expect this to change gradually as the economy improves and risk appetites increase. As for foreign nations buying US debt, this is somewhat of a canard. While it's true the foreign entities currently hold about 30% of the U.S. debt, it's highly unlikely that any major holder of U.S. debt would take actions that would dramatically reduce the value of its holding. For example, if China decided it wanted to get out of its US debt position, it wouldn't announce it, or flood the market with $682B of Treasurys, because by so doing it would lose lots of money. As the market either becomes more risk tolerant or sees more risk in U.S. debt, the interest costs of issuing debt will rise - gradually.
"There is nothing [politicians] can do to stop prices from falling to their natural long term equilibrium. Government intervention will only prolong the time frame and delay the recovery."
This isn't necessarily a bad thing. If the trajectory of prices is the same from 10 years on, a 10-year gradual decline might be preferable to a radical three-year plunge followed by seven years of growth.
"Home prices in Japan fell for 14 years before bottoming in 2004. Home prices have been dropping in the U.S. for 3 years. How does another decade of home price declines grab you? It is entirely possible if the government tries to intervene in the free market process of supply, demand and price."
The total decline in Japanese housing was about 38%. According to Case-Shiller (www2.standardandpoors....), we were down 25-26% at the end of November. It took 10 years for Japanese home prices to fall this much.
The Debt Service Ratio in 1980 was 11%. Today it is 14%. I'm not biased. I back up my statements with facts. You should try it.
Here is the link if you don't trust me:
www.federalreserve.gov.../
On Jan 30 12:47 PM OstrichHater wrote:
> Interesting article, but only because it provides the opposite point
> of view of the wall street analysts. However, this opinion is just
> as biased as the talking heads on CNBC!
>
> A good example (but certeinly not the only one) of the many biases
> included here is the claim that:
>
> The debt level in 2008 is catastrophic vs 1980 debt levels.
>
> However, the relevant comparison would be DEBT SERVICE LEVELS, as
> the cost of debt currently is much much lower than it was in 1980's
> (10 year treasuries are now 2.8% vs 12-14% in the early 1980's).
> Therefore, the debt levels are not nearly as bad as this article
> implies.
The debt remains like a ball and chain around our neck. The substantial assets aren't so substantial any more and getting less substantial by the day. THE DEBT REMAINS.
You should do a little research and write your own article. I'd love to proof read it for you.
Let me guess - you're an aid to Barney Frank or Nancy Pelosi.
I'm detecting something, and it doesn't smell too good.
On Jan 30 01:07 PM BS Detector wrote:
> Audacity section
>
> "The chart above shows that we enter this financial crisis with total
> U.S. debt at record levels as of the end of the 2nd quarter of 2008."
>
>
> Without better sourcing and methodology, this chart and the rest
> of the national debt discussion in this section is nonsense. According
> to the Economic Report of the President, the national debt reached
> 120% of GDP at the end of WWII, and stood at 65.5% at the end of
> 2007.
>
> "At the end of the 3rd quarter, total U.S. credit market debt was
> $51.8 trillion."
>
> Again, no source. Also no discussion of the assets related to that
> debt, which are substantial.
>
> "Japan entered their “lost decade” with total debt of 260% of GDP."
>
>
> Again, unsupported. Japan's debt has been climbing into uncharted
> territory in recent years. (www.freerepublic.com/f...,
> www.japannewsreview.co...).
>
>
> "Their biggest advantage over the U.S. was that they did not have
> to convince foreign nations to buy their debt."
>
> Treasurys have been at historic lows throughout this period. I expect
> this to change gradually as the economy improves and risk appetites
> increase. As for foreign nations buying US debt, this is somewhat
> of a canard. While it's true the foreign entities currently hold
> about 30% of the U.S. debt, it's highly unlikely that any major holder
> of U.S. debt would take actions that would dramatically reduce the
> value of its holding. For example, if China decided it wanted to
> get out of its US debt position, it wouldn't announce it, or flood
> the market with $682B of Treasurys, because by so doing it would
> lose lots of money. As the market either becomes more risk tolerant
> or sees more risk in U.S. debt, the interest costs of issuing debt
> will rise - gradually.
>
> "There is nothing [politicians] can do to stop prices from falling
> to their natural long term equilibrium. Government intervention will
> only prolong the time frame and delay the recovery."
>
> This isn't necessarily a bad thing. If the trajectory of prices is
> the same from 10 years on, a 10-year gradual decline might be preferable
> to a radical three-year plunge followed by seven years of growth.
>
>
> "Home prices in Japan fell for 14 years before bottoming in 2004.
> Home prices have been dropping in the U.S. for 3 years. How does
> another decade of home price declines grab you? It is entirely possible
> if the government tries to intervene in the free market process of
> supply, demand and price."
>
> The total decline in Japanese housing was about 38%. According to
> Case-Shiller (www2.standardandpoors....),
> we were down 25-26% at the end of November. It took 10 years for
> Japanese home prices to fall this much.
re your comment below,
>The Debt Service Ratio in 1980 was 11%. Today it is 14%.
you are probably right saying that it is 14% now vs 11% then (I didn't have that official stat). I am simply suggesting that the <30% increase in debt service levels seems far from catastrophic to me than what you are suggesting.
Also, re your comment:
>You assume they will stay at 2.8%. Very hopeful assumption.
You have to remember that if interest rates rise, it only affects NEW debt, and not existing debt, and therefore is a little less scary. It is not as if the debt service level will immediately double from 14% to 28% if the 10 year doubles from 2.8% to 5.6%, because the debt service level is the blended average rate of the debt outstanding (not the new debt issued).
There's much here to agree with, but...
"...Goldman Sachs (GS), Morgan Stanley (MS) and any other insolvent banks need to be wiped out."
I don't think you have any idea what's on the books of either of these firms, so calling them insolvent is silly. Most discussion I've seen believes that MS has all or nearly all of the bad stuff off its books. GS is typically opaque.
"If the American auto industry is propped up by taxpayer money, the capitalist process of rationalizing manufacturing capacity to final demand will never happen."
I don't think this is necessarily true for a few reasons. Again, the assumption that ANY government intervention necessarily causes market perversions is too broad. I do think it's possible for the government to take actions that do not have long-term market impacts. The obvious example is the Chrysler loan guarantees, which enabled the company to survive through a difficult patch. Government involvement was limited, lasted only a few years, and was profitable. While the market composition was affected, the overall market ten years later substantially was not.
"Allowing companies to fail brings about restructuring and the remaining healthy companies buy the good assets."
Which is all well and good, but without some level of government intervention, the correlated destruction of otherwise healthy companies could cause economic damage that it might be better to avoid.
"Only infrastructure projects that benefit the citizens of the country should be undertaken. These would include water pipe replacement, electrical grid upgrades and repairing structurally deficient bridges. If the money is spent on worthless make work projects, good investments will be crowded out."
I'll go a step further. Only infrastructure spending that would occur anyway within the next five years should be undertaken. Basically, we should borrow our future public works projects. We take the economic stimulus the government was expecting to do in the coming years and use it now. We trade higher growth now, when we desperately need it, for lower growth later, when hopefully we won't need it as much. The cost is a few years of interest payments now.
"Tax rebate checks are just a redistribution of wealth from future generations to the spendthrift generation of today. A tax decrease today that is borrowed is a tax increase on our children. They will not stimulate spending."
Your statement is internally inconsistent. If today's generation is spendthrift, a tax decrease will absolutely increase spending.
The question remains on the quality of the spending. Generally accepted theory is that the private sector uses money more efficiently than the private sector - the market works better than the government. But if what we need right now is spending and not saving, we are likely to target tax cuts to those lower-income people who are more likely to spend the money. Since we're already reducing the market's efficiency by directing these tax cuts, it might well be better for the government to spend the money in specific ways.
"Keeping interest rates at zero in an effort to force savers to borrow and spend is penalizing the frugal to benefit the profligate. Borrowing our way out of a debt crisis will never work."
First off, the Fed is fighting a massively deflationary environment - interest rates of zero are a part of this. As the economy improves, rates will be allowed to rise.
Secondly, nobody can force savers to borrow, and I doubt you can use historical data to correlate low interest rates with increased consumption without using increasing home values as an intermediary. Most importantly, since consumers are in so much debt, these short-term interest rates aren't very relevant to them, since the rates they are paying on their debt (their rate of return if they pay off debt) is much higher and often unrelated.
As for penalizing the frugal, well, what else is new?
"AIG is using these funds to undercut other insurance companies in pricing insurance policies."
I have yet to see anything proving this. I've seen competitors, who seem to uniformly want to be raising prices, complaining that AIG is beating them on price. I've also seen industry analysts who say they haven't seen any stupid deals done by AIG.
"Fannie & Freddie are being pushed by Barney Frank and his distinguished colleagues in Congress to provide more 3% down loans to people who won’t pay them back."
I'd love to see evidence of this.
"Moody’s and S&P should be banned from the rating business."
I don't understand why people are still hiring these companies to rate anything - this seems to be a clear market failure. I also don't understand why there haven't been lots of high-profile lawsuits filed against them.
"The SEC needs to be disbanded."
Well, no. We need something like the SEC to do what the SEC should have been doing. Clean house? Sure. Reorganize? You bet.
On Jan 30 01:22 PM OstrichHater wrote:
> Jim,
>
> re your comment below,
Regarding the politicians wanting to "help". It seems the Dems think the solution is to spend, and charge it. The GOP solution is to cut taxes, and charge it.
Being a taxpayer I slightly prefer the latter to the former, but better still is a third solution. Cut taxes AND spending.
Imagine what a BIG tax cut would do for everybody's psychology, IF spending were cut an equal amount so people knew that the tax cut was REAL and not simply based on a scheme to put off paying for it.
"The easy solution is to print a trillion dollars, hope the Chinese, Japanese, and oil exporting countries continue to buy our debt, and try to inflate our way out of this mess."
This is what the Japanese DIDN'T do for 11 years. When they did, they stabilized prices.
"Despite the fact that this crisis was caused by the Federal Reserve keeping interest rates too low for too long..."
Nonsense. The Fed didn't force a bank to make one loan, didn't force a borrower to enter into an unaffordable contract, didn't force one document to be fudged, ignored, or deemed unnecessary. The Fed's job here is to use monetary policy to help stabilize prices and employment. The Fed's job is not to set interest rates at a higher rate than necessary to intentionally retard economic activity.
"Who needs earmarks when the bill already has this much non-stimulating pork:"
Perhaps you don't understand how this works. The government spends money. Those they pay support employees and banks. Those employees support banks and shops and other businesses. Those businesses have employees. And so forth. The mechanism doesn't change much with the kinds of spending. Yes, there are efficiency questions, but to say the things you list aren't stimulative is nonsense. These projects appear to all be things that were already in the works, which the government would have been funding in the next few years in any case. From that standpoint, they are PERFECT stimulus spending.
"Just as the previous rebate checks were used to pay off debt or saved, these rebates will not be spent."
Depends. Somebody at the bottom end of the income spectrum is very likely to spend it. Somebody in the middle class or higher is likely to put it in the bank or pay off debt, either of which is exactly what the banks need. Gee, that doesn't sound too bad. Though I agree with you in principal about borrowing from future generations.
"Everyone has faith that [the Fed] will turn the spigot off in time. Their past record of seeing crucial turning points should give us all a sense of calm."
To date, about 75% of the growth in the Fed's balance sheet is quite easily undone. Depending on how they manage the purchasing of debt, there's no reason to think they won't continue this trend (though perhaps not quite to the same degree).
"When you owe someone (China) $500 billion and you need to borrow an additional $2 trillion in the next year, it isn’t too smart to piss the lender off."
Actually, it's more like $680 billion. But China's been
"When you owe someone (China) $500 billion and you need to borrow an additional $2 trillion in the next year, it isn’t too smart to piss the lender off."
Actually, it's more like $680 billion. But even after the Olympics, with its economy grinding to a (relative) crawl, China increased its US debt holdings by about 25% from the end of August to the end of November. China's not dumb - it's not going to let a little rhetoric get in the way of making money.
"They either reduce consumption and increase savings, or go hungry in their old age. This is the same conclusion that Japanese consumers came to in 1990."
But the data don't support you. Look at this chart (www.gold-eagle.com/edi...) from this article: www.gold-eagle.com/edi.... The Japanese household savings rate actually declined from close to 15% in 1991 to about 6% in 2004.
"Eventually, we will reach a tipping point where too much debt will result in a hyperinflationary crash... It will catch us all off-guard, just like the current crisis caught them off-guard. Turning Japanese would be a best case scenario for the U.S."
The sky is falling! The sky is falling!
Where's any even passing try at describing the mechanism that might cause such a thing? Seriously, you pulled a lot of data points, but many of them are on unstable footing and some are just wrong. Your conclusions are not supported well at all.
The 1% interest rates from the Fed encouraged the high risk taking of corporations and individuals. They did not stabilize prices. The true CPI (not the gov't manipulated lie) has been running well above 5% for years.
In you warped world, any and all spending is good, especially by the government. Have you ever heard of a cost benefit analysis? $1,200 government toilet seat - not a benefit.
You agree with me in principal about borrowing from future generations, but you are gung ho for spending $1 trillion that we don't have after we've spent $10.7 trillion we don't have, and $53 trillion we've committed to spend with social programs.
You are very confident the Chinese won't do something stupid because they haven't done it yet. Our banking system hadn't collapsed last year yet. But it did collapse. It collapsed because an unsustainable trend can not be sustained. Just like our debt accumulation. It won't matter until it matters.
Good day sir.
On Jan 30 02:16 PM BS Detector wrote:
> Easy Button section
>
> "The easy solution is to print a trillion dollars, hope the Chinese,
> Japanese, and oil exporting countries continue to buy our debt, and
> try to inflate our way out of this mess."
>
> This is what the Japanese DIDN'T do for 11 years. When they did,
> they stabilized prices.
>
> "Despite the fact that this crisis was caused by the Federal Reserve
> keeping interest rates too low for too long..."
>
> Nonsense. The Fed didn't force a bank to make one loan, didn't force
> a borrower to enter into an unaffordable contract, didn't force one
> document to be fudged, ignored, or deemed unnecessary. The Fed's
> job here is to use monetary policy to help stabilize prices and employment.
> The Fed's job is not to set interest rates at a higher rate than
> necessary to intentionally retard economic activity.
>
> "Who needs earmarks when the bill already has this much non-stimulating
> pork:"
>
> Perhaps you don't understand how this works. The government spends
> money. Those they pay support employees and banks. Those employees
> support banks and shops and other businesses. Those businesses have
> employees. And so forth. The mechanism doesn't change much with the
> kinds of spending. Yes, there are efficiency questions, but to say
> the things you list aren't stimulative is nonsense. These projects
> appear to all be things that were already in the works, which the
> government would have been funding in the next few years in any case.
> From that standpoint, they are PERFECT stimulus spending.
>
> "Just as the previous rebate checks were used to pay off debt or
> saved, these rebates will not be spent."
>
> Depends. Somebody at the bottom end of the income spectrum is very
> likely to spend it. Somebody in the middle class or higher is likely
> to put it in the bank or pay off debt, either of which is exactly
> what the banks need. Gee, that doesn't sound too bad. Though I agree
> with you in principal about borrowing from future generations. <br/>
>
> "Everyone has faith that [the Fed] will turn the spigot off in time.
