stefalb

Krugman and the Pied Pipers of Debt

There is a difference between debt and money creation. More money creation is necessary to support a less disruptive deleveraging. Yes, we created a gigantic mess, there is no easy solution and it will be painful one way or another. The money creating process is the only only sensible solution and we will have to see how it will progress. There is still a high probability of failure since our economic imbalances are so huge. The alternative is more rapid debt defaults and an accelerating deflationary collapse. Those who favor debt defaults should always have in mind that ultimately all losses will collect in the banking system. The banking system is already BANKRUPT. This shifts the losses to the FDIC, which has no reserves left! So we have another shift of the losses to the government/tax payers. Both have no money nor credit left. This leaves only the FED to create the money and here we go again. The more debts default the more money the FED has to create, that's why it makes most sense to back stop defaults as early as possible because it is the cheapest. Now debt levels have to come down somehow because we can not service them any more and only the FED can create the new money. Let's see what future consequences this will have but we are screwed whatever path we choose!!!

Benefits of Immigration and Migration

It's frightening to see this much fear and misunderstanding. The US population has grown by 23% between 1980 and now. Mostly by immigration. This population grown was one of the most important factors behind the economic success in the US. Without this strong population and employment growth, white geezers, with their immigrant heritage, would have had funding problems of their entitlement programs a long time ago. The housing market would have also tanked a while ago. Immigration might not be very beneficial in the first generation but with the 2nd generation it starts to be very beneficial. Just have a look at Japan and you can see the difference. Japan has very restrictive immigration and a rapidly aging population. It also has had economic problems for the last 20 years. The economic peak coincided with a peak in the productive population. Declining populations translate into declining economies. Restrictive immigration in the US over the last 8 years also contributed to the housing slump. Arizona with a very restrictive employment policy being among the hardest hit states. Sometimes I wish ignorant people would get what they are asking for but the problem is that everybody else would suffer, too!!!


On Apr 09 03:50 PM Liquid Fusion wrote:

> If America is attacked, where do illegal aliens place their alliegence?
>
>
> Will Barrack Obama please show his birth certificate? A certification
> of live birth is not the same thing. The latter ca be sent in up
> to a year after birth. The former is made the moment the newbord
> is in the presence of a doctor who delieerd the child.
>
> What if President Obama is an illegal alien?
>
> President Obama had several fathers. His first father (DNA test please)
> was from Kenya: British colony at the time Obama was born. This makes
> Obama a dual citizen - not eligible for the Presidency. When Obama
> returned to the US from Indonesia, where his second father made him
> an Indonesian citizen, did he re-affirm his US citizenship? Wouldn't
> it be the pot calling the kettle black: an illegal wanting to let
> other illegals in for free as well!!!
>
> Diluting down the culture and ability for founding citizens to live
> and prosper eqiuals an overthrow of this nation. Americans have had
> manufacturing driven down to very poor levels: almost vanish. Open
> borders brazenly flaunt laws. Jobs are easily exported overseas:
> this week IBM hired 70,000 persons in India. Last week IBM fired
> 5000 workers in the USA. Here jobs are reduced in the USA causing
> the friction between illegals and US Citizens to increase when work
> is almost non existant.
>
> The real persons of interest here are Kissenger, Brezinski, Soros
> (Obama's mentor / financial backer) - people who all want America
> as we know it changed: the New World Order. Illegal immigration is
> but one factor of their agenda who's object is destroying and breaking
> down the United States of America.

GM Needs to Be Leaner and Meaner if It Wants to Survive

The main problem, why the lean an mean strategy has not happened so far, are the unions. More automatization would have meant more union job cuts in the automotive industry but it would have meant more jobs in automatization and robotics. It also would have made the auto industry competitive and able to survive with fewer, but still a lot of union workers. In Europe the process worked because there is a metals worker union, covering all metals workers, not only automotive workers. A loss in car jobs means gains in other high tech metals union jobs. Greed did not only destroy Wall Street, union greed did also destroy the American car industry!

