norom

What Would Help This Recession - VAT or FairTax

If the government wants to dump capital into the system by borrowing it and paying people to earn it, or providing tax relief to people who paid taxes, there is, I don't think, an understanding of what is actually happening.

Consumer spending was driven by the availibility of credit. The assumption that lack of credit is driving down consumer spending I don't think is accurate. Credit has become something of a shameful thing. People don't want to admit to using it, are ashamed to be in debt, and brag to every friend and relative when they are out of debt.

This recession is, I think, at its root, a cultural change. Voters are furious at deficits, even at the local level, and states are pushing to isolate their finances from the rest of the country.

In the end it will be for the better. I agree with this article 100%. Germany ended its hyperinflation with new currency, Japan rode out its recession and maintains a very stable economy even with no large gains, this keynsian approach of running deficits in recession and taxing everything in the case of demand-pull inflation has accomplished two things, made compitition impossible during boom times and protecting inflated price levels in down times.

America's Insolvent Banks

I have worked a full time job for a while, paid bills and etched out a living. I have known people personally who, with no full-time job, (and no job for most of 4 years), have been enabled to live care-free through equity loans. Recently they have been called to task and face insurmountable debt. They have enjoyed a higher standard of living than me for years without contributing ANYTHING to society.

The banks enabled this. Now they are crying "I'm a victim" because they took advantage of a system which, between banks and the government, enable people to consume more than they produce. And they didn't even apply for welfare.

What Does a Bonus Really Cost?

If people paid as much attention to their accounts as they did the news they wouldn't be in half the trouble their in.

Monetary Policy—Not Obama's Stimulus—Is What Needs Watching

Well, that note at the end regarding what the Austrian school of economics is not entirely true. The real definition of money is whatever people consider to BE money. Now, if I have equities, those are not considered money. Those are claims against assets that can be turned into money rapidly, so some think they should be considered part of the money supply.

The government DOES treat small and even large time deposits as part of the money supply. The FED removed M3 from the money supply equation. However, whenever investors piss and moan about loosing money on the stock market, politicians act like they lost money. They did not, unless they sold their shares for a lower value than bought.

I am fed up with all these conclusions based on fiscal policy, economic theory, etc. The relevent money supply is anything and everything being used as a medium of exchange. The quantity of dollars does not denote the economy as a whole.

The Fed can say M3 is not relevent to the money supply, but congress always will if people who are storing wealth in large-time deposits see losing value.

The absolute 100% most bullshit claim ever suggested even by great minds is that inflation is solely the result of fiscal policy, that recession is 100% the result of fiscal policy, and that depressions are the result of fiscal policy.

The job of the FED, government and the banks, is to provide enough capital for transactions to occur. Nothing more. Inflation in this day and age is the result of too many people sitting here commenting on Seeking Alpha and not producing any final goods.

Rethinking Fractional Banking

I'm not a banker by any means but weren't the "banks" that went down first with this fiasco not traditional "banks" but "thrifts" with no reserve requirements at all?

I think we're applying lessons in banking that, while still taught, have not been applicable for a while.

Which brings me to another point. Banking shouldn't be so dang mysterious. Or thrifts, or whatever else.


On Feb 17 03:25 PM Latrare wrote:

> Good article. Thank you for calling it like it is. I will amplify
> what some other commenters have already picked up on.
>
> A commenter wrote: "banks are required to hold back 10% of deposits
> as a reserve against demands. The remaining 90% of deposits can be
> loaned to borrowers, thus creating money."
>
> No! Any banker who followed this rule would be fired for incompetence.
> You hold back 10% and pass 90% in the first account. In the SECOND
> ACCOUNT you hold back 10% and pass 90%. You keep repeating this process,
> which asymptotically approaches a multiplier of 10X, until the numbers
> are too small to bother. Loans are 10X of deposits in this case,
> but we are not let off so easy...
>
> "banks are required to hold back 10% of deposits"
> No again. Another firing offense for a banker. Over the years since
> the 1930's, the percentage of reserves has been relaxed over and
> over. You can confirm this in documents available from the Fed website.
> The current fractional limit for the vast majority of deposits is
> 0%, all told. In other words, there is no real limit to fractional
> loaning save what the market will absorb.
>
> Incidentally, this process means that most of the money in the system
> was not created by the Fed, but by private banks making loans. There
> is much more to say, but this is not my soda shop.

Rethinking Fractional Banking

Interesting but I don't think accurate. Money is a store of wealth as well as a medium of exchange. At some point, the porch I swept 15 years ago for $5, has to be traded for another unit of productivity with another productive person. I don't think enough research has been done to realize the effects of the velocity of money and the money multiplier. If money becomes too scarce because banks have a reversed required reserve ratio, (10% lending to every 100% vault cash+checkable deposits), money would be too scarce and some other medium of exchange would have to take its place. Money would have no velocity.

Here's What's Wrong with the Banking Sector

Best analogy I've read so far.

I'm sure somebody somewhere is making a best of and worst of list of analogies.

I think the problem began with the segamenting of business. Arther Anderson collapsed not because of enron, but because it had two very profitable segements competing with one another, the consulting division trying to outsmart the auditing division. And they did.

AIG had a financial arm operating independant of the rest of the company. A small hole can sink a big ship.