> Their past record of seeing crucial turning points should give us
> all a sense of calm."
>
> To date, about 75% of the growth in the Fed's balance sheet is quite
> easily undone. Depending on how they manage the purchasing of debt,
> there's no reason to think they won't continue this trend (though
> perhaps not quite to the same degree).
>
> "When you owe someone (China) $500 billion and you need to borrow
> an additional $2 trillion in the next year, it isn’t too smart to
> piss the lender off."
>
> Actually, it's more like $680 billion. But China's been
You've never looked it up, have you? Here's Webster: "any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods." So which politicians who "dominate" our government meet the definition of socialist?
"So, your (sic) advocating a world war to end our problems. Is your contention that WWII which killed 50 million people, was a good thing?"
So sad that your reading comprehension is so poor. I stated that it was the massive government spending related to WWII that ended the Depression. How exactly is that advocacy of war?
"70% to 80% of all our newly issued debt is bought by foreigners."
Nonsense - show some data. According to Treasury (www.treas.gov/tic/mfh.... and www.treasurydirect.gov...), the national debt increased by $1.423T between 1/31/08 and 11/30/08. During that time, foreign ownership increased by $686B, or 48% of the total. According to the Fed (www.newyorkfed.org/res...) for a sample period between 2001 and 2005, 12.5% of auctioned Treasurys went to foreigners, with the most bought in a single auction being 38.5%.
"My BS detector senses an ultra-liberal Obama disciple who believes government can cure all of our ills."
But your words reveal a thin-skinned author who spends little time or effort checking facts. You may also be way out there on the right wing, based on your snap judgment of my disagreements being based on ideology rather than your sloppy writing.
Again, personal attacks in response to criticism.
Well, some of the time anyway.
Again with the personal attacks. And your response to my questioning of your statistics? No support for your assertions. I never said the debt was not bad. I said your statistics are a load of crap.
"You should do a little research and write your own article. I'd love to proof read it for you."
Good idea.
"Let me guess - you're an aid to Barney Frank or Nancy Pelosi."
Sigh. Can't you defend yourself at all?
"I'm detecting something, and it doesn't smell too good."
It's your upper lip.
> ownership and administration of the means of production and distribution of goods."
Government ownership and administration - AIG, Fannie Mae, Freddie Mac, Citigroup, Bank of America, GM, Ford, Chrysler
Are you awake out there?
I await your article.
On Jan 30 03:04 PM BS Detector wrote:
> The author wrote: "What is your definition of socialist?"
>
> You've never looked it up, have you? Here's Webster: "any of various
> economic and political theories advocating collective or governmental
> ownership and administration of the means of production and distribution
> of goods." So which politicians who "dominate" our government meet
> the definition of socialist?
>
> "So, your (sic) advocating a world war to end our problems. Is your
> contention that WWII which killed 50 million people, was a good thing?"
>
>
> So sad that your reading comprehension is so poor. I stated that
> it was the massive government spending related to WWII that ended
> the Depression. How exactly is that advocacy of war?
>
> "70% to 80% of all our newly issued debt is bought by foreigners."
>
>
> Nonsense - show some data. According to Treasury (www.treas.gov/tic/mfh....
> and www.treasurydirect.gov...),
> the national debt increased by $1.423T between 1/31/08 and 11/30/08.
> During that time, foreign ownership increased by $686B, or 48% of
> the total. According to the Fed (www.newyorkfed.org/res...)
> for a sample period between 2001 and 2005, 12.5% of auctioned Treasurys
> went to foreigners, with the most bought in a single auction being
> 38.5%.
>
> "My BS detector senses an ultra-liberal Obama disciple who believes
> government can cure all of our ills."
>
> But your words reveal a thin-skinned author who spends little time
> or effort checking facts. You may also be way out there on the right
> wing, based on your snap judgment of my disagreements being based
> on ideology rather than your sloppy writing.
Again, no evidence, no sourcing, no nothing to back your statement up. When did they try to inflate out of the crisis? I said 2001 - am I wrong? When did the crisis end? You said 2003. What part of inflating failed?
"Printing money just debases the money."
No kidding! The currency was GAINING value in the marketplace. Let's see, how do you stop that from happening? Is this really so hard?
"The 1% interest rates from the Fed encouraged the high risk taking of corporations and individuals. They did not stabilize prices. The true CPI (not the gov't manipulated lie) has been running well above 5% for years."
"The government manipulated lie"? See, it's pretty clear you're not any sort of scholar when you throw something like that out without a single supporting statement.
Next it'll be the strips in the currency so they know how much you have.
"In you (sic) warped world, any and all spending is good, especially by the government... $1,200 government toilet seat - not a benefit."
There are $1,200 toilet seats in the stimulus bill? Why didn't you say so?
"You agree with me in principal about borrowing from future generations, but you are gung ho for spending $1 trillion that we don't have after we've spent $10.7 trillion we don't have, and $53 trillion we've committed to spend with social programs."
Seems you also may not know what "spent" means. What's in your $10.7T number?
But more importantly, you haven't even read what I wrote, did you? Here's a repeat: "Only infrastructure spending that would occur anyway within the next five years should be undertaken. Basically, we should borrow our future public works projects. We take the economic stimulus the government was expecting to do in the coming years and use it now. We trade higher growth now, when we desperately need it, for lower growth later, when hopefully we won't need it as much. The cost is a few years of interest payments now."
Is that concept really so hard to understand?
"You are very confident the Chinese won't do something stupid because they haven't done it yet. Our banking system hadn't collapsed last year yet. But it did collapse. It collapsed because an unsustainable trend can not be sustained. Just like our debt accumulation. It won't matter until it matters."
And in your bizarro world, one day the whole thing collapses. We'll go home one day with Treasuries yielding 4%, and we'll wake up the next day and Treasuries will be yielding 22%, right? Any chance you describe how this might happen? And by chance do you know how much of our debt the Chinese hold? About 6.4%. You really think they're going to bring about a crash in Treasuries?
"Good day sir."
I said "Good Day!"
www.federalreserve.gov...
I can divide, can you? $51.8 debt/$14 gdp = 370%
On Jan 30 03:13 PM BS Detector wrote:
> The author wrote: "Now I recognize you. You are one of the Great
> Deniers. The debt remains like a ball and chain around our neck.
> The substantial assets aren't so substantial any more and getting
> less substantial by the day. THE DEBT REMAINS."
>
> Again with the personal attacks. And your response to my questioning
> of your statistics? No support for your assertions. I never said
> the debt was not bad. I said your statistics are a load of crap.
>
>
> "You should do a little research and write your own article. I'd
> love to proof read it for you."
>
> Good idea.
>
> "Let me guess - you're an aid to Barney Frank or Nancy Pelosi."<br/>
>
> Sigh. Can't you defend yourself at all?
>
> "I'm detecting something, and it doesn't smell too good."
>
> It's your upper lip.
The government basically owns AIG, FNM, and FRE. It has a non-voting interest in C and BAC (and other banks). And it has loaned money to GM and Chrysler. Perhaps you hadn't heard - Ford has taken nothing.
So here's the scorecard - government ownership of GM and Chrysler? Nope. Of C and BAC? Nope. Of AIG, FNM, and FRE - check. Of the means of production? Not remotely.
You might also not have noticed - all of these actions were taken by a Republican administration, and yet the only words about specific politicians you write are derogatory ones about Democrats. Curious.
See? That wasn't so hard, was it? You should spend a little more time trying to defend yourself rather than making personal attacks.
I didn't notice that you were talking about the indebtedness of the American citizenry rather than the national debt. Clearly, since I was talking about the national debt, my characterization of your stats was wrong.
Of course, total U.S. public and private debt is completely inappropriate for a discussion of the government's ability to borrow. Again, data that doesn't support your arguments.
But good for you for trying to fight back with facts.
Do not buy things you cannot afford!
We have a small recycling business and had three months of savings put away to handle an economic downturn. We have nothing fancy but a house and two cars. The cars are paid off and we have a house we CAN afford. Our credit scores are good but we can't get any money from the banks because they are hording it. Manufacturing needs to come back to this country if we are going to survive. Other than that learn to speak Chinese cause your going to need to.
You two are having an excellent argument. I appreciate the facts, and references to those facts, that are being pulled out. I also appreciate that people should be called out for making ad hominem attacks, as these are signs of weakness in an argument, not strength. Thanks to both of you.
As I said earlier, it's a battle between classical economic theory and Keynsian economic theory. Current policy is pure Keynsianism, rather than the compromise approaches of the depression and Japan, so we should be able to definitively declare a winner in about 5 yrs. The political consequences will be dramatic either way.
Because macroeconomists lack the ability to perform controlled experiments as scientists do, they are often left arguing over ambiguous historical data. Thus, there is a lack of agreement about the basic rules of economics. Imagine the debate between Newtonian physics and the theory of relativity if no experiments had been possible!
The good news is that in a few years, we will definitely know how macroeconomics work. Whether that turns out well or badly, we will finally know what we are doing - which could mean improved policies and economic growth thereafter.
I quit my job as a state government accounting manager in part from rage. I will give you a quote from a high-ranking public state official. She saw my boss leave the auditorium but missed me off to the side.
She turned to the vender and said, "Now that C. is gone, just tell us what you need. Money is no object."
Since we were in the hole, I waited till she dug even deeper before calling her out. It went public, and my boss was damaged politically, NOT the crazy official who wanted to spend other people's non-existent money on frivolous crap!
I was taught Keynesian economics (AB, BS, pMBAf), and the professors were consistently in theory-land. If a student pointed out history such as the Weimar Republic, then the question was simply dimissed for not fitting the model. This BS Detector debate is going the same way.
There is only one thing that can stimulate an economy: Manufacturing. You take slop that has no value and you create value by turning it into a "resource." The resource is converted into a product. The value added is spread among labor during conversion.
The government is "helping" by stealing other people's non-existent money! That theft [sorry, borrowing] means that the wealth of the working people who created all the wealth that office people like me live off have their savings become worthless. Banks produce nothing, and the increased number of dollars dilute existing wealth. Additional government waste [sorry, budget allocations] will not spark activity. The banks will leave it in the FED to collect interest or maintain their debt ratios. If banks did loan anything, it would just go to financiers to create holding corps (I own one) to make products in China.
THE AUTHOR IS CORRECT.
End of debate.
Now THAT'S funny.
Economics is the fine art of drawing funny looking diagrams using funny little greek letters.
I think the Fed reaction here is much more closely aligned with Friedman than with Keynes, though the more recent Keynesians certainly have embraced much of what Friedman argued. Recall that Keynes largely ignored monetary impacts on the real economy, whereas Freidman argued that the Depression was primarily if not completely caused and exacerbated by a massive contraction in the money supply and failed monetary policy.
And of course we won't get any sort of clear winner or loser, as the economists and politicians tinker and change things. Nor does it really matter, as economic theory is forever in flux. The Keynesian view held sway until the Monetarists knocked holes in it, then the Keynesians integrated elements of other theories but remained in the wilderness until today. And so it goes; both "sides" will adopt new elements as time goes by, in a never-ending and altogether futile effort to perfectly explain the workings of the economy.
Which I still find amusing, as if the oracle had spoken.
"The FED should not give a flying... care... about politics or job creation. Its commission is to be a central bank while protecting the currency."
Well, that's interesting, but the Fed's duties are:
* conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
* supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers
* maintaining the stability of the financial system and containing systemic risk that may arise in financial markets
* providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation's payments system
(www.federalreserve.gov...)
"I was taught Keynesian economics (AB, BS, pMBAf), and the professors were consistently in theory-land. If a student pointed out history such as the Weimar Republic, then the question was simply dimissed for not fitting the model."
Really? I would think any thoughtful modern Keynesian would have adopted certain monetarist tenets that would help explain this. Perhaps those teaching Keynes weren't actually Keynesians.
"There is only one thing that can stimulate an economy: Manufacturing."
Really. Then how do you explain the growth of the U.S. economy since, oh, 1976? GDP has grown more than twice as fast as manufacturing output during that time. (EROP table B-12)
"The government is "helping" by stealing other people's non-existent money!"
Um... how about borrowing money that will burden our children and their children?
"That theft [sorry, borrowing] means that the wealth of the working people... their savings become worthless."
Would you believe "worth less"?
"Banks produce nothing..."
Money produces nothing. Without it, and without banks, much less can be produced.
"...and the increased number of dollars dilute existing wealth."
Everything is relative. Existing wealth is only "diluted" if it can be exchanged for less stuff. That only happens with unexpectedly high inflation.
"Additional government waste [sorry, budget allocations] will not spark activity. The banks will leave it in the FED to collect interest or maintain their debt ratios."
Not all banks, but I'll accept the premise. Until the banks become more comfortable with the assets on their books, or risk appetites increase, or the government eases the mark-to-market accounting rule, bank lending will remain stunted.
"If banks did loan anything, it would just go to financiers to create holding corps (I own one) to make products in China."
Really? Nothing else? Pretty extreme views you have here. Where's the analysis that shows the author is correct, end of debate?
there is a lot of truth in this statement....
great article by the author!
as for the hope-messaih, hate to say it.. the man has political capital, but no political courage, he only wants to win a second term.. he will sell whatever lies he needs to so that he say the sky is falling and then say he is the only one who can save us all ..
On Jan 30 09:28 AM BS Detector wrote:
> "This process is unacceptable to the socialist politicians who are
> in domination of the United States today."
>
> Adding the author to the list of people who use the word "socialist"
> without understanding what it means...
>
> "How about well thought out, deliberative, and effective?"
>
> Let me just point out that the Great Depression lasted for a decade
> while politicians took deliberate actions to cure it. It was only
> when WWII happened along, and government spending went parabolic,
> that the Depression was ended.
>
> "Every single dime of the $1 trillion will be borrowed. The government
> will borrow $1 trillion from foreign countries..."
>
> Rhetoric. There are lots and lots of domestic buyers of Treasuries.
>
>
> "Barney Frank and Charlie Rangel will force insolvent banks to lend
> money to companies, consumers, and deadbeats in foreclosure proceedings..."
>
>
> Alarmist nonsense.
So many clowns, so little time.
On Jan 30 09:38 PM BS Detector wrote:
We need 10 or so years to unwind the credit.
On Jan 30 09:13 AM BS Detector wrote:
> "...the National Debt will reach 100% of GDP during the Obama administration.
> When Argentina’s economy collapsed in 1998, their National Debt as
> a percentage of GDP was 65%."
>
> But the U.S. national debt as a percentage of GDP was more than 120%
> at the end of WWII. Not fair to compare the U.S. today with the U.S.
> then? Certainly more appropriate than comparing us with Argentina
> in 1998.