Why AIG Wasn't Allowed to Fail

Because the overall risk position at AIG is about $360 billion. If there is no general bail out of the banking system and very big corporations then more of the CDS (insurance) money has to be paid out. As long as the systemic slide is not stopped they will ask for more money. That's why the view of most commentators is very short sighted. A systemic problem is most easily and cheaply addressed BEFORE the domino start to fall. Yes, AIG should have never made those bets, so shouldn't have the banking industry and yes, they did it because there was no regulation and in 2005 federal regulators allowed the leverage in the banking industry to go to a factor of 30-40 from 12. Now we have to deal with the mess as gracefully as possible and letting them fail is not an option because it would affect all of you who have some form of assets. Those who have nothing can loose nothing so they won't be affected but they also couldn't get work. So to prevent this problems in the future much more financial regulation and a clearing house for ALL derivatives is desperately needed and that's what we should all fight for. I know that many have an ideological problem with more regulation but the evidence allows for no other conclusion!


On Mar 17 04:23 PM Websage wrote:

> Thanks for explaining this in a clear and concise way Felix. So,
> are CDSs no longer a systemic risk, thanks to US tax payers? Did
> we save the world?
>
> Is AIG out of this business now? I would think so, but not sure.
> Since the government owns AIG they certainly should be out of the
> CDS business? But, why does AIG still need help?

Why We Shouldn't Be Frightened by a GM Bankruptcy

Nobody ever talks about credit default swaps in conjunction of a GM bankruptcy. GM has about 80 Bln in debt but nobody really knows how many CDS are written against this debt. Since GM was most favorite short of a lot of hedge funds I bet that there are hundreds of billions of CDS written against GM debt. The systemic cost of a GM default would be immense. 30 Bln more in Government aid are noting compared to the potential CDS damage. That's the real reason why GM will not go bankrupt!!!

Let's Just Say It: Print More Money

Bigger houses and war spending were bad ideas when we run out of oil (or energy). What we have to address with foresight is potential bottle necks to keep the system expending. The crisis is addressing the problems what we have to make sure off is that the correction does not go too far and that's why we need to create much more money (and much more energy). A combination of (less) Keynes and (more) Friedman is the solution and there Chris B. has the best remark. We all have to fight for more monetary solutions!!!


On Jan 23 02:54 PM Dirk McCoy wrote:

> Thank you for the comments. A few stood out:
>
> "how does this create wealth? wealth is what was lost."
> "Wealth was not destroyed. Houses did not burn to the ground. Factories
> did not turn to rubble. Airplanes did not vanish into thin air."

