Cardio

'The Crash of 2008 and What It Means' by George Soros

I enjoyed the article on reflexivity. Question: If you attempt to mitigate the effects of the human element in the markets through policy, how do you eliminate the human element from those making and enforcing the policy? The theory becomes quite convoluted at that point.

I prefer to think of the markets as constantly "seeking" equilibrium rather than in constant disequilibrium. More transparency, more attention to fundamentals, and more widespread financial knowledge would create an investor class that lessens the volatility.

Higher Savings Rate Shouldn't Affect GDP, But It Will Anyway

If, as the writer says, by putting money in banks we are paying for "I" that has already occurred, then the alternative would be to not pay for "I" that has already occurred, which sounds an awful lot like the proverbial "free lunch". He may have a theoretical point about the directness of the route for our savings to be reninvested (through government v. through banks) but, in practice (historically, now, and forever) governments are inefficient and corrupt in their capital allocation process and economic performance has and will always reflect that.

The bottom line is that GDP will shrink in the short term because it was artificially inflated with artificially cheap debt. Until that debt is reduced, and the economy deleveraged, we will have negative to slow growth in GDP. But, if we continue to save and produce, capital will seek those countires,areas, companies, and individuals that are most productive adjusted for risk and growth will most likely occur in those places. Banks will begin to lend based on sound underwriting and growth will resume at its natural organic rate based on the fundamentals of risk and return.

We are in a contest to be the most attractive risk adjsuted destination for that capital. Our current advantages are technological and financial infrastructure and perceived saftey (this last advantage is not a little bit affected by our military hegemony. Its always good for the capitalists to bet on the mightiest warriors.)

Increased personal savings is the first stage of our recovery. Now we need to become the most productive people on the planet (risk adjusted). There's no fast and easy way out. No panacea, just hard work (i.e.production), savings, and, eventually, investment (attracted by production and fueled by savings).

Who Is Really to Blame for the Deficit?

Putting the fiscal mess entriely at Bush's feet is, of course, overly simplified.He is just the most recent of a long line of politicians spending other peoples wealth (by using their credit, no less). Bush had the misfortune to be in office during 9-11, which was the result of years of mismanaging the terrorist threat. His response of invading two countries, while admirable in its intent (free millions from tyranny, deal death blow to extremism), was tacticly flawed and expensive.

I, like axelrod68, agree that these deficits are a manifestation of the way politics is, and has been, played in America for the last 75 years or so. Career Washington politicians know how the game is played. Give away enough of "other people's money" and you can buy yourself a long, respected, and lucrative lifestyle. There is simply no way for them to get elected and re-elected by saying "we're all going to need to cut back a little".

The Amreican people recently received a dose of economic reality with the collapse of the housing bubble. The borrow and spend mentality was no longer viable for individual households or businesses.To their credit, they made the necessary adjustments in their spending habits and lifestyle and the economy has reverted to the mean (i.e. shrunk) and the national savings rate is apprecaibly above zero for the first time in over a decade. Yet, at the very same moment, when history is screaming for frugality, Obama and the other "Statists" are accelerating the increase in the national deficit at an unprecedented pace. How can it be that the solution for overleveraged citizens or businesses is to tighten the belt and make do with less, but for the overleveraged "State" the answer is to borrow more and continue to spend money you don't have?

We will never see change for the better until we do one simple thing; Make Washington smaller. Pointing fingers at one party, then the other, is simply a diversionary tactic perpetuated by those spendthrift demagogues we call our represenatives. A pox on the lot of 'em.

Grand Illusion: The Federal Reserve (Part 2)

I'm not an expert on the causes, real or imagined, of the perpetual boom and bust economic cycle, but I am an "expert" on what it was like to "live well" in 1964 with a large family (I was the youngest of 5 kids) and one working parent. Let's start with one black and white TV that was lucky to receive 3 channels, one car with vinyl bench seats, AM radio, no air-conditioning and no seat belts, night out at the movies twice a year, vacations were 7 people in one station wagon driving 2,000 miles to Illinois to stay at my Mom's sister's house three to a room, dinner out was Jack-In-The-Box drive thru, and one land line for the whole damn family. Computers? Nope. Cell Phones? Nope. Brand new store bought clothes? Not for me? Why would you buy clothes when all those perfectly good "hand me downs" were there for the taking.

I could go on, but suffice it to say, "living well" by 1964 standards would be considered disadvantaged in the U.S. today. So when the writer makes the point about our diminished standard of living I beg to differ. You may all have different opinions about what "living well" really entails, but from a material standpoint we are not lacking in this Country. Not when the the biggest public health threat is obesity and common people pay extra for jeans that are "pre-washed" and purposely tattered.

Commercial Real Estate Implosion Is Imminent

The market has already anticipated and priced much of what SA has discussed, hence the 80-90% decline in some share values. Why write this article now? It seems more appropriate to last summer.

John Hussman: Based on Okun's Law Obama's Stimulus Plan May Fall Short

In practice savings are invested. Very few people "save" by stuffing hard currency in pillow cases. So, saving only becomes a "drag" on economic activity if the savings cannot find a productive investment outlet within the economy from which the savings is drawn, true?

If so, then if savings actually causes drag it is because those savings are being invested in foreign markets, as an example, where it is deemed to be more productive.

I'm not an expert, but it seems logical that saving does not evaporate money from circulation, it simply redirects it from consumer spending to business investment. True? Or am I full of nonsense?


On Jan 26 01:37 PM hefaistos wrote:

> Regarding the last paragraph, that consumers change their preferences
> for more savings in times of crises is a well known pattern. The
> most famous example is Sweden, which at the end of 1980's had a slightly
> negative savings rate. Then a banking crisis erupted, and over the
> course of only two years, the savings rate rose to a whopping 8%.
> That of course put an enormous drag on the real economy, since what
> is saved, isn't consumed. We now see a similar development in the
> US.

Digging Deeper Into Limelight's Earnings Call

Roger is right on. The statement is confusing because it is grammatically incorrect. If the word "but" was removed and "to accomodate" appeared instead the sentence and staetment would make sense. I just don't know if that is what Dan meant and so, I am left guessing like the rest of you.