I don’t think either post-WWII United States or 98-01 Argentina are necessarily excellent comparables to our situation today. However, I do think the Argentina scenario is more related to the United States today. For starters, post-WWII U.S. had the majority of the world’s financial reserves and industrial capacity. Moreover, we had the financial strength, bargaining power and trading partners to produce our public debt down fairly quickly (that and the concept of today’s Household Debt at 100% to GDP and Financial-Sector Debt at 120% to GDP was a completely foreign concept). Argentina had many similarities to the United States, albeit on a much smaller scale. Between 1992 and 1997, Argentina ran over $20 billion of cumulative trade deficits which was fueled by cheap imports, much like one facet of the United States’ recent trade deficits. Annual deficits topped out at 2.5% of GDP (much less than what the United States is looking at this year) in 1999-2001 before something as small as the finance minister’s debt swap caused massive capital flight and shorting of sovereign debt. I would argue that the United States is in a roughly parallel situation today (albeit in relative terms we are in much worse shape) with our ‘advantage’ being the arguably misguided trust that treasury debt holders have in our solvency. If we weren’t so deeply entrenched in the international financial system, our creditors would have pulled the plug on Uncle Sam quite some time ago. That brings me back to Jim’s quote: “The Great Deniers say we are not Argentina. They say we are safe because the U.S. dollar is the reserve currency of the world. This is like jumping off a 20 story building and as you pass the 10th floor someone yells out the window asking how you are doing. You answer, ‘Good, so far’.” I hope I’m wrong about all of this. Perhaps if we can perform financial triage and bring our zombie banks into receivership a la Sweden, we might be able to mitigate the worst of this impending crash. If not, at least this time around Sweden is bailing out Volvo; we’ll need something to keep us safe.
The broader market was stagnant, but somebody made money. Who?
We're 0 for 14 on your first chart, and 14 for 14 on the second. Indeed, we're getting it EXACTLY wrong.
But turning Japanese isn't the answer. We need to emulate the CHINESE and BRAZILIANS instead. Our only hope is to GROW our way out of this mess.
We are the best looking horse in the glue factory.
On Jan 31 10:59 AM redsea wrote:
> Why is the dollar rising?
On Jan 30 12:48 PM Jim Quinn wrote:
> I detect a lot of BS. You must be a printing press salesman who hopes
> to profit from the massive printing of money that will occur in the
> next four years. Bring on the $15 trillion. Government to the rescue.
>
>
>
> On Jan 30 12:20 PM BS Detector wrote:
On Jan 31 12:11 PM drbob66 wrote:
> JQ, you didn't address his points. What gives?
The colorful argument between BS Detector and the author led to a better article, IMHO. I hope neither take offense to that. :o
I had some of my own comments to make:
James Quinn:
“When it became clear that there was an out of control speculative frenzy, the Bank of Japan raised rates to 6% in five steps from 1989 into 1990. This is given as the cause for the collapse of the stock and real estate bubbles. Both the stock market and land values are 80% below their peak 1989 levels. They are currently at levels seen in the early 1980’s. The scary part of the Japanese experience is that their government did not sit by idly. They used all the tools at their disposal and made the conditions much worse. Government actions caused the crisis and then exacerbated the situation. Are you getting the picture?”
My understanding of Japan’s mistakes dealt more with the private sector bank conglomerates unwilling to write off bad covenants made between each other. Perhaps this year will tell whether or not our own banks are strong-willed enough to break from this path.
James Quinn:
"If the American auto industry is propped up by taxpayer money, the capitalist process of rationalizing manufacturing capacity to final demand will never happen."
The American agriculture industry has been propped up for decades, yet no one complains about inefficient capitalism or unfair market practices, because everyone at the supermarket aisle thinks they benefit from it. Of course, then you go to agri-exporters abroad, and realize that they have been silenced in the US, a most perverse form of censorship IMHO. Perhaps that lies in the future for Japan, Korea, and...China?
James Quinn:
“The Japanese tried to inflate out of the crisis and failed. Printing money just debases the money. When you've already inflated away 95% of the value since 1913, there isn't much farther to go to zero. “
Ask any quality assurance manager, and they will tell you that the first 99% is the easy part. Getting from 99% to 99.5%, or 99.9999%, is truly difficult.
Anyway, you’ve discussed inflationary vs deflationary currency in the past, and I still find it questionable at best. Are you trying to push gold again?
James Quinn:
“It won't matter until it matters.”
Very true. That statement pretty much sums up our pickle in six words or less - a complete and utter lack of preventative policy.
BS Detector to James Quinn:
"70% to 80% of all our newly issued debt is bought by foreigners."
Nonsense - show some data. According to Treasury (treas.gov/tic/mfh....a... treasurydirect.gov...), the national debt increased by $1.423T between 1/31/08 and 11/30/08. During that time, foreign ownership increased by $686B, or 48% of the total. According to the Fed (newyorkfed.org/res...) for a sample period between 2001 and 2005, 12.5% of auctioned Treasurys went to foreigners, with the most bought in a single auction being 38.5%.
BS Detector:
Well articulated first point. Regarding your second point, something to keep in mind is that most foreign buying (especially Chinese buying) took place SINCE 2004. Perhaps you already knew that...but just in case you didn't.
The Hand:
“James Quinn, that was good work. i too have come to the conclusion that the Japanese model is a preferred solution to our present haphazard approach. to me, the parallel is the Japanese model is like putting a patient into a coma so that they can heal.
We need 10 or so years to unwind the credit.”
After looking at the numbers posted here, hope for a quicker recovery (at least from this point onward) seems to be warranted. Our assets were not inflated to the extent that they were in Japan, and our banks have written down massive losses already to date, and are more than likely going to make what they wrote off last year look like a picnic compared to the full load awaiting this year.
We do have larger structural problems, especially consumer-related, that more than likely will lead to less ebullient asset valuations. But, maybe that will lead to a good degree of stability and sustainable prosperity. We can at least hope for such.
The country has no one in government who has a clue about business and the economy, simply interested in self serving their egos, listening to lobbyists and talking double talk to their public.
www.caseyresearch.com/...
For the ramp-up in China treasury buying since 2004.
One last point - I was a bit suspicious of Mr. Quinn's number about median 401k levels. I don't know if what I'm about to cite is the median or mean, but it is an "average" of around $50,000:
latimesblogs.latimes.c...
This article cites that for those who know HOW to save, the balance is much higher:
www.financialweek.com/...
Not everything need be gloom and doom these days...
If you want doom and gloom, just factor in the $53 trillion of unfunded liabilities that I didn't even mention in the article. Read David Walker for a full detail of that situation.
On Jan 31 01:47 PM Ricard wrote:
> Yikes! Just in case, here are some of my sources:
>
> www.caseyresearch.com/...
>
> For the ramp-up in China treasury buying since 2004.
>
>
> latimesblogs.latimes.c...
>
>
> This article cites that for those who know HOW to save, the balance
> is much higher:
>
> www.financialweek.com/...
>
>
> Not everything need be gloom and doom these days...
financialweek.com/...
This was published in July 2007 -which is before the great plunge of 40% -so take 40% of 120 K -and basically each of those guys lost 48K -it all depends -because if the 401Ks were in Finance and Autos - then it could be 96K of losses -so 50K may not be that far off.
I know I went from 75K to 25K in just one mutual find. Which explains my interest -'all of a sudden'.
Perhaps once the population of the US figures out the ineptitude of our political leaders, we will take the correct 14 steps Mr. Quinn has proposed. Then maybe someone will emulate an impoverished Japanese mechanic at the end of WW II. This guy bought some surplus electrical generators from the US Army, removed the gasoline engines from them, and mounted the engines on bicycles to make motorbikes. He did pretty well thereafter. His name was Honda Shoichiro.
I think this is explained better by the ignorance of the American consumer. First, because the costs of these policies are hidden from the consumer (as opposed to sales tax, for example), it’s not clear how much they cost. Also, there’s the matter of being used to it - we can’t understand how poorly we are treated if it’s all we know.
Me, I complain about agricultural subsidies every chance I get. It’s the biggest American market intervention I can think of, and it costs consumers billions of dollars every year.
“…most foreign buying (especially Chinese buying) took place SINCE 2004.”
I used the most recent data I could find, so it's certainly possible that the composition of buyers has shifted to foreigners. But from 12.5% in the first half of the decade to 70-80% now? I'll believe it when I see the data.
But your source here is no good for this. It’s China’s foreign currency reserves, which is much larger than U.S. debt holdings; it also includes other sovereign debt, US agency debt, corporate debt, equities, and cash holdings. Treasury tracks the holdings of foreign countries, not differentiating between governments and citizens, of all types of U.S. securities.
By the way, the Chinese hold 6-7% of all US debt.
There’s not necessarily anything sinister here. China’s been running a big trade surplus with the ROW in general and the U.S. in particular for years. Rather than convert all of its dollars and euros and yen back into yuan, China instead grows its holdings of foreign currencies. This tends to keep the yuan valued artificially low, which keeps Chinese exports from becoming less competitive, with the tradeoff being foregoing a faster increase in domestic wealth. The tradeoff seems to make sense with an economy growing as fast as China's has in the last decade (whether that continues is certainly a matter for debate). In addition, holding foreign reserves provides protection from exchange rate fluctuations. Rather than hold cash and make no return, China holds much of its reserves in various securities including sovereign debt, corporate debt, and equities. That most of these investments are in sovereign debt seems to me appropriately conservative.
en.wikipedia.org/wiki/...
Foreign holdings increased by $750 billion from November 2007 to November 2008. Total US debt grew by $1.017 trillion.
$750 billion/$1.017 trillion = 74%
On Jan 31 06:34 PM BS Detector wrote:
> Ricard wrote: “The American agriculture industry has been propped
> up for decades, yet no one complains about inefficient capitalism
> or unfair market practices, because everyone at the supermarket aisle
> thinks they benefit from it.”
>
> I think this is explained better by the ignorance of the American
> consumer. First, because the costs of these policies are hidden from
> the consumer (as opposed to sales tax, for example), it’s not clear
> how much they cost. Also, there’s the matter of being used to it
> - we can’t understand how poorly we are treated if it’s all we know.
>
>
> Me, I complain about agricultural subsidies every chance I get. It’s
> the biggest American market intervention I can think of, and it costs
> consumers billions of dollars every year.
>
> “…most foreign buying (especially Chinese buying) took place SINCE
> 2004.”
>
> I used the most recent data I could find, so it's certainly possible
> that the composition of buyers has shifted to foreigners. But from
> 12.5% in the first half of the decade to 70-80% now? I'll believe
> it when I see the data.
>
> But your source here is no good for this. It’s China’s foreign currency
> reserves, which is much larger than U.S. debt holdings; it also includes
> other sovereign debt, US agency debt, corporate debt, equities, and
> cash holdings. Treasury tracks the holdings of foreign countries,
> not differentiating between governments and citizens, of all types
> of U.S. securities.
>
> By the way, the Chinese hold 6-7% of all US debt.
>
> There’s not necessarily anything sinister here. China’s been running
> a big trade surplus with the ROW in general and the U.S. in particular
> for years. Rather than convert all of its dollars and euros and yen
> back into yuan, China instead grows its holdings of foreign currencies.
> This tends to keep the yuan valued artificially low, which keeps
> Chinese exports from becoming less competitive, with the tradeoff
> being foregoing a faster increase in domestic wealth. The tradeoff
> seems to make sense with an economy growing as fast as China's has
> in the last decade (whether that continues is certainly a matter
> for debate). In addition, holding foreign reserves provides protection
> from exchange rate fluctuations. Rather than hold cash and make no
> return, China holds much of its reserves in various securities including
> sovereign debt, corporate debt, and equities. That most of these
> investments are in sovereign debt seems to me appropriately conservative.
The U.S. has the second highest corporate tax rate in the industrialized world, second to -- Japan. There's a correlation here. Companies will continue to invest overseas or won't even incorporate here if they know there is no tax incentive. And yes, the Laffer curve does have some quantitative validity. What demagoguery. The Left wants us all to be wards of the state so they can continue to buy votes.
On Jan 31 06:34 PM BS Detector wrote:
> But your source here is no good for this. It’s China’s foreign currency
> reserves, which is much larger than U.S. debt holdings; it also includes
> other sovereign debt, US agency debt, corporate debt, equities, and
> cash holdings. Treasury tracks the holdings of foreign countries,
> not differentiating between governments and citizens, of all types
> of U.S. securities.
I missed it if anybody said that the Depression was ended due to massively expansive monetary policy.
"Our productive capacity had not been touched, and with the pent up demand for goods fueled by the savings of a fully-employed population..."
But wasn't much of the population fully employed in production that did nothing to further the nation's wealth? From an economic standpoint, what's the difference between making bombs and completely non-productive pork barrel spending (which the author did not describe)?
"...and whatever treasure we had used during the war was rapidly replaced."
Well, no. I'm not going to touch the value of human life, can't be replaced argument. But in terms of the national debt, we've never come close to reducing the debt to pre-war levels. But the economy grew so much, and the dollar gradually lost so much nominal value, that the war debt gradually declined in importance over many years.
1. Wikipedia? Are you serious? Do you find Wikipedia to be a more reliable source than the ones I GAVE YOU, which come from the Treasury department? The debt increased from November 07 to November 08 by $1.5T according to this www.treasurydirect.gov... and this www.treasurydirect.gov.... Care to run your math again?
2. "Foreign holdings" of US debt and "newly issued debt" are not the same thing, so even if your statistics were correct (which they don't appear not to be), they would not support your claim.
But please, do keep trying.
Now I am looking for some guidance, I have been massacred, my retirement saving have been chopped in half! There must be a way to make a profit out of all the blood in the streets. Where can we invest what is left of our beaten down funds? Do we short the market, buy gold, buy oil or put a gun to our heads. Your position is well taken, but enough of ‘what is wrong’ and ‘what they can do’.
What can we do to survive this as individuals?
Folks, fiat currency and fractional reserve banking is a money scam. Don't you understand that? Were you sleeping when Ron Paul tried to educate you on this fact? Perhaps he wasn't presidential looking or well spoken or charismatic enough for you? Be honest, did you vote for McCain, or Obama or someone else from the Central Socialist Party which the dems and the GOPs have combined to form or were you an independent, non sheeple thinking person who saw through Ron Paul's squeaky little voice and diminutive physical posture to see the great statesman that he was and is?
Obama was the lesser of 2 evils relative to that war monger mf'er McCain, but neither of them are fit to open Ron Paul's car door. People, wake the heck up to what really matters at this point which is how to save our children from life in a 3rd world nation on Main St. USA. The only way to do this is to return to honest money. No other solution is worth the paper it is written on unless it builds upon honest money. It is soooo much more important than you understand because honest money is the road to personal freedoms whereas fiat money is the road to socialism and state control of you taking a dump. It's not just about the economy!! Once the US citizen is impoverished then the socialist gov't elite will own you. Time to go review the teachings of Ron Paul before it's too late.
www.campaignforliberty.../
On Jan 31 11:29 PM BS Detector wrote:
> Quinn wrote: "Regarding your contention that 70% to 80% of newly
> issued debt is not bought by foreigners, please go... [wikipedia.]
> Foreign holdings increased by $750 billion from November 2007 to
> November 2008. Total US debt grew by $1.017 trillion. $750 billion/$1.017
> trillion = 74%"
>
> 1. Wikipedia? Are you serious? Do you find Wikipedia to be a more
> reliable source than the ones I GAVE YOU, which come from the Treasury
> department? The debt increased from November 07 to November 08 by
> $1.5T according to this www.treasurydirect.gov...
> and this www.treasurydirect.gov....
> Care to run your math again?
>
> 2. "Foreign holdings" of US debt and "newly issued debt" are not
> the same thing, so even if your statistics were correct (which they
> don't appear not to be), they would not support your claim.