>
> "money in itself is not wealth. its debt. A fractional reserve system
> is a debt based system....so going deeper and deeper into debt gets
> what?"
> "The entire world runs on dollars and that's why we get away with
> printing it."
>
> Anything can serve as an instrument of trade, but dollars are more
> portable and less fungible than chickens, or, it seems, rubles.
> The dollar devalued by over a third as the global economy grew, and
> then economic activity plummeted as the dollar strengthened. While
> houses and factories are still standing (for the most part), utilization
> has dropped, and these assets are not producing anything (shelter,
> goods, services). Dollar-denominated debt money is backed by a promise
> of repayment of production- and don’t lose site that more production
> is a good thing.
>
> "you mention "demand" is disappearing when it was artificial in the
> first place."
> "We have the highest personal debt to GDP ratio in our history, passing
> the levels reached in 1929"
> "our GDP/Debt ratio is so ridicoulus distorded."
> "as inviduals can be classified as 'subprime' and default on their
> debt, so can nations."
>
> The Roaring 20s were a period of incredible growth and advances in
> living standards. The same nearsighted crowd worried about inflation
> created the Great Depression then, and crashed GDP on a global scale.
> Hopefully we’re smarter now.
>
> "No where does it say Congress can "print money" or "outsource" anything.
> It says Congress has the power to: "coin money, regulate the value
> thereof, and of foreign coin"
> Coin money, print money, affect exchange rates- this is what the
> Fed and Treasury do, together.
> "The solution isn't to go get more giant pumps to inflate the bastard
> thing even more beyond its capacity, twill just make the eventual
> pop that much more damaging."
> "THEN we need to ensure that every dollar is spent in a way that
> improves America's competitiveness"
>
> This is the crux of the issue- is our economy (creation and distribution
> of goods and services) better when it’s a giant, interconnected,
> complex thing, or are we better living like the Amish? No offense
> to the Amish, but we won’t call them to address the killer asteroid,
> killer virus, killer jihad, or lesser troubles such as the mediocrity
> of my HDTV signal. While it’s reasonable to worry about a “Tower
> of Babel” economy, it’s much more reasonable to focus on strengthening
> the foundations of that tower than shaking it and then watching it
> tumble.
>
> "It appears that "Zimbabwe" Dirk won't be happy until the FED sends
> every household a check for $100 Trillion so we can all pay off your
> debts"
> "Dirk, have you considered the impact on society as a whole when
> we reach the point where the US dollar becomes a "hot potato" and
> nobody wants to keep it in their pocket overnight for fear it will
> lose too much value?"
> "The US dollar will sharply "devalue" (really only against countries
> like China and the Middle Eastern oil exporting countries), but this
> is in fact a great thing for almost everyone."
>
> If you read my article you know I didn’t ask for $100 Trillion, or
> to pay off all debt. But I do agree that printing money to use to
> pay off Treasuries, and seeing continued weakening of the US dollar,
> would be a good thing. When everyone wants to buy what you’re selling,
> perhaps you’ve priced it too low, so creating a “warm potato” just
> means that the Chinese will want to cash in on dollar-denominated
> goods and services and assets. Why can’t more Chinese own vacation
> property in California and Colorado?
>
> "And I used to think Johnny Depp was a jerk for moving to France.
> I think I might ask him if he has extra room for me soon if we keep
> going in the direction Dirk is suggesting."
> "Are things really that bad that will kill oil and growth for the
> next 4-6 quarters like most analysts write about??"
>
> Things are bad enough that we just empowered a group of people who
> aren’t afraid to confiscate more of your savings and give it to people
> who aren’t producing anything. Things are bad enough that people
> are resorting to fraud and, potentially, violence. Taxes and social
> unrest are much more likely to induce someone to move to another
> country than if their dollar ETF is doing poorly.
>
> "Inflation is the best solution for an orderly downsizing of the
> United States of America."
> "Why not go all the way and get a constitutional amendment enshrining
> the right to bubbles?"
> “It gives me hope that economic education is occuring. I attribute
> this entirely to the proliferation of sound economic analyst on the
> internet”
>
> It would be nice if more folks actually understood the differences
> between fiscal vs. monetarist vs. noninterventionist policies, and
> could keep the names straight. I’m not a fan of the Austrian school
> because they don’t understand how monetary intervention is more to
> blame for economic crisis than some seven year economic bogeyman.
> I’m not a fan of Keynes because he’s only worried about moving around
> pieces of the same pie and would allow the government to create the
> winners and losers. I’m a big fan of monetarist thinking, and had
> the Fed not increased interest rates 18 times in their Quixotic quest
> to force long term market interest rates up (why? because we wanted
> bigger houses and could get them built?) attacking the innovators
> and risk takers upon which our modern economy depends for investment
> and production, I wouldn’t be pushing for extreme monetary expansion
> now. But they did- and I am.

Let's Just Say It: Print More Money

BS!!! Wealth is created when you produce more than what you consume. When you save more than what you spent. When you save you store labour so that you don't have to work when you dip into your savings. Paper money is no store of value. Money has lost it's store of value function when we went of the gold standard. Money now is a lubricant and energy for a global, complex, dynamic, economic system. Money is the measurement of wealth, not wealth in itself. Wealth is what you can hold in your hands or what you can touch. Something that has intrinsic value. Paper money is just a piece of paper with no intrinsic value. So that's why when prices fall in a deflation the answer is more paper money. Things get really complicated since the dollar is a global reserve currency and actually 6.5 billion people are working with it. So for the global, complex, dynamic, economic system to expend there needs to be more paper money in all forms, not only dollars!!!