Consumer Spending: Last Bastion of U.S. Economy in Full Retreat

Credit is what did it. I have a not-so expert opinion that the consumer culture of the United States has changed. It is no longer cool to finance goods and services. People are ashamed to admit past-due balances, and avoiding debt has become priority#1 in a lot of households. The highest rated talk-radio shows are quickly becoming financial advise shows that steer people into paying off debt.

It would be nice for the government and firms to realize this and help consumers on the path to solvency, rather than worry about the solvency of institutions. If people were confortable with their savings they would buy stuff again.

No Rescue or Bailout Can Save the Dying Banks

I think the faliure of banks is a kind of economic foward indicator on where everything seems to be heading. The world of finance was like a Spanish gold ship, too heavy to stay afloat. Too much money chasing money.

Its going to be interesting. There does need to be a greater study on how finance and the time-value of money affects the macro-economy. Investors depend on the productive use of capital to generate returns and the myth that loaning capital to non-productive uses can somehow generate a return is busted. People don't see value in finance. Where all this will go....I guess we'll see.

The other interesting question is, with all this capital going down the drain, what would be the oppertunity cost had that capital been invested elsewhere?

Friday's Jump: Sucker's Rally

of course theres going to be profit taking. There always is. Predicting a sell-off after a general rise is like predicting the tides of the ocean. It takes no special talent.

Suddenly, Everyone's a Day Trader

On the plus side, the prices of equities are actually affordable. For good ones. That means more people can participate, if they can be sold on the idea of gambling. I can buy former blue-chips at prices cheaper than lottery tickets. And they're less risky than lottery tickets.

Bernanke's Great Lie: The Gold Standard and the Great Depression

I wrote it that way for you gold-bug.

Gold is a speculative bubble just as sure as housing was. The only difference is that there is no underlying asset to protect. Gold has no utility.

Gold bugs and Ron Paul supporters seem to work under the notion that if you buy gold it will eventually become the reserve currency of the world again. It will not. And if it did, it would not make anyone who invested in gold rich. It would make you poor as it is confiscated by world governments. As it WAS at the turn of LAST CENTURY!


On Dec 27 09:09 AM silverwood wrote:

> norom, if you were to hold your name up to a mirror, it would describe
> you perfectly.
>
>
> On Dec 27 05:41 AM norom wrote:

Bernanke's Great Lie: The Gold Standard and the Great Depression

During the gold standard, it was illegal to posses gold unless you were a dentist or it was jewelry, and then it could only be a reasonable amount for individual use. You could NOT redeem your reserve notes for gold. The United states used the gold standard up into the 1970's. The fiat system was adopted because of a desire for each dollar to represent the CPI, allowing more productive nations to have more purchasing power than lesser nations.

Gold is intrinsically useless. Arguments to the contrary are equally useless.

The U.S. Debt Quandary

Americans are spoiled. I say that because we never really understood the concept of supply shortage, except for a brief period in the 30's, (yes I know the depression lasted up to the 50's but the supply shock of the hawley-smoot tariff act was fast and brief).

We always favor inflation over recession, and can't understand why countries like Germany and Japan actually PREFER recession to the alternative.

We HAVE GOT to stop panicing over the R-word and shrugging our shoulders over the I-word. There is nothing on earth more destructive to a society than inflation, it has greater economic impact that war. We have to choose recession over inflation.


On Dec 03 07:33 AM paultaut wrote:

> Our's is a Service Economy supplemented by the farming sector. The
> Manufacturing base of the 60's and 70's has long departed.
>
> There is no manufacturing base to save. An assembly line is not a
> manufacturing facility. The parts suppliers get their parts from
> external facilities imported into the US, primarily.
>
> I say: Issue as much Debt as quickly as possible before anyone has
> time to react. Buy foreign debt, for future use as collateral. Rebuild
> the Manufacturing base. Let the dollar collapse to let us repay with
> crap. Get the people to buy American by imposing 100% tariffs on
> all imports except oil and other commodities needed by our Manufacturing
> base.
>
> Do all at the same time as rebuilding the infrastructure with Solar
> and CNG facilities along the way.
>
> Yeah, Yeah, he's off his his Rocker. Just wishful wishing on my part.
> Its early in the morning, maybe i'm still dreaming.

In Search of the Next Reserve Currency

The money supply is created through debt. When debt is issued money is created the second it is used for a purchase and that money is destroyed when the debt is paid off.

Interest payments delay the "destruction" of the principal, and of course you can't pay the principal on a bond until maturity.

The reason credit is used is because it is impossible to predict the velocity of money in any year. It would not be possible to restrict or expand the money supply based on any aggregate year without dire consequences.

It is in fact municipal governments issuing bonds to avoid taxation that will be the next meltdown. Once municipal bonds start to default, we're in trouble. The Federal government can issue bonds with impunity.


On Nov 29 08:29 PM grouphero wrote:

> As of these years, the US$ will still be the currency to hold onto
> in case of crisis. USA owes other countries too much money and nobody
> would like to see it fail before they can can back those money with
> good return. Superficially, it looks like USA is taking advantage
> of this and enjoy easy credit but it won't last long and eventually
> USA will have to pay for it. In what form it is difficult to say
> as most credit nations still haven't figure out a good way out as
> is evidenced by the current crisis situation. The self destruction
> of the US economy by its leaders may be a possible outcome with more
> and more leading industries subsided, the path is already laid. So
> wait and see.