>
> But please, do keep trying.
The only solution is 100% reserve banking?
How would that work exactly?
On Feb 01 01:38 AM Did U Think The Ponzi Scheme Would Last? wrote:
> GREAT article. The only problem is you missed the most important
> action item needed to fix this for the long term: ABOLISH THE FEDERAL
> RESERVE BANK and its policies of fiat currency and fictional reserve
> lending. That is a Ponzi scheme as sure as I am writing this. NEVER
> let the federal reserve out of the spot light for it is they and
> their central bank something for nothing counterparts around the
> world who have been the keystones of katastrophe (or is that the
> keystone kops?).
>
> Folks, fiat currency and fractional reserve banking is a money scam.
> Don't you understand that? Were you sleeping when Ron Paul tried
> to educate you on this fact? Perhaps he wasn't presidential looking
> or well spoken or charismatic enough for you? Be honest, did you
> vote for McCain, or Obama or someone else from the Central Socialist
> Party which the dems and the GOPs have combined to form or were you
> an independent, non sheeple thinking person who saw through Ron Paul's
> squeaky little voice and diminutive physical posture to see the great
> statesman that he was and is?
>
> Obama was the lesser of 2 evils relative to that war monger mf'er
> McCain, but neither of them are fit to open Ron Paul's car door.
> People, wake the heck up to what really matters at this point which
> is how to save our children from life in a 3rd world nation on Main
> St. USA. The only way to do this is to return to honest money. No
> other solution is worth the paper it is written on unless it builds
> upon honest money. It is soooo much more important than you understand
> because honest money is the road to personal freedoms whereas fiat
> money is the road to socialism and state control of you taking a
> dump. It's not just about the economy!! Once the US citizen is impoverished
> then the socialist gov't elite will own you. Time to go review the
> teachings of Ron Paul before it's too late.
>
> www.campaignforliberty.../
The Great Decline begins. . .and since neither pain nor sacrifice is politically expedient, the hard choices WILL NOT be made by those in power. You will not be bailed out. The good times are not right around the corner. We must make the difficult moves for ourselves. Simplify. Debt Bad. Savings Good. As for the proper investment strategies in these Times of Turmoil, wish I could be of service, but you must look to the Smart People for advice. Just living within ones means is a challenge here in these United States: finally paid off all credit cards last month. Took six years to be debt free. Not sure how to prepare for the inevitable coming Social and Financial maelstrom, but I ain't taking the guns and heading for the hills just yet. . .(yet)
My models on natural market forces always break when starvation or bread lines become obvious because most people just don't think this is right and politicians are forced to act even if they don't want to, just like Hoover was. If they don't it results in riots in the street and perhaps revolution.
A pragmatic model that assumes that politicians recognize that they are going to eventually be forced to act by the human suffering turns out looking a lot like what is being talked about today.
This whole debate seems to lack a basis in reality. We should focus on making sure that they do get it right rather than debating fairy tales of what will never be.
So, what is your real world model and what does it suggest we do?
Like One Eyed Guide above me though, I'm still looking for your perspective on the effect of allowing free market forces to dominate the next 10 years.
in the last 30 years the middle class has been doped in believing that cheap products coming from slave labor countries is good for the country, that we need to industrialize countries like Mexico...when in reality wall street with the blessing of Washington is using their cheap labor for big profits.
Take our jobs and our buying power will be gone.and with it the ability to pay taxes ...no profits for wall street no taxes for our cities.or our states no taxes for Washington.
your wal mart wages will not dig this country out of this mess.
The one thing i do agree is that we don't need an
other stimulus check... what we need is JOBS... a country that take care of those that made this country great... the working people.
BRING OUR JOBS BACK!!!!!!!!!!
WHAT IS WRONG WITH THIS PICTURE?
BRING OUR JOBS BACK...AND GET OFF DETROIT REAR END...GM'S PROBLEM WERE CREATED BY THE HYPOCRITES IN WASHINGTON AND THEIR BUDDIES IN THE BANKING INDUSTRIES!
The fact that you need to ask this question means that you are totaly indoctrinated into our funny money society because you can't see how things would work without funny money and the high leverage it enables. Generally the people I meet who think like you do cannot see how they could ever buy a house without fractional reserve lending because home values are many times the amount of money on deposit. Also, these people are generally very intelligent but are in denial about the reality of the situation because they themselves paid 300-600k for a house that was selling for only 150-200 10 years ago. They deny the truth because acknowledgement of it would make them the patsy in the Ponzi scheme. Sorry if this hits home but it is better to just acknowledge the truth and jingle mail your house while the tax exemption for doing so is still in place. IFF this does describe your situation then you are an unwitting victim like many others so don't feel bad.
But how did we get to this point where asset prices moved up more quickly than salaries such that a man can no longer buy a home and support his wife and family in comfort? Why does the wife now have to work and why are children such an economic strain? It's because fractional reserve lending has made credit a much larger component of the money supply than is the monetary base. The combination of monetary base + credit have chased up the asset price value to the point where it requires a monster loan in order to acquire something so basic such as shelter. Instead of constraining loans to the amount of money on hand banks have leveraged themselves up to 30x their reserves. This is why Nouriel Roubini calls the entire US banking system effectively insolvent:
www.telegraph.co.uk/fi...
So the facts show that you are asking the wrong question. Instead of asking how exactly would nonfractional reserve lending possibly work, ask yourself how fractional reserve lending lasted this long because it is by its very nature a Ponzi scheme. Ponzi schemes always go bust, it's just a matter of time. Nobody can really predict when they will go bust but when they do there is one sure thing: they do not correct sideways. They are manias, and manias correct to a point lower than where they started. Deflation is the word used to describe it.
As to how it would work, it would work as it has for many thousands of years prior to central banks and fractional reserve lending. Or did you think there was always a federal reserve? you owe it to yourself to watch this short video with Alan Greenspan, talking AFTER he left the fed of course, about the value of a gold standard and life before the federal reserve being just fine:
www.youtube.com/watch?...
Clearly Greeenspan wanted to be on record that he was never fooled by any of this. He knew the dynamics even though he went along with the agenda. He went from being a sane, even intelligent economist in the 60s before his involvement in the federal reserve to serving as the high priest of funny money and unsustainable, extreme leverage during his tenure as fed chief.
Greenspan clearly indicated that we should return to the gold standard (or some other way of limiting the speed of money creation) and then cites the history of the united states up until the creation of the federal reserve as a perfectly sane monetary period. The hard statement was that we can AND SHOULD return to a gold standard with the implication that we don't need a federal reserve (the high priests of fiat money). Without fiat currency there can be no leverage scheme called fractional reserve banking. Removal of fiat currency kills the notion of a "rubber band money supply" and gets everyone to return to paygo.
So, how would it work? Abolish the fed. Return to honest money. Restrict credit like a mofo. Fractional reserve banking goes poof and as a result asset prices drop like a freaking stone. Salaries drop too, but not as much. All of a sudden you don't need to become an indentured debt slave for life to own a home. Without all that credit running around to chase up the price of things, a man can now support his family while the woman rears the children at home if the couple so choses the traditional notion of family (I am not against women in the workforce!).
Is it painful? Absolutely. Credit is a drug and drugs cause withdrawal pains when you stop using them. But the good news is that the drug dealer is himself mortally wounded this time and so the drug supply is crashing. The result so far is very similar to that achieved had we phased out the fed. The banks are deleveraging. Asset prices are falling like a rock. The original projections of 10-15% in CA and FL housing price corrections are turning into 50-75% corrections. A depression is upon us FOR SURE. The only question is how long will the gov't drag it out by trying to prop up unproppable assets and bailing out banks and insurance companies that are too big to bail.
There is no fixing what has been done. We have spent next decade's income this decade and now we need to slow down consumption and pay down debt and increase savings. The only real question is whether we allow bankers another shot at doing this same damned thing to our children and grandchildren. This is the perfect time to abolish the fed because the pain is already upon us. In fact, I suggest that doing so would increase confidence in our monetary system. People would be able to go about their business knowing that the ground they were standing on was bedrock instead of chocolate pudding.
And now a question for you: Did U REALLY think the Ponzi Scheme would last? Really?
The effect of free market forces will not be pleasant. We definitely risk a depression. Trillions of debt need to be paid off or written off to get our country back into balance. Our standard of living will decline. But you have to realize that our standard of living for the last 28 years has been built on a false foundation of debt.
By spending $1 trillion and printing money, we may push off the inevitable reckoning, but it will end up being worse. I think is time to take our medicine now. I think we should boost funding for food stamps and unemployment to keep a net under those who are most affected.
There is no easy solution, just tough choices. Sorry.
On Feb 01 03:07 PM beenburnedtwice wrote:
> As usual, very well written. How do you have time to produce such
> a logical treatise? Don't you have a job?
>
> Like One Eyed Guide above me though, I'm still looking for your perspective
> on the effect of allowing free market forces to dominate the next
> 10 years.
The fact that you ramble on and on and on without answering the question means that you are a clown.
Try again? LOL!
On Feb 01 03:46 PM Did U Think The Ponzi Scheme Would Last? wrote:
Please explain how a bank can loan more than their money on hand (deposits).
Pretend I'm a really dim Ron Paul supporter (I know, I repeat myself) and use small words.
On Feb 01 03:46 PM Did U Think The Ponzi Scheme Would Last? wrote:
You don't think there was fractional reserve lending while we had a gold standard?
OMFG! STFU! LOL!!!
On Feb 01 03:46 PM Did U Think The Ponzi Scheme Would Last? wrote:
WE DON'T NEED FOOD STAMPS...WE NEED PAYCHECKS!
BRING OUR JOBS BACK!!!!!!!!
The Treasury: USD strenght and USD printing.
In the last 6 months, the roles have disappeared.
First, I never indicated that I would write anything that would have all of the answers. I think I'll probably write something about past and current monetary policy, since there's so much misinformation on this floating around. Second, why do you suddenly believe you speak for anybody but yourself? Or is that the royal "we"? Third, have you given up on trying to win this argument? Let me remind you of something you wrote:
“I'm not biased. I back up my statements with facts. You should try it.”
Now let’s see…
“Goldman Sachs (GS), Morgan Stanley (MS) and any other insolvent banks need to be wiped out.”
Any facts supporting the contention that GS or MS are insolvent?
“AIG is using these funds to undercut other insurance companies in pricing insurance policies.”
Any facts supporting this?
“Fannie & Freddie are being pushed by Barney Frank and his distinguished colleagues in Congress to provide more 3% down loans to people who won’t pay them back."
Anything?
“Despite the fact that this crisis was caused by the Federal Reserve keeping interest rates too low for too long...”
Anything at all?
“The Japanese tried to inflate out of the crisis and failed.”
No? No timeline of Japanese monetary intervention?
“You are gung ho for spending $1 trillion that we don't have after we've spent $10.7 trillion we don't have, and $53 trillion we've committed to spend with social programs.”
I asked you what went into the $10.7T figure. Any idea?
“My BS detector senses an ultra-liberal Obama disciple who believes government can cure all of our ills... Let me guess - you're an aid to Barney Frank or Nancy Pelosi... In you warped world, any and all spending is good, especially by the government.”
I threw in those just for kicks, to show how “unbiased” you are when it comes to responding to those who dare question you.
I now believe that all of our financial institutions have come totally clean regarding what is on their balance sheets. None of them have misled the public thus far. Goldman Sachs and Morgan Stanley are so strong that I'm sure they will refund the TARP money to the American taxpayer.
AIG wouldn't dare use TARP funds to gain an advantage in the insurance market. They are too moral for that.
financialweek.com/apps...
Fannie & Freddie are the bastions of excellent lending standards who would never be influenced by politicians.
www.usatoday.com/money...
The Federal Reserve has saved the country. Thank God for Alan Greenspan and 1% interest rates. We owe him an eternal debt of gratitude.
www.dailyreckoning.com.../
www.business.cch.com/b...
The Japanese clearly didn't print enough money to try and get out of their financial doldrums. That was the problem.
mises.org/story/1099
I apoligize for making up the $10.7 trillion national debt number. That can't be verified anywhere.
zfacts.com/p/461.html
You are the master. I bow down to you. And WE continue to await your words of wisdom.
On Feb 02 09:12 AM BS Detector wrote:
> Quinn wrote: "I guess your not making much progress on your ground
> breaking article that will show us the way out of our financial crisis.
> We breathlessly await its publication."
>
> First, I never indicated that I would write anything that would have
> all of the answers. I think I'll probably write something about past
> and current monetary policy, since there's so much misinformation
> on this floating around. Second, why do you suddenly believe you
> speak for anybody but yourself? Or is that the royal "we"? Third,
> have you given up on trying to win this argument? Let me remind you
> of something you wrote:
>
> “I'm not biased. I back up my statements with facts. You should try
> it.”
>
> Now let’s see…
>
> “Goldman Sachs (seekingalpha.com/symbo...), Morgan Stanley
> (seekingalpha.com/symbo...) and any other insolvent banks
> need to be wiped out.”
>
> Any facts supporting the contention that GS or MS are insolvent?
>
>
> “AIG is using these funds to undercut other insurance companies in
> pricing insurance policies.”
>
> Any facts supporting this?
>
> “Fannie & Freddie are being pushed by Barney Frank and his distinguished
> colleagues in Congress to provide more 3% down loans to people who
> won’t pay them back."
>
> Anything?
>
> “Despite the fact that this crisis was caused by the Federal Reserve
> keeping interest rates too low for too long...”
>
> Anything at all?
>
> “The Japanese tried to inflate out of the crisis and failed.”
>
> No? No timeline of Japanese monetary intervention?
>
> “You are gung ho for spending $1 trillion that we don't have after
> we've spent $10.7 trillion we don't have, and $53 trillion we've
> committed to spend with social programs.”
>
> I asked you what went into the $10.7T figure. Any idea?
>
> “My BS detector senses an ultra-liberal Obama disciple who believes
> government can cure all of our ills... Let me guess - you're an aid
> to Barney Frank or Nancy Pelosi... In you warped world, any and all
> spending is good, especially by the government.”
>
> I threw in those just for kicks, to show how “unbiased” you are when
> it comes to responding to those who dare question you.
On Feb 02 10:15 AM dpro0102 wrote:
> Good article - but I think you've missed an important point. You
> want GM and Ford and Chrysler to fail - but you also point out just
> how much of our GDP depends on consumer spending. It seems that the
> Japanese car makers currently have the competitive advantage - is
> this perhaps a by-product of 2 decades of Japanese Government protectionism
> via currency manipulation? Cars are one of the last things here in
> the good ole' USA that contribute to the GDP outside of consumer
> spending. You really want to keep giving those industries away under
> the guise of 'free market capatilism'? You're headed for 90%+ consumer
> spending for the GDP - and that (in my opinion) makes you a 3rd world
> country. It sure isn't free market in Japan! (The #1 importer of
> cars in Japan (heavily taxed and tarrifed) is Mercedes Benz - and
> their Market Share in Japan is a 'whopping' 1.6%!) Give up our domestic
> industries under the arguments of 'free trade' and 'capitalism' to
> countries that don't play the same way - and you may as well be losing
> a ground war to them. Wake Up!!!