On Jan 23 08:09 AM Andy1234 wrote:

> This article is garbage and is one of the problems with society and
> our government.
>
> money in itself is not wealth. its debt. A fractional reserve system
> is a debt based system....so going deeper and deeper into debt gets
> what?
>
> If there isn't an expansion in production.....printin... money just
> steals value from the existing dollars in the system......so we basically
> screw every retiree in the process?
>
> Get your head out of your ass and create wealth. A printing press....or
> a computer where you keep hitting 0000000's does not create wealth.
> The problem is....we already did the whole creating money out of
> thin air thing....and this is where it got us. Government intervention
> into the free markets got us here.
>
> The free market is saying......slow the F down with this money creation
> thing.....and let's get back to reality. Wages are growing at much
> slower pace than everything around it.....and in reality....this
> is not sustainable.
>
> Wealth is created when one increases thier purchasing power.....when
> one can buy more value than before.....you are just saying that the
> dollar value may remain flat or go up.....but the value is left out.....if
> the dollar prices go up....and your purchasing power goes down...whats
> the point?

Let's Just Say It: Print More Money

That's the problem with a reserve currency but also the benefit. We can always print it and owe nothing. The global economy runs on the dollar. It expands with it and it contracts with it. If we create more dollars the global economy will expand. We only have to take care of the bottle necks to avoid inflation and the biggest bottle neck of all is ENERGY!!!


On Jan 23 11:04 AM DougM wrote:

> Dirk, on the other side of those loans are millions of savers who
> did not recklessly overleverage themselves. Your plan to wipe away
> the debts of the imprudent through inflation will come at their expense.
> What's your plan then, take them all on as wards of the state, printing
> yet more money for that? And what do you think will happen in the
> long run if you prop up the over-consumers at the expense of the
> savers? Google Warren Buffett's 2003 article in Fortune where he
> talks about Squanderville and Thriftville.

Let's Just Say It: Print More Money

There can only be higher prices when there are supply problems. Right now we have demand problems. When we wait too long and let more supply go bankrupt then we will have an even bigger inflation problem when things turn around. It is just not this easy. We need to have the foresight to address potential bottle necks before they become a problem. That's how we avoid inflation. Energy will get more expensive because we will run out of cheap oil. The more we invest in energy the less supply restrains we will have and therefore the less inflation we will have. At the end of every deflation will always be inflation because so much supply will be destroyed. But in the process, the destruction of wealth is making everybody poorer and living standards decline. That's why we have to avoid a deflationary spiral at all cost!!!


On Jan 23 09:59 AM Carl Spackler wrote:

> I agree with a lot said in here, but you have another scenario that
> could be reached by printing money - stagflation. That means economic
> stagnation with inflation. In fact, even though you hyper-inflate
> the money supply, in real dollar terms, the economy goes nowhere.
> Just imagine growth rate of 8% with 10% inflation. Funny that no
> one considers this as a possible response to all the helicopter drops
> the Fed is doing. When I studied economics, this was to me by far
> the worst scenario (even over deflation). With deflation, you can
> always inflate the economy by printing cash, but with stagflation
> you have to deflate the money supply and at the same time try to
> pick up the economy - a herculian task.

Let's Just Say It: Print More Money

No, you are wrong! Money is a lubricant and should not be seen as a store of value. The Fed can create money that is NOT debt by quantitative easing. Yes you are right in that debt is the problem but the Fed can solve the problem by retiring debt and that's called QUANTITATIVE EASING!!!


On Jan 23 08:09 AM Andy1234 wrote:

> This article is garbage and is one of the problems with society and
> our government.
>
> money in itself is not wealth. its debt. A fractional reserve system
> is a debt based system....so going deeper and deeper into debt gets
> what?
>
> If there isn't an expansion in production.....printin... money just
> steals value from the existing dollars in the system......so we basically
> screw every retiree in the process?
>
> Get your head out of your ass and create wealth. A printing press....or
> a computer where you keep hitting 0000000's does not create wealth.
> The problem is....we already did the whole creating money out of
> thin air thing....and this is where it got us. Government intervention
> into the free markets got us here.
>
> The free market is saying......slow the F down with this money creation
> thing.....and let's get back to reality. Wages are growing at much
> slower pace than everything around it.....and in reality....this
> is not sustainable.
>
> Wealth is created when one increases thier purchasing power.....when
> one can buy more value than before.....you are just saying that the
> dollar value may remain flat or go up.....but the value is left out.....if
> the dollar prices go up....and your purchasing power goes down...whats
> the point?