Re: BS Detector’s counter claims:
31October wrote: "The FED should not give a flying... care... about politics or job creation. …
BS Detector wrote: Well, that's interesting, but the Fed's duties are:…
- BSD, I simply concede. I should have googled them or stuck with “should.”
BS Detector wrote: Really. Then how do you explain the growth of the U.S. economy since, oh, 1976? GDP has grown more than twice as fast as manufacturing output during that time. (EROP table B-12)
--That one is easy:
1. Tremendously increased per-capita efficiency from mass computerization followed by continual software improvements.
2. Increased, but eventually unsustainable, growth by decoupling the dollar from gold, allowing economic manipulation by the FED and Congress & controlled but unsustainable devaluation against foreign currencies.
3. Implementation of project management methodologies, earned value tracking procedures, and implementation of PMOs and PMP certifications. Combined with JIT inventory, these efficiency improvements in my young lifetime are shocking.
4. The International Organization for Migration said there were 45.1 million legal immigrants plus 12-20 million illegals. Economists seem to agree that the benefits of 1-5 million extra immigrants per year outweigh the costs. Those immigrants contribute to the USA economy. Contrary to belief, they will not steal your job: they already did.
5. Historically low unemployment combined with an explosion in the service industries. Since those are wealth transfer fields, however, the paper numbers do not account for lack of sustainable economic growth.
Your next disputes with my stance actually support me. Tell your grandkids thanks for the stimulus check!
BS Detector wrote: Really? Nothing else?
- Yes, more hyperbole. But the exodus of manufacturing to China goes on, and government spending will not bring it back. Your government wants you to accrue more debt to buy more Chinese goods. President Bush said it, and President Obama is pushing it through.
BS Detector wrote: Where's the analysis that shows the author is correct, end of debate?
- The author has packed more information from decades of history than a dumb guy like me can type fast enough to repeat.
- I am not eloquent, so just read what happened to Rome when they went to a service industry, outsourced manufacturing, then spent & taxed & borrowed. The borrowing and printing of money worked pretty well the same for the Weimar Republic.
31October wrote: "THE AUTHOR IS CORRECT. End of debate."
BS Detector wrote: Which I still find amusing, as if the oracle had spoken.
- Okay, BSD, that was hyperbole. I gave you a plus for at least laughing about it.
On Feb 02 10:33 AM Jim Quinn wrote:
> Bankruptcy would allow the US car companies to come out debt free
> and right sized to compete in the global marketplace. They wouldn't
> go out of business. If the entire world decides protectionism is
> the way to go, this will be THE GREATEST DEPRESSION.
We imported about $313 billion from China last year. Our GDP was over $14 trillion. I suspect you just might be able to find something American to buy.....
On Feb 02 11:32 AM 31October wrote:
On Feb 02 12:09 PM dpro0102 wrote:
> Ya Jim - I think your comment is correct - I'm not advocating protectionism.
> My point is - do you really want to argue about Free Market Capitalism
> in your market when your domestic companies are competing with others
> that are protected? Death to the domestics while the protected Japanese
> prosper? How does that help the U.S.A?
AIG: "American International Group is slashing prices to win new business, industry insiders say..." The Reuters article then quotes AIG competitors. It doesn't include a single quote from AIG, which the original FW article, two weeks earlier, did include: “We are not sacrificing rate to retain market share. In fact, since mid-September, our U.S. commercial insurance operations have had several points of rate improvement compared to year-to-date results." Also in the earlier article, but not included in the one you cite: "Neil Krauter, chairman and CEO of New York broker Krauter & Co., said he has seen AIG offer reductions averaging 10% on casualty business, similar to the cuts being offered by many insurers nine months ago. 'We haven't seen AIG slashing prices or looking to do ridiculously stupid deals,' Mr. Krauter said." Seems to be just about as I described.
FNM and FRE: You link to an article from July that describes their lobbying activities in years past. Since their lobbying stopped with the conservatorships, that really doesn't seem very relevant, now does it? Could you find nothing to indicate that Frank or any other Congressman is doing anything now? I mean, you seemed so sure of yourself, surely you had some basis for that, right?
The Fed "keeping interest rates too low for too long": This is clearly a topic on which many people expound quite a lot without ever doing anything but repeating what they want to hear. While I haven’t yet read the paper you linked to, I’m guessing you haven’t either, or you‘d be able to find some words to explain your contention.
Japan: You provide a link to a Mises article written in 2002. Skimming it, it doesn’t even appear to address the “quantitative easing” which began in 2001. This supports your assertion how?
Now, the dollar figure. Hey! You got one! I thought you were talking about the various bailout efforts to date, counting them all as spending. But here you’re talking about the government’s actual debt. Great! Now why didn’t you rely on this when talking about how much the government can borrow, since it’s clearly much more applicable that the combined debt of all the citizenry?
At this rate, you’ll effectively address my legitimate questions by… about the same time the recession ends.
On Feb 02 05:10 PM BS Detector wrote:
Goldman Balance Sheet @ 11/28/08
Long term Investments $564 mil
Short Term debt $208 mil
Long Term debt $307 mil
Equity $ 64 mil
Is the $564 mil worth less than $500 mil? Very Very likely. If so, equity is negative. Sounds like insolvency to me. We shall see who is right. After firing 10,000 in 2008, they are about to announce further layoffs.
Morgan Stanley Balance sheet @ 11/28/08
Long term Investments $287 mil
ST Debt $35 mil
LT Debt $163 mil
Equity $51 mil
MS laid off 7,000 in 2008 and announced 1,500 more today. Sounds like a company in trouble to me. You want indisputable proof. I watch what companies do, not what they say. We shall see who is right.
> So for the record, you admit you have no information that even suggests
> that either GS or MS is insolvent. Okay.
But in one example of its aggressive rate-cutting, a unit of its commercial insurance division agreed to provide coverage for the Las Vegas McCarran International Airport at a price 60% below what was charged for the same policy a year earlier.
Last year the airport paid $3.54 million to a consortium of seven insurers led by Travelers Group for a property, boiler and machinery insurance policy worth $1.7 billion, an airport spokesman said.
This year the airport got its coverage from Lexington Insurance Co, a large AIG unit, for just $1.4 million. The insurer agreed to take on the airport coverage with one other insurer, compared with the seven that had been on the program the prior year, leaving fewer carriers to shoulder any potential losses.
By selling policies for less while taking on more risk, AIG is raising the chances that it will be hit by large losses. It also makes it harder for other insurers to sell policies that are priced high enough to cover potential losses.
“Cutting rates at a time when rates should be strengthening is a quick way to going out of business,” AIG’s former chief executive, Maurice “Hank” Greenberg, a frequent critic of the company’s management, told Reuters
I'm sure AIG would admit to undercutting competitors because they have no worry about insurance losses because the US taxpayer is paying their losses. I beleive good ole Hank G knows a little bit about AIG. He created the disaster. You should throw in the towel on this one. Cutting prices by 60% is ridiculous.
>
> AIG: "American International Group is slashing prices to win new
> business, industry insiders say..." The Reuters article then quotes
> AIG competitors. It doesn't include a single quote from AIG, which
> the original FW article, two weeks earlier, did include: “We are
> not sacrificing rate to retain market share. In fact, since mid-September,
> our U.S. commercial insurance operations have had several points
> of rate improvement compared to year-to-date results." Also in the
> earlier article, but not included in the one you cite: "Neil Krauter,
> chairman and CEO of New York broker Krauter & Co., said he has
> seen AIG offer reductions averaging 10% on casualty business, similar
> to the cuts being offered by many insurers nine months ago. 'We haven't
> seen AIG slashing prices or looking to do ridiculously stupid deals,'
> Mr. Krauter said." Seems to be just about as I described.
“I think this is a case where Freddie Mac and Fannie Mae are fundamentally sound. They’re not in danger of going under. I think they are in good shape going forward.” — Barney Frank (D-Mass.), House Financial Services Committee chairman, July 14, 2008
online.wsj.com/article...
On September 10, 2003, Bush Treasury Secretary John Snow testified in congress that something had to be done to confront the growing storm at Fannie and Freddie. Democrat Barney Frank, now Chairman of the House Financial Services Committee, reacted by saying “Fannie Mae and Freddie Mac are NOT in a crisis...” completely rejecting Bush administration calls for reform.
Frank went on to say that Fannie and Freddie should do even more to get low-income families into homes. “The more people, in my opinion, exaggerate the threat of safety and soundness, the more people conjure up the possibility of more serious financial losses to the treasury, which I do not see, I think we see entities that are fundamentally sound financially, and withstand some of the disaster scenarios, and even if there were a problem, the federal government doesn’t bail them out, but the more pressure there is there, then the less, I think we see, in affordable housing.” Said Democrat Frank
Congressional Democrats then killed the 2003 bill put forth by Republicans, intended to head off financial crisis.
www.prlog.org/10175241...
www.topix.com/forum/us...
If it walks like a duck and quacks like a duck, it is probably a duck.
>
> FNM and FRE: You link to an article from July that describes their
> lobbying activities in years past. Since their lobbying stopped with
> the conservatorships, that really doesn't seem very relevant, now
> does it? Could you find nothing to indicate that Frank or any other
> Congressman is doing anything now? I mean, you seemed so sure of
> yourself, surely you had some basis for that, right?
No response needed. Greenspan caused the crisis with 1% rates.
>
> The Fed "keeping interest rates too low for too long": This is clearly
> a topic on which many people expound quite a lot without ever doing
> anything but repeating what they want to hear. While I haven’t yet
> read the paper you linked to, I’m guessing you haven’t either, or
> you‘d be able to find some words to explain your contention.
Massive stimulus began in the early 1990's. Read the paper. It failed.
>
> Japan: You provide a link to a Mises article written in 2002. Skimming
> it, it doesn’t even appear to address the “quantitative easing” which
> began in 2001. This supports your assertion how?
I'm sure glad consumer and corporate debt aren't haiving an impact on the economy. Only government debt matters. I'm glad we cleared that up.
>
> Now, the dollar figure. Hey! You got one! I thought you were talking
> about the various bailout efforts to date, counting them all as spending.
> But here you’re talking about the government’s actual debt. Great!
> Now why didn’t you rely on this when talking about how much the government
> can borrow, since it’s clearly much more applicable that the combined
> debt of all the citizenry?
WE still await your article, but you seem to be delaying the imparting of wisdom that we all look forward to.
>
> At this rate, you’ll effectively address my legitimate questions
> by… about the same time the recession ends.
31 October, your comments are right on. Those jobs are not coming back. The fool of an academician that BS Boy is cannot understand the simple truism that we just can't all sell each other hamburgers and maintain the lifestyle we've had for the last 30 years. Of course, he probably doesn't even care as he enjoys his tenured position and will continue to get paid until the proles rise up and take it from him by force.
Speaking of proles, the individual who has the issue with his CAPS LOCK expresses legitimate, albeit somewhat misplaced frustrations about the loss of manufacturing jobs. The sad fact is, however, that the car companies, for example, are not competitive, their product is substandard, and they must face the cleansing fire of a bankruptcy to come be able to survive -- and survive I hope they do.
Myrtle the Turtle, surely you jest?? You don't think banks lend more than deposits on hand? And you purport to speak authoritatively about the fraud that is fractional reserve banking?
Folks, we are regressing to the mean of a lower standard -- a much lower standard -- of living in the West relative to the rest of the world. Or did you surmise that through the application of an academic theory that we could perpetuate the frauds of limitless credit and fiat currency in perpetuity? Do they have an academic theory for that, BS Boy?
"Goldman Balance Sheet @ 11/28/08
Long term Investments $564 mil
Short Term debt $208 mil
Long Term debt $307 mil
Equity $ 64 mil"
Now go back and look at the 11/07 numbers. Since then, GS has reduced its balance sheet by 24% while increasing its equity position by more than 97% (67% without TARP). GS exceeds the capitalization ratios required to be "well capitalized" by quite a lot. MS by even more. Do you know anything about banks?
"Is the $564 mil worth less than $500 mil? Very Very likely."
First off, I don't know why you left out some $260M from the balance sheet - I have no idea how this helps you make your point. The broad market's down 7% since 11/28. You're saying that GS has lost 50% more than that? You really think this is "Very Very likely"? I would put this is the "remote" category.
"We shall see who is right."
No, we already know. I'm right, you're wrong. The FDIC and the Federal Reserve are keeping a VERY close watch over both GS and MS. The only thing you have explaining your absurd assertion of insolvency is your belief in a massive conspiracy.
"MS laid off 7,000 in 2008 and announced 1,500 more today. Sounds like a company in trouble to me."
You said "insolvent," not "in trouble."
"You want indisputable proof. I watch what companies do, not what they say."
No, actually I want any evidence whatsoever, and you have none. But by your standards, I guess Home Depot is insolvent, right?
"We shall see who is right."
Again, we already know. You've provided nothing to support your assertion.
"I'm sure AIG would admit to undercutting competitors because they have no worry about insurance losses because the US taxpayer is paying their losses. I beleive (sic) good ole Hank G knows a little bit about AIG. He created the disaster. You should throw in the towel on this one. Cutting prices by 60% is ridiculous."
And again, you cite an article that doesn't even give a quote from an AIG source, or as I recall even from a non-competing broker. The thing could have been an advertisement by AIG's competitors. Oh no, you're not biased at all.
To the FNM and FRE stuff. First you provided a link to something talking about the two companies' lobbying, which never had a prayer of supporting whatever it was you were accusing Barney Frank of. Now two of the links you provided have absolutely nothing to do with FNM and FRE, but rather with TARP and Frank's push to force the recipients to do more lending. The other is related to FNM's Home Path program, under which it's trying to sell FNM-OWNED homes for as little as 3% down. First - no link between the program and Frank, and second - would you rather they DIDN'T try to sell the government-owned inventory? Sorry, but I think that's three strikes on this one. Just admit you're much more biased than you claim and take a seat.
Japan: "Massive stimulus began in the early 1990's. Read the paper. It failed."
Sure. But since I wasn't talking about fiscal policy in the least, you just make yourself look foolish by bringing it up.
"I'm sure glad consumer and corporate debt aren't haiving an impact on the economy. Only government debt matters. I'm glad we cleared that up."
Sigh. Again, with the mischaracterization. You wrote this big article claiming that the indebtedness of the US citizenry will have this big impact on the US Government's ability to borrow. Unfortunately, you're unable to support this assertion in the least - that would require some analysis instead of regurgitation, because I doubt any academic has reached such an absurd conclusion.
You know, this might have gone a lot better if you'd been able to own up to your mistakes.
1. "Myrtle the Turtle, surely you jest?? You don't think banks lend more than deposits on hand? And you purport to speak authoritatively about the fraud that is fractional reserve banking?"
No, they don't. Apparently you don't know anything about banks, either.
2. "Folks, we are regressing to the mean of a lower standard -- a much lower standard -- of living in the West relative to the rest of the world."
Let me ask you something. If your standard of living increases by, let's say, 2% a year, while that of some rice-farmer in China is increasing by 5% per year, are you better off than you were before? Why is our standard of living relative to the rest of the world so important to you?
Oh, by the way, it's pretty clear by your opinion of fiat currency that you don't know much of anything about macroeconomics.
Please walk thru the mechanics. I'll make it easy, take a brand new bank with a single deposit. 10 $100 bills. Show me how much the bank can lend with that deposit of $1000. Pretend the reserve requirement is 10%.
On Feb 02 09:54 PM DiverCity wrote:
I think I had the banks well pegged back in July of 2008, well before the truth came out. I don't believe what I'm told by criminals. I do my own research and come to my own conclusions.
seekingalpha.com/artic...
seekingalpha.com/artic...
Now you can get to work tearing down my logic from these articles. Please note that the first article was written months before the banking system collapse.
On Feb 02 11:16 PM BS Detector wrote:
> Not much BS, so little time.
>
> "Goldman Balance Sheet @ 11/28/08
> Long term Investments $564 mil
> Short Term debt $208 mil
> Long Term debt $307 mil
> Equity $ 64 mil"
>
> Now go back and look at the 11/07 numbers. Since then, GS has reduced
> its balance sheet by 24% while increasing its equity position by
> more than 97% (67% without TARP). GS exceeds the capitalization ratios
> required to be "well capitalized" by quite a lot. MS by even more.
> Do you know anything about banks?
>
> "Is the $564 mil worth less than $500 mil? Very Very likely."
>
> First off, I don't know why you left out some $260M from the balance
> sheet - I have no idea how this helps you make your point. The broad
> market's down 7% since 11/28. You're saying that GS has lost 50%
> more than that? You really think this is "Very Very likely"? I would
> put this is the "remote" category.
>
> "We shall see who is right."
>
> No, we already know. I'm right, you're wrong. The FDIC and the Federal
> Reserve are keeping a VERY close watch over both GS and MS. The only
> thing you have explaining your absurd assertion of insolvency is
> your belief in a massive conspiracy.
>
> "MS laid off 7,000 in 2008 and announced 1,500 more today. Sounds
> like a company in trouble to me."
>
> You said "insolvent," not "in trouble."
>
> "You want indisputable proof. I watch what companies do, not what
> they say."
>
> No, actually I want any evidence whatsoever, and you have none. But
> by your standards, I guess Home Depot is insolvent, right?
>
> "We shall see who is right."
>
> Again, we already know. You've provided nothing to support your assertion.
>
>
> "I'm sure AIG would admit to undercutting competitors because they
> have no worry about insurance losses because the US taxpayer is paying
> their losses. I beleive (sic) good ole Hank G knows a little bit
> about AIG. He created the disaster. You should throw in the towel
> on this one. Cutting prices by 60% is ridiculous."
>
> And again, you cite an article that doesn't even give a quote from
> an AIG source, or as I recall even from a non-competing broker. The
> thing could have been an advertisement by AIG's competitors. Oh no,
> you're not biased at all.
>
> To the FNM and FRE stuff. First you provided a link to something
> talking about the two companies' lobbying, which never had a prayer
> of supporting whatever it was you were accusing Barney Frank of.
> Now two of the links you provided have absolutely nothing to do with
> FNM and FRE, but rather with TARP and Frank's push to force the recipients
> to do more lending. The other is related to FNM's Home Path program,
> under which it's trying to sell FNM-OWNED homes for as little as
> 3% down. First - no link between the program and Frank, and second
> - would you rather they DIDN'T try to sell the government-owned inventory?
> Sorry, but I think that's three strikes on this one. Just admit you're
> much more biased than you claim and take a seat.
>
> Japan: "Massive stimulus began in the early 1990's. Read the paper.
> It failed."
>
> Sure. But since I wasn't talking about fiscal policy in the least,
> you just make yourself look foolish by bringing it up.
>
> "I'm sure glad consumer and corporate debt aren't haiving an impact
> on the economy. Only government debt matters. I'm glad we cleared
> that up."
>
> Sigh. Again, with the mischaracterization. You wrote this big article
> claiming that the indebtedness of the US citizenry will have this
> big impact on the US Government's ability to borrow. Unfortunately,
> you're unable to support this assertion in the least - that would
> require some analysis instead of regurgitation, because I doubt any
> academic has reached such an absurd conclusion.
>
> You know, this might have gone a lot better if you'd been able to
> own up to your mistakes.
Fannie and Freddie: When the GSEs Go, So Goes the Dollar Anil -
There are a couple of factors at work here.
For those not in dire financial straits, the value of the underlying real estate is not material. The homeowners are the ones who suffer the (paper) losses; it's only if they can't pay the mortgage that the banks face losses. The house I bought in 1994 for $142K promptly lost some value - this had no impact on my ability to pay the mortgage, because that ability was not related to the value of the house, but rather to my having a job.
The vast majority of mortgage holders are not in danger of defaulting. I heard (not verified) that less than 2% of mortgages are currently in some sort of default, whether that's foreclosed, in the process, being sold short, or more than 60 days late. Without foolish government action, I expect this number to increase modestly into the middle of next year, after which almost all of the people who do not belong in the houses they bought will be flushed out. After that, all losses will have become real (instead of paper) and the remaining mortgages will eventually regain the (paper) value they have lost. The "eventually" is the key; how long will the market continue to undervalue mortgages that have very little chance of default?
Next, real estate values. Remember, the GSEs and banks don't carry the assets, but rather the mortgages. I believe the market is significantly undervaluing these mortgages. So the underlying value of the real estate is not at issue, except in those cases where people bought more house than they could afford, or were sold mortgages that screwed them. I expect 99% of those cases to pan out, one way or another, in the next 18 months.
The rest of the mortgages will continue to behave as expected. These assets will, once the dust clears, have regained their original value based on reasonable risk assessments. And just as their undervaluation in the market has contributed to the losses we're seeing now, so will their re-valuation contribute to large future profits.
But, to answer the question, I don't think it will take too long for real estate to regain the lost value. Since 1975, the median home price has increased about 6% per year (through 08Q1). Not a world-beating ROR, but based on that I expect it will take not longer than five years to regain the peak, assuming a further 10% drop from 08Q1.
But remember, most of that drop from the peak has already happened; the 08Q1 number is down 16.2% from the peak in 06Q2, and I think most of the remaining drop will be reflected in the Q2 and Q3 numbers.
Jul 11 15:09 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
On Feb 02 11:16 PM BS Detector wrote:
> Not much BS, so little time.
>
> "Goldman Balance Sheet @ 11/28/08
> Long term Investments $564 mil
> Short Term debt $208 mil
> Long Term debt $307 mil
> Equity $ 64 mil"
>
> Now go back and look at the 11/07 numbers. Since then, GS has reduced
> its balance sheet by 24% while increasing its equity position by
> more than 97% (67% without TARP). GS exceeds the capitalization ratios
> required to be "well capitalized" by quite a lot. MS by even more.
> Do you know anything about banks?
>
> "Is the $564 mil worth less than $500 mil? Very Very likely."
>
> First off, I don't know why you left out some $260M from the balance
> sheet - I have no idea how this helps you make your point. The broad
> market's down 7% since 11/28. You're saying that GS has lost 50%
> more than that? You really think this is "Very Very likely"? I would
> put this is the "remote" category.
>
> "We shall see who is right."
>
> No, we already know. I'm right, you're wrong. The FDIC and the Federal
> Reserve are keeping a VERY close watch over both GS and MS. The only
> thing you have explaining your absurd assertion of insolvency is
> your belief in a massive conspiracy.
>
> "MS laid off 7,000 in 2008 and announced 1,500 more today. Sounds
> like a company in trouble to me."
>
> You said "insolvent," not "in trouble."
>
> "You want indisputable proof. I watch what companies do, not what
> they say."
>
> No, actually I want any evidence whatsoever, and you have none. But
> by your standards, I guess Home Depot is insolvent, right?
>
> "We shall see who is right."
>
> Again, we already know. You've provided nothing to support your assertion.
>
>
> "I'm sure AIG would admit to undercutting competitors because they
> have no worry about insurance losses because the US taxpayer is paying
> their losses. I beleive (sic) good ole Hank G knows a little bit
> about AIG. He created the disaster. You should throw in the towel
> on this one. Cutting prices by 60% is ridiculous."
>
> And again, you cite an article that doesn't even give a quote from
> an AIG source, or as I recall even from a non-competing broker. The
> thing could have been an advertisement by AIG's competitors. Oh no,
> you're not biased at all.
>
> To the FNM and FRE stuff. First you provided a link to something
> talking about the two companies' lobbying, which never had a prayer
> of supporting whatever it was you were accusing Barney Frank of.
> Now two of the links you provided have absolutely nothing to do with
> FNM and FRE, but rather with TARP and Frank's push to force the recipients
> to do more lending. The other is related to FNM's Home Path program,
> under which it's trying to sell FNM-OWNED homes for as little as
> 3% down. First - no link between the program and Frank, and second
> - would you rather they DIDN'T try to sell the government-owned inventory?
> Sorry, but I think that's three strikes on this one. Just admit you're
> much more biased than you claim and take a seat.
>
> Japan: "Massive stimulus began in the early 1990's. Read the paper.
> It failed."
>
> Sure. But since I wasn't talking about fiscal policy in the least,
> you just make yourself look foolish by bringing it up.
>
> "I'm sure glad consumer and corporate debt aren't haiving an impact
> on the economy. Only government debt matters. I'm glad we cleared
> that up."
>
> Sigh. Again, with the mischaracterization. You wrote this big article
> claiming that the indebtedness of the US citizenry will have this
> big impact on the US Government's ability to borrow. Unfortunately,
> you're unable to support this assertion in the least - that would
> require some analysis instead of regurgitation, because I doubt any
> academic has reached such an absurd conclusion.
>
> You know, this might have gone a lot better if you'd been able to
> own up to your mistakes.
Regarding level 3 assets: you are correct that determining fair value for these is problematic (pretty much the definition of level 3), but I don't think you have any idea of how it's done (as I recall GS includes a discussion of the different processes for different types of asset in its financials), and I guess it doesn't matter to you that the processes and results must be approved by auditors. Given that the level 3 problem has been very public in the last year, I believe auditors are paying more attention to this area now than they have in the past few years.
Now, are you done shifting your argument here? Have you found something you're comfortable with at this point? Because you still have presented nothing of substance to suggest that GS is insolvent. And have you given up on MS then?
• Goldman Says "Trust Us"
Does anybody believe that Warren Buffett wrote a $5,000,000,000 check without seeing under the GS kimono?
Oct 02 10:17 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• How Will Freddie and Fannie's Lifeline Affect US and Asian Banks?
"both Fs have had to get government support..."
Not at all. Strictly speaking, no additional support has occurred. The news is that the government is working on changes that would provide greater support IF IT'S NEEDED. It hasn't yet been needed.
"...the last mortgage “up” cycle lasted from September 1999 (when annual growth in mortgage lending contracted by 5%) until November 2005, when it peaked at an annual rate of 44%. Back of the envelope work suggests that “down” cycles last an average of three years, suggesting that the current down-cycle will last until around the middle of 2010."
Um, if the last up cycle ended in 11/05, and down cycles last three years, how do you get to mid-10?
Jul 14 03:50 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie Mae Trade Idea: For Aggressive Investors Only
$9.60? $8? You mean you think FNM is going DOWN? I don't think so, pal. Didn't you read the news? The fix is in!
Sheesh. You might as well say that we might want to buy Apple if it touches 150 on Monday.
Jul 14 03:36 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
"Unemployment is increasing. Therefore real estate won't bottom until 2010-2013 because people without jobs can't buy houses."
First off, I questioned his 2012-13 timeframe; 2010-2013 as a target for the bottom is so broad as to be meaningless. I'm going to pick the World Series winner; it will be a team that plays on natural grass.
What makes you think employment will be lower in two years than it is now? Since 1960, there have been only five years when employment declined, and only twice has there been less employment than there was two years earlier (1992, 0.25% less than 1990; 2002, 0.3% less than 2000). Even the 1981-2 recession, which was far worse than either 1992 or 2002, saw employment rise in any relevant two-year timeframe.
Also, the correlation is weak. During the 1990-1992 period, housing prices declined 4.9% (by far the largest drop since 1987); however, during the 2000-2002 period, they increased 24%.
Jul 13 02:46 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
Real estate won't bottom until 2012-2013? Why? There wasn't a spike in new housing that corresponded to the bubble; in fact, the current decline in housing starts PRECEDED the June '06 market top by a couple of months.
According to the latest Case-Shiller report, we're 20% off the market top already, two years into the decline. I expect prices to decline another 5-10% and start to recover at some point next year.
Jul 12 16:14 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
• To Have and To Hold: Why a Bailout Would Weaken the Dollar
"Further indebtedness, everything else being equal, is bad for a currency."
But it's not equal. The debt run up over the last eight years, for example, has bought us very little in terms of real assets. The $5T of debt that FNM and FRE insure (note, they insure it, they don't hold $3.5T of it) comes with something close to $5T of real property. So while nationalizing FNM and FRE would add a huge amount of gross debt, it would add a very small percentage of net debt to the "balance sheet" of the U.S.
By the way, 99% of the mortgages backed by FNM and FRE are current. So while there is $5.2T of liabilities, actual bad mortgages are exceedingly unlikely to exceed 5% of that, or $250B. And in the worst-case scenario, the underlying property will likely be worth (out of my orifice number) 60% of the mortgage value, so the MAXIMUM loss from FNM and FRE won't exceed $100B.
The national debt, including that held by trust funds, stands at $9.5T. So the worst case scenario would add just 1% to the national debt.
The sky is not falling.
• Weekend Thinking: An Agency Recapitalization Proposal
"Compare median income to median house prices for the period 1996 to 2006 (the top of the housing market). Gather the information and calculate that house prices could decline over 50% from the top from mid 2006."
Why do you think that real estate is so massively overvalued? I mean overvalued, sure - but 100% overvalued? Are you kidding? Why do you think that the previous (low) valuations were "correct"?
You also don't seem to want to include any other pertinent factors, such as increasing home size. There is no easy linear comparison.
BTW, we're 20% below the peak as of the last report, and there are indications that some areas are improving.
Jul 11 16:30 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
Agreed, bonds fall in value as rates increase. But there are two points here.
First, I think the market for MBS has overreacted. If this assertion is correct (which BAC and MS certainly think), the mark-to-market requirement has led to more write-downs than necessary, which has forced lots of unnecessary de-leveraging. Those who are able to hold these under-valued assets for long enough will see them increase as the market's valuation comes back to reality. Eventually, if a bank like BAC is able to hold all of those CFC mortgages, the current write-downs and losses will be replaced by "write-ups" and profits. Of course, it's all paper - the assets haven't changed.
But the bonds are not the underlying security; the real property is. The value of the real property, which has fallen significantly and will fall some more or be stagnant, will eventually recover and increase. Always has, always will.
I was careful to use the word "possible" to describe a potential reduction in leverage. Certainly, the government has a hefty asset base; a quick search didn't find anybody trying to value it. However, I can say that most federal land is quite low in intrinsic value.
Finally, certainly the government doesn't need to add millions of mortgages to its balance sheet. My point is that if it did so, the impact would not be nearly as large as you suggest.
Jul 10 11:11 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Fannie and Freddie: When the GSEs Go, So Goes the Dollar
I think you're missing a huge part of the story here, and overstating the effects on the dollar.
IF the government were to assume FNM and FRE assets and liabilities, it's not like the addition of debt we've incurred over the last eight years. There are substantial underlying assets. It's quite possible that an assumption of FNM and FRE, with some $3.5T in debt would actually REDUCE the leverage of the federal government in real terms.