Let's Just Say It: Print More Money

Yes, lets create wealth! We know we will run out of cheap oil and we know we need energy. The more energy we produce in the US the less money we spend on energy imports. The more we revamp our economy to run on energy we can produce in the United States of America, the better off we are. These are productive investments and we can print all the money necessary to do so. In the process we will create millions of new jobs. The way wealth is created, is to produce more in our own country and to spend less on imports!!!


On Jan 23 05:06 AM The hand wrote:

> dirk, how does this create wealth? wealth is what was lost. what
> will happen using your approach is assets will continue to decline,
> wages will remain flat, and all other prices will go up.
>
> as you have not lived through inflationary times, let me assure you
> that your scenario will make you less well off tomorrow.
>

Let's Just Say It: Print More Money

Guys, yes we made mistakes, like a housing bubble and war waste, and those mistakes need to get corrected but then there is the monetary problem. The US volunteered for it and got it, a global reserve currency. The entire world runs on dollars and that's why we get away with printing it. If the new money is spend on productive investments and a vision of the future that benefits humanity then the dollar will have no problems. The world will accept it. It is so important to be optimistic because a deflationary solution is in nobodies interest. If we create an energy revolution and lead the world into a new, cleaner age then we can spend all the money we want, the system will expend and will absorb all the new money. The US was build on optimism and that's the spirit that will save us again!!!

Let's Just Say It: Print More Money

Very good article! Deflation and Inflation is always a monetary phenomena and always has a monetary solution. The solution is to create trillions of money. The problems to growth, the bottle necks, are mostly energy and commodities. Higher prices will create more supply. Lets invest trillions in clean energy and growth will come back soon. If we take care of bottle necks with foresightedness then we will have no inflation problem, and then again inflation is also a monetary problem that can be dealt with when it eventually arrives. Deflation is the problem now and we have to deal with it boldly and aggressively. Mr. Bernanke please provide the lubricant the economy desperately needs!!!

Obama, Pragmatism and the Keynesian Fallacy

Dear David! You are right that capitalism is the best system so far conceived and most in harmony with human nature. But you and the IOUSA crowd should always remember the most fundamental flaw with capitalism and all economic systems. IN ECONOMICS WEALTH CONCENTRATES OVER TIME IN THE HANDS OF THE MOST CAPABLE AND/OR THE MOST RUTHLESS. In earlier times revolutions solved this problem and the end result was everybody being much less well off or dead. Our current problems come from the fact that wealth is very much concentrated and has been used for speculation on a never before seen scale. 80% of the population has been squeezed out like a lemon to feed a more and more greedy monetary monster. We have reached the point where the cow can no longer give mike and needs intensive care. The solution is a dilution of the concentrated wealth and to start money flowing again from the bottom up. This helps everybody and stabilizes the system. The good thing in a paper monetary system is that we don't need revolutions anymore to redistribute wealth. Governments can spend money where private enterprises pull temporarily back and central banks can buy debt and create money to alleviate systemic pressure. Keynes and Friedman make the system more stable and balanced and ultimately save capitalism. I am a pragmatist and have some money too. I love capitalism but capitalism can only work when wealth is somewhat balanced. This process of balancing is what pragmatist have to do in an intelligent way!!!

Exclusive Interview with Jim Rogers: Inflation Is Coming

The dollar has problems but so have all other currencies. Right now the world can not get enough dollars. The dollar will not drop dead over night. It is still the world's reserve currency. It will still take many more years until this changes! Always remember that any currency is also a political voting mechanism and the world voted against Bush and therefore the dollar over the last years. Once there are more productive investments in the US and less waste on wars, the dollar will recover!


On Jan 17 05:47 AM mbr wrote:

> Faced with the state of the US of North America what would you do
> if you had to decide about using your USD reserves? Keep buying US
> treasuries to preserve exports to the US? But US demand is going
> down and the fed prints whatever money is needed, so what is the
> point? Instead it would be wiser to spend the reserves buying hard
> assets, patents and products that can be used to develop china's
> internal economy. Guess who the beneficiaries might be...