Look at it this way; say FRE and FNM have between them $3.5T in debt, and the underlying assets have fallen to $3.3T in value. I haven't looked, but I'm pretty sure that $200B would more than make the companies insolvent.
So the federal government would take a $200B balance sheet hit by assuming FRE and FNM. So what? That's less than half of the current annual deficit, and less than 4% of the national debt.
And it's not like those underlying assets are going to continue to decline forever. No, eventually, the mortgages held by FNM, FRE, or whoever are going to regain and then exceed their original values. So whoever holds them at the end will see a potentially huge addition to the balance sheet.
Would be a very... interesting way to reduce the national debt.
Jul 10 09:44 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Financials: Down, Down, Down
Long term, the sector's undervalued. Which firms are in better shape and which are in worse shape? I dunno.
XLF. Add to it as we go.
Jul 07 18:33 pm |Rating: 0 -1 |Report abuse |Link to Comment | View article
• Valuing GE (It's Cheap)
g7enn wrote: "GE is virtually bankrupt. Check out it's Cash Flow..."
You might want to look up "bankrupt." Then look up "cash flow." Then, just for kicks, see what you can find on "long term." See if you can put it all together.
Here's a hint: 2007 earnings - $22.2 billion; 2006 - $20.7 billion; 2005 - $16.7 billion.
Bottom line.
"It's [sic] cash flow is coming from its borrowings."
Really? I'm looking at cash from operations, which appears to be up some 65% in the last 5 years.
"It's cash flow for 2007 was under $2M."
Right. POSITIVE cash flow. Hardly the sign of a pending failure.
"What happens to GE as the financing and credit situation worsens?"
It continues to lose money (mark-to-market) from certain investments, and continues to generate ENORMOUS amounts of cash from operations. And at the end of this credit problem, there will be some big winners - who's to say GE ends up worse than average?
"Debt/Equity ratio is 4, way too much debt."
And Goldman's is over 10. Do you also think Goldman's about to fail?
"Where is it going to get the money to finance operations? From Bernanke?"
Pay attention. Operations generate ENORMOUS amounts of cash.
"If you fail to understand the above then take a look at its stock price, going the way of Bear Stearns and why are investors buying so many puts on this company if it wasn't about to go bankrupt?"
Here's a newsflash for you: for every put buyer who thinks the company's going down, there's a put SELLER who thinks the opposite. Better question: why is short interest a measly 1.2% if so many investors thought GE was in such dire straits?
Jun 23 09:03 am |Rating: 0 -1 |Report abuse |Link to Comment | View article
On Feb 03 10:07 AM BS Detector wrote:
> While I don't have time right now to read your previous articles,
> I'll do so later.
>
> Regarding level 3 assets: you are correct that determining fair value
> for these is problematic (pretty much the definition of level 3),
> but I don't think you have any idea of how it's done (as I recall
> GS includes a discussion of the different processes for different
> types of asset in its financials), and I guess it doesn't matter
> to you that the processes and results must be approved by auditors.
> Given that the level 3 problem has been very public in the last year,
> I believe auditors are paying more attention to this area now than
> they have in the past few years.
>
> Now, are you done shifting your argument here? Have you found something
> you're comfortable with at this point? Because you still have presented
> nothing of substance to suggest that GS is insolvent. And have you
> given up on MS then?
Did you ever provide backup for this claim?
AFAIK, the Japanese tried to pull out of their recession by wasting money on public works projects while allowing their money supply to continue shrinking.
On Jan 30 02:52 PM Jim Quinn wrote:
And everybody who's lost money in the last year? You certainly can't believe anything they say and should pay no attention to them. Lord knows you can't learn anything from them.
Clearly from the two articles you linked, you know something about banks. Also beyond dispute is that you were ahead of the curve on their downfall. Which begs the question - why so defensive? You took liberties of hyperbole and chose some words poorly - it seems much of this could have been dismissed as shortcut-taking in a story telling a fairly complex tale. Other things were assumptions you made that turned out to be wrong; fairly simple to yield when a little research reveals the error.
But instead you wouldn't yield a single thing, as if every data point in your piece was thoroughly researched, when clearly they weren't. I don't think you've helped yourself much by being so defensive about these things that you have yet to adequately defend. Perhaps it would have been wiser to just take the loss and move on.
But hey, what the hell do I know. I'm just another loser in the crash of 2008.
By the way, you still haven't explained how we'll end up with a hyperinflationary crash.
On Feb 03 10:01 PM BS Detector wrote:
> My my, you had a productive morning, didn't you? Let's sum up your
> latest assertion: because I've been wrong in the past, I'm wrong
> now. Okay - I guess we can stop listening to anybody who's ever expressed
> an opinion or made a prediction that didn't come to pass.
>
> And everybody who's lost money in the last year? You certainly can't
> believe anything they say and should pay no attention to them. Lord
> knows you can't learn anything from them.
>
> Clearly from the two articles you linked, you know something about
> banks. Also beyond dispute is that you were ahead of the curve on
> their downfall. Which begs the question - why so defensive? You took
> liberties of hyperbole and chose some words poorly - it seems much
> of this could have been dismissed as shortcut-taking in a story telling
> a fairly complex tale. Other things were assumptions you made that
> turned out to be wrong; fairly simple to yield when a little research
> reveals the error.
>
> But instead you wouldn't yield a single thing, as if every data point
> in your piece was thoroughly researched, when clearly they weren't.
> I don't think you've helped yourself much by being so defensive about
> these things that you have yet to adequately defend. Perhaps it would
> have been wiser to just take the loss and move on.
>
> But hey, what the hell do I know. I'm just another loser in the crash
> of 2008.
>
> By the way, you still haven't explained how we'll end up with a hyperinflationary
> crash.
"Please explain how a bank can loan more than their money on hand (deposits). Pretend I'm a really dim Ron Paul supporter (I know, I repeat myself) and use small words."
The smallest word I can use to accurately describe the process is "scam". It works as simply as it sounds: a bank gets $1 on deposit and the grand controller of our money supply, the Federal Reserve, has accounting rules that allow banks to create create 9 more dollars worth of credit out of thin air and to loan that credit out for interest. The $1 in reserve is a fraction of the credit created, ergo fractional reserve. The hope is that the guy who loaned the original dollar will not come back to withdraw it otherwise the bank becomes insolvent.
Thus, for every $1 of real money (AKA "monetary base") in the money supply, an a$$hole banker can (and did) create 9 more dollars worth of credit OUT OF THIN AIR. Nobody ever worked to obtain those extra 9 dollars so that they could be put into a bank, yet the bank was allowed to loan that money out and to receive income in the form of interest. It is absolutely a money for nothing scam. Now you know how the bankers were able to get so rich. If you were able to come up with a product that nobody had to actually work to create yet you could lease the use of this product for 3-7% interest, you would get rich too!
To go one step further, once those $9 are loaned out to consumers, they are spent on goods and services and are thus running around in the economy. Most of those dollars spend most of their time in other banks who in turn can treat them as deposits for fractional reseve banking purposes. In this way the original 9 fake dollars of credit can be used to create many more fake dollars of credit.
I wish I were making this up because it is so obviously a scam. Read more of the details on Wiki if you like (Skip down to the criticism section lest you have to wade through many paragraphs of Keynesian clap trap bull$shit):
en.wikipedia.org/wiki/...
If you are like most Americans and are easily bored, here is the first in a series of simple videos to watch that will explain it:
www.youtube.com/watch?...
Each video has a link to the next in the series. Watch them all if you want to understand what a scam the whole thing is.
There are 2 important implications from this:
1) The federal reserve really doesn't control the money supply if banks have the power to expand and contract credit at such huge leverage to the montary base. Thus when banks get scared they stop lending. The fed and the treasury can pound the table for banks to loan more, but banks have rights too and all they have to do is increase the lending standards to decrease the amount of new loans they have to fund. Just having a 20% down requirement automatically makes a huge number of people inelegible to receive a loan for a house selling at the national average price of 187k. By the way, all banks are doing is returning to sane lending standards to achieve this result. The fact that this is causing our credit bloated economy to collapse shows just how out of control banks world wide have become with their fractional reserve funny money pyramid scheme.
2) As mentioned before, the money supply is made up of real money (the kind authorized by the Treasury and directly controlled by the fed) and credit. Inflation is an increase in money and credit relative to the available goods. Deflation is a decrease in money and credit relative to available goods. Inflation generally results in rising prices. Banks have been adding credit to the economy at a enhanced clip since 1995. If you want proof, look at the Dow and S+P stock charts which went into high gear in 1995. Now that banks are overextended and people are losing jobs the banks are cutting the credit component of the money supply and they are doing so very rapidly. That means there is less purchasing power in the economy relative to goods available for purchase and thus the dollar is strengthening. People are holding off spending in anticipation of lower prices and the resulting lack of demand is causing prices on homes, cars, and many other products to tumble. As a result business profits plummet, unemployment increases drastically, and the economy tanks.
Without all the credit we would have had slower but more predictable growth and there would be no busts where people are wiped out and commit suicide and kill their families and wish they had never been born. The booms are good for the bankers and corporations because they drive far higher profits than the companies could ever have earned with a properly constrained money supply. The booms make little kings within gov't and the military industrial complex. The booms concentrate money and power. The busts wipe out the middle class and make them beg for socialism. The corporate kings knew the end was not far off for several years now which is why they were all grabbing as much as they could while they could. They knew the pyramid was collapsing and they needed to get out before it did. Why do you think people like Meg Whitman (Ebay founder and CEO) decided to give up the reins (March 2008) even though everything was still good at the time? They friggin knew this was coming because they knew how money worked and they understood that a credit pyramid scheme will eventually fail.
Remember The Matrix? You just swallowed the red pill, Neo. You will never think about money the same way again. Nor should you. Every patriotic American will do their part to support the abolishment of the Federal Reserve. Ron Paul's Campaign For Liberty is a good place to start.
Thanks for trying (and failing) to explain how a bank can lend out more than deposits. Let's try again.
Forget about using words like credit, let's just use cold hard cash. You might be less confused this time.
A new bank has a single deposit of 1000 $1 bills. The reserve requirement is 10%. Please show how it is physically or mathematically possible for the bank to loan out more than $1000 with that single deposit. Walk thru step by step, without frothing, if possible. Good luck!
"The $1 in reserve is a fraction of the credit created, ergo fractional reserve. The hope is that the guy who loaned the original dollar will not come back to withdraw it otherwise the bank becomes insolvent"
Actually, by reserve they mean the bank holds a fraction of deposits aside. That's why they loan less than deposits not multiples of deposits.
As far as reserves being less than loans, it's true that loaning 90% and reserving 10% makes reserves less than loans. Just as loans are less than deposits. If you understood simple math, you'd be less prone to conspiracy theory.
If a single bank multiplies its deposits nine times, and that money is deposited in other banks after the loans are exchanged for goods, and those banks multiply those deposits nine times, why don't we have an infinite amount of currency? You're describing a geometric progression. So suppose there's one dollar in the entire economy on day 1. A bank transforms this into 10 dollars (1 plus the 9 you say it creates). One dollar stays in the bank, nine go into the world as loans. The 9 are exchanged for something, and are deposited into another bank. A week later, the first bank still has 1 dollar, the second bank has 9 dollars, and 81 dollars are lent out, exchanged for goods, and deposited at a third bank. A week later, the first banks still have 10 dollars between them, the third bank keeps 81 dollars, and creates 729 new dollars which it lends out.
Do you see where I'm going? At the end of the year, that 1 dollar would become bank deposits of $417456 followed by 44 zeroes, or 41.75 trillion trillion trillion trillion. Even if you knock it down to one lending cycle a month, that one dollar would in one year become $282.4 billion (with another $2.3 trillion ready to be lent). With reserve banking in place in America since its founding, and the M2 money supply at roughly $7 trillion, can you see that this makes no sense whatsoever?
Look at it another way. Take a look at a balance sheet. Any balance sheet, not just a bank. Assets are equal to liabilities plus owners' equity. right? Now look at a bank's balance sheet. Among other things, you'll find cash and loans listed as assets, and deposits and other things listed as liabilities. Now, according to your claim, banks should have several times as much in assets (loans) as they do in liabilities (deposits), right? But, of course, they don't. Loans less current assets are a FRACTION of deposits.
Wow. You've even seen the right answer on Wikipedia, but chose to "skip down to the criticism section lest you have to wade through many paragraphs of Keynesian clap trap..." Keyesianism is clearly beyond you, but you should take a look at that page and look for the Money Multiplier section. Read carefully. The truth shall set you free.
On Feb 04 12:13 PM BS Detector wrote:
first in a series of simple videos to watch that will explain it:
>
www.youtube.com/watch?...
Each video has a link to the next in the series"
Thanks for the link. In the 2nd video they have a huge mistake. Start at 2:28, they mistake a deposit of investor money at the central bank with high powered money. Only the Fed can create high powered money. Then they imagine, incorrectly, that the bank can "conjure" up $10,000 to loan to a car buyer, without an existing customer deposit.
If you're relying on these error filled videos, you'll never understand how the money supply works.
At about 5:15, they do get one right. Banks must show more on deposit than they have out in loans.
On Feb 04 01:55 AM Did U Think The Ponzi Scheme Would Last? wrote:
How could a bank ever fail? If a bank is in trouble, it could loan $1,000,000 to another bank, which could loan back $9,000,000 to the original bank. If all the original depositors withdrew their funds, so what?
If George Bailey could do that, the bank run in "It's a Wonderful Life" would have been a non-event.
On Feb 04 12:13 PM BS Detector wrote:
> Let me throw out something for DiverCity and Ponzi, who are saying
> things that their anti-fiat currency brethren must be cringing at,
> since it does their position harm just from association.
>
> If a single bank multiplies its deposits nine times, and that money
> is deposited in other banks after the loans are exchanged for goods,
> and those banks multiply those deposits nine times, why don't we
> have an infinite amount of currency? You're describing a geometric
> progression. So suppose there's one dollar in the entire economy
> on day 1. A bank transforms this into 10 dollars (1 plus the 9 you
> say it creates). One dollar stays in the bank, nine go into the world
> as loans. The 9 are exchanged for something, and are deposited into
> another bank. A week later, the first bank still has 1 dollar, the
> second bank has 9 dollars, and 81 dollars are lent out, exchanged
> for goods, and deposited at a third bank. A week later, the first
> banks still have 10 dollars between them, the third bank keeps 81
> dollars, and creates 729 new dollars which it lends out.
>
> Do you see where I'm going? At the end of the year, that 1 dollar
> would become bank deposits of $417456 followed by 44 zeroes, or 41.75
> trillion trillion trillion trillion. Even if you knock it down to
> one lending cycle a month, that one dollar would in one year become
> $282.4 billion (with another $2.3 trillion ready to be lent). With
> reserve banking in place in America since its founding, and the M2
> money supply at roughly $7 trillion, can you see that this makes
> no sense whatsoever?
>
> Look at it another way. Take a look at a balance sheet. Any balance
> sheet, not just a bank. Assets are equal to liabilities plus owners'
> equity. right? Now look at a bank's balance sheet. Among other things,
> you'll find cash and loans listed as assets, and deposits and other
> things listed as liabilities. Now, according to your claim, banks
> should have several times as much in assets (loans) as they do in
> liabilities (deposits), right? But, of course, they don't. Loans
> less current assets are a FRACTION of deposits.
>
> Wow. You've even seen the right answer on Wikipedia, but chose to
> "skip down to the criticism section lest you have to wade through
> many paragraphs of Keynesian clap trap..." Keyesianism is clearly
> beyond you, but you should take a look at that page and look for
> the Money Multiplier section. Read carefully. The truth shall set
> you free.
Goldman is the safest investment around, because GS owns the United States Treasury.
To counter your absurd hypothetical, BS Boy, the banksters need to know that there's a reasonable likelihood they'll get paid back, and the regulators kind of want to see certain criteria padding a loan file that makes said result at least somewhat likely in the sweet bye and bye. Moreover, there is not an inexhaustable supply of borrowers -- even borrowers who don't meet lending criteria. Man, this is so easy. You guys with your academic theories just can't see.
Turtle -- and I think you know this but must want to intentionally obfuscate -- you posit only one side of the fractional reserve banking edifice (writ, house of cards) and attempt to buttress your position by playing semantical games. Please recall that for the banksters, loans are assets and demand deposits are liabilities. Now, if Bank A gets a deposit from me of $1,000 (because I work), and the reserve requirement is 10%, it most certainly can set aside $100 and lend $900, thereby complying with its mandated reserve requirements. Consequently, it has $100 of my initial deposit and has loaned out $900 of same. Remember, a loan is an asset and a demand deposit is a liability. Pray tell, Turtle, where lieth the error in my ways?
Excellent!
They loan out less than their deposits. Much better than your initial claim that they can lend out more. I'm so proud (pats DiverCity on head)
On Feb 04 05:34 PM DiverCity wrote:
> Excellent! They loan out less than their deposits. Much better than your initial claim that they can lend out more. I'm so proud (pats DiverCity on> head)
Dear Jim,
I initially thought you were kidding when I saw your response to my post. Do you really think that $100 put on deposit with a 10% fractional reserve system means that they keep $10 on deposit and loan out $90? I don't know if you will be able to understand this chart but at least it will settle the matter in my favor for anyone else reading this thread.
en.wikipedia.org/wiki/...
Don't bother responding. I can't save you. Nobody can.
Yes, but only because I know how to add and subtract. Do you really believe that a single $100 deposit with a 10% reserve requirement allows a bank to loan more than $90?
On Feb 04 11:18 PM Did U Think The Ponzi Scheme Would Last? wrote:
On Feb 04 11:18 PM Did U Think The Ponzi Scheme Would Last? wrote:
> If a single bank multiplies its deposits nine times, and that money
is deposited in other banks after the loans are exchanged for goods, and those banks multiply those deposits nine times, why don't we have an infinite amount of currency? You're describing a geometric progression. So suppose there's one dollar in the entire economy on day 1. A bank transforms this into 10 dollars (1 plus the 9 you say it creates). One dollar stays in the bank, nine go into the world as loans. The 9 are exchanged for something, and are deposited into another bank. A week later, the first bank still has 1 dollar, the second bank has 9 dollars, and 81 dollars are lent out, exchanged for goods, and deposited at a third bank. A week later, the first banks still have 10 dollars between them, the third bank keeps 81 dollars, and creates 729 new dollars which it lends out.
Do you see where I'm going? At the end of the year, that 1 dollar
would become bank deposits of $417456 followed by 44 zeroes, or 41.75 trillion trillion trillion trillion. Even if you knock it down to
> one lending cycle a month, that one dollar would in one year become $282.4 billion (with another $2.3 trillion ready to be lent). With reserve banking in place in America since its founding, and the M2 money supply at roughly $7 trillion, can you see that this makes no sense whatsoever?
~~~~~~~~~
Did I somehow come across the head in the sand chat board or what? Look, I gave you a link to a video in which the narrator speaks very clearly, and there are cartoons as well. Was it too much for you to watch?
Just watch this one 10 minute video segment and all your questions above are answered. Hint: just because you personally don't understand something yet does not mean it is not true.
www.youtube.com/watch?...
Anyone reading this thread needs to not listen to Myrtle and anyone else who denies the truth of what I posted. They need to go do their own independent research and not let Keynesians lull you to sleep with their money games. The final proof that banks lend out more than is on deposit is so simple it's not funny. How could we have a global banking system meltdown if banks don't lend more than they really have on deposit? How could the debt possibly be so high given that Americans do not own that much money.
How could the entire US banking system be effectively insolvent??? Stop listening to fools like Myrtle. Listen to Nouriel Roubini who is a leading economist at NY Stern School of Business:
www.telegraph.co.uk/fi...
It's time for Americans to wake up and shake out the cobwebs. The bankers are running the show with their funny money. This is NOT a new trick, and Jefferson warned us about it 200 years ago:
"If the American people ever allow the banking system to control their money, first by inflation, then by deflation; their children will one day wake up homeless on the continent their fathers conquered."
-Thomas Jefferson
The inflation he was talking about was credit inflation. Yes, the fed increases the monetary base as well, but it is credit inflation that is so dangerous because individual banks control it, not the gov't. When banks stop lending the money supply crashes and you get a deflationary crash.
Ron Paul warned us about this. The fact that it was too much trouble to read for comprehension means you watch too much TV, sheeple.
I already pointed out a few (huge) errors in that video.
On Feb 04 11:56 PM Did U Think The Ponzi Scheme Would Last? wrote:
How old were you when you finally failed out of math class? LOL!
On Feb 04 11:56 PM Did U Think The Ponzi Scheme Would Last? wrote:
Can this be e-mailed to him, will he read it because it is too long for a President to waste his time??
=Krs=
Ponzi wrote: "Did I somehow come across the head in the sand chat board or what?”
Not sure why you're so angry and unwilling to consider that you're wrong. Seems to be fairly common, however.
"Just watch this one 10 minute video segment and all your questions above are answered."
I watched most of the last one you linked to, but when I got to the point where it said fractional reserve banking wasn’t invented until after gold certificates became used as a medium of exchange, the blood started coming out of my eyes and I turned it off. The real problem I have with these things is that they... take... so... long... to get to their points. Are there transcripts of them somewhere? But I’ll watch the second one, just for you.
By the way, would you agree that you can’t believe everything you see on youtube, even if somebody goes to pretty significant lengths to create videos?
Anyway, watching it, here's the fundamental error:
"Today, the banks’ reserves consist of two things: the amount of government-issued cash or equivalent that the bank has deposited with the central bank, plus the amount of already existing 'debt money' the bank has on deposit." The video then goes on to state that banks can lend many times their “government-issued cash…deposited with the central bank” but only 90% of the “debt money” that us poor shlubs deposit with them.
There are two problems here. The less important is that the reserve definition is wrong – reserves are the portion of deposits kept (not lent) by the bank, not all deposits. This one may be semantics, as “has on deposit” could be taken mean “on hand.”
The more important is that it requires there to be two different types of money; "government-issued cash or equivalent" and "debt money." It's intuitively obvious to the casual observer that this is incorrect - how would the Fed differentiate between the two when accepting deposits from banks? Do you think the Fed requires physical deposits? Banks have increased their reserves on deposit at the Fed by $702B in the last year. Maybe you'll say that $350B of this is just an assignment of value through TARP. So the other $350B? Either you think that banks have physically moved to the Fed $350B (about 41% of all notes in circulation), or you think the Federal Reserve and the banks are in a massive conspiracy in which they separately account for "government-issued" money and "debt money."
Another question – what happens if the car seller takes the $10,000 bank check and demands cash? How would the bank replace this? Walking backward through the video’s logic, does the bank then need to reduce its loan book by as much as $900,000 to recoup its reserves, as cash is by definition “government-issued” money?
But again, reality is right there on the balance sheet. Please go look at one and tell me how much in loans there is in relation to deposits. Pick a bank - any bank.
Here’s reality: debt is not money, it’s debt. It’s the promise to pay money. Can that promise be traded? Often, yes – but not always. It is not legal tender. Tough to buy a loaf of bread with a percentage of a mortgage.
What's interesting is that the video gets the money multiplier right if you throw away this up-front nonsense about first creating 10x the “government-issue” money. The description of reserve banking from the point the car seller deposits the first loan is accurate.
Pot, meet kettle.
"...go do their own independent research and not let Keynesians lull you to sleep with their money games."
Again with the Keynesian thing. I guess that's the "liberal" of economics, an instantly negatively connoted catchword. But yes, please do your research - and consult any Keynesian, Monetarist, or Austrian or Chicago school economist. Any economist. Or any macro textbook. Really. Maybe anyone who's taken an intro to macro theory course. Or any banker. Not that you’d trust one.
"The final proof that banks lend out more than is on deposit is so simple it's not funny.”
True. It’s quite simple, just not what you apparently think.
Fair question. Read carefully.
Let's say a new banker puts $100 of capital into a new bank, and takes 20 deposits of $50 and pays 2% interest. Now say the bank makes 9 loans of $100 each and charges 4% interest, keeping $100 (1/10) on reserve in case depositors demand some of their money (hence the term "fractional reserve"). As long as the loans perform and the group of depositors don't remove too much of their money, everybody's happy. If you look at the balance sheet of the bank, there will be assets of $900 in loans and $200 in cash, and liabilities of $1000 of deposits. The bank has $100 of owner's equity (assets less liabilities), and so a simple measure of leverage (assets divided by equity) is 11x. This is close enough to where U.S. banks operate.
At the end of one year, the banker collects $36 in interest on the loans, and pays $20 in interest to depositors. To keep it simple, assume the depositors withdraw all interest payments so that deposits (liabilities) remain $1000 throughout this example, and that there are no taxes and no cost associated with running the bank. The bank's profit is $16 (which is a 16% return on equity invested). Now the balance sheet has the same $900 in loans and $1000 in deposits, but cash has increased to $216. At this point owner's equity has increased to $116. Let's suppose a dividend of $6 is paid, reducing cash to $210 and equity to $110. Leverage now stands at 10.1x.
Now, suppose one of the borrowers doesn’t pay the next year. The bank collects $32, pays interest of $20 and has $12 of profit. This is okay, right? Still profitable. But now the bank has to write down the value of that loan, as it's certainly not worth as much as it was when payments were current. Let's say they drop that loan's value to $75, reflecting increased risk. The balance sheet now shows $875 of loans, $222 of cash. Equity has fallen to $97. The bank suspends the dividend. Leverage is 11.3x.
Now suppose the defaulting lender goes bankrupt the next year and the bank is able to collect only 30% of the debt - perhaps because this was a home equity loan and the first position lender took almost the entire proceeds from a foreclosure sale. The loan comes off the books, and $30 cash is added. The bank again collects $32 and pays $20 to depositors, adding $12 more to cash. Now the balance sheet shows $800 in loans, $264 in cash, and $1000 in deposits. The bank's equity has fallen to $50, and leverage has increased to 21x.
But the bank’s not done with this year, because here's where mark-to-market accounting comes into play. Suppose the value of the assets underlying all of these loans has fallen, as has happened with housing. The loans can no longer be sold to other banks for full value, because if the borrowers default the holder of the note will lose money. According to mark-to-market rules, the bank must reduce the value of these assets on their books to the going market price, EVEN THOUGH the bank intends to hold them to maturity and EVEN THOUGH all remaining borrowers are up-to-date in their payments.
Let’s say the remaining 8 loans have lost 10% of their value on the open market. The balance sheet now shows $720 (8x$90) in loans, $264 in cash, and the same $1000 in deposits. Equity is now -$16. The bank is insolvent, even though it still operates profitably.
It’s quite easy to see how fear in the marketplace could have quickly driven down the book value of anybody holding mortgages. It’s also clear (to me at least) that this impact means mark-to-market needs to be reviewed.
There was a bit out yesterday estimating that Americans lost $10.2 trillion of wealth last year. It's not hard to me to see why the banking system could be insolvent.
But, RBS was out with an analysis a few weeks ago indicating that many British banks are technically insolvent. Lost to most who quote this analysis was the bit where RBS said this is not an unusual circumstance at this point in an economic cycle. This is because the values of all assets, even performing assets that are not for sale, drop enough to push the balance sheet negative.
By the way, just because institutions are technically insolvent, we may not want to let them fail. Consider this scenario extended from the one above. The government takes over the bank, pays off the depositors, and sells the loan book to Bank2 at the market price of $720. The government (taxpayers) loses $16 in the deal. Bank 2 then holds those loans to maturity, profiting not only from the interest but also from the repayment of the capital that it bought at a discount. If the first bank had been allowed to continue and no more defaults occurred, it would have become technically solvent in two years, and would have continued to be profitable, eventually recovering $80 of “lost” capital as the loans matured.
"Listen to Nouriel Roubini..."
Ask Roubini about your money creation theory.
"The inflation he [Jefferson] was talking about was credit inflation."
Can you produce the context of the quote to support this assertion? I didn’t find the full text of the speech.
"Yes, the fed increases the monetary base as well, but it is credit inflation that is so dangerous because individual banks control it, not the gov't."
Even your wrong-headed video states that the government controls the overall money supply, including the "debt money" supply. It just gets the mechanism completely wrong and the multiplier wrong by a factor of 10.
"When banks stop lending the money supply crashes and you get a deflationary crash."
Right! That's why the Fed's pulling out all of the stops to expand the monetary base, and why its actions are not (yet) inflationary.
"The fact that it was too much trouble to read for comprehension means you watch too much TV, sheeple."
Your the one who's primary source is a youtube video. I think you're going to feel pretty dumb when you finally figure this out.
(Turning Japanese, The Vapors)
WilliamBanzai7
Sing along link: video.google.com/video...#
We've got a Century's worth of horrendous economic news
You wrote "We love you" We wrote back "we too"
We sit here staring at Bloombergs, there's nothing else to do
Oh it's in color the DOW keeps going down
Our eyes are glazed And our deficit is flying in the clouds
Now we can kiss our own depressed Asset Bubble goodbye when there's no one else around
We've got a picture, We've got your picture
Like a million years of stagnant economic hell
We want a doctor to take your picture
So we can look at your Lost Decade from inside as well
You've got us turning up and turning down
And turning in and turning 'round
We're turning Japanese
I think We're turning Japanese
I really think so
Turning Japanese
I think We're turning Japanese
I really think so
We're turning Japanese
I think We're turning Japanese
I really think so
Turning Japanese
I think We're turning Japanese
I really think so
No loans, no bonus, no jobs, no women
No fun, no sun, no good news, no wonder it's dark
Everyone around us is in layoff danger
Investors all avoid us like a cyclone ranger
That's why We're turning Japanese
I think We're turning Japanese
I really think so
Turning Japanese
I think We're turning Japanese
I really think so
We're turning Japanese
I think e're turning Japanese
I really think so
Turning Japanese
I think We're turning Japanese
I really think so
On point #5, regading GM and the other North American Auto Producers... GM can survive, but it must be transformed. This is a rare opportunity for the rebirth of the entire North American Auto Manufacturers... If that group can cooperate with each other and with the US government, then GM can play a part in a new structure, which like Japan, coordinates and maximizes efficiencies, including financial accomodations. Envision the forward-leaning Tesla being mass-produced (at much lower costs), in GM factories, using the experience and resources of that automotive giant. Then, envison these electric cars being exported, worldwide. Nuf, said.