News What are the potential impacts of public confidence on the economy's recovery?

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The discussion centers on the precarious state of the U.S. economy, emphasizing that restoring public confidence is insufficient for recovery. Critics argue that reliance on cheap credit and government interventions has exacerbated the financial crisis, suggesting that a significant restructuring of the economy is necessary. The conversation highlights the ongoing challenges of rising unemployment, projected to exceed 10%, and the slow pace of economic recovery, with GDP still declining. Various recovery scenarios are debated, including V-shaped, W-shaped, and L-shaped recoveries, with pessimism about the immediate future.The dialogue also touches on the implications of national debt, which is growing rapidly and could lead to a future crisis if not addressed. Participants express skepticism about the effectiveness of government stimulus measures, pointing out that only a fraction of allocated funds have been spent, and stress the need for job creation and productive investments to drive genuine recovery. The discussion reflects a broader concern about the sustainability of economic policies and the potential for long-term consequences stemming from current fiscal practices.
  • #211
One thing I think may be holding back the economy to some extent is a lot of business owners are probably uneasy about hiring as they do not know about the following four things:

1) How this healthcare issue will play out

2) How the carbon regulation issue will play out

3) Minimum wage increase

4) Bush tax cuts expiring

I'm not saying these are literally holding back the economy, but probably a concern for quite a few business owners. And then there's also probably concern over the nation's debt and deficit right now.
 
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  • #212
mheslep said:
Wobbly? As in it is standing up? 10% unemployment leaves it still on its butt, my view. I'm saving wobbly for 6-8% :wink:

Edit: unemployment still climbing in California
http://www.google.com/publicdata?ds...employment_rate&idim=state:ST060000&tdim=true
Wobbly, as in on it's knees or stumbling trying to get up.

On it's butt would be something like 20-30% unemployment. We were probably headed that way if AIG, Merrill Lynch, Wachovia, Morgan Stanley, Goldman Sachs, Citigroup, and others had been forced into bankruptcy. As it is, they've had to write down hundreds of billions of $ in troubled assets.
 
  • #213
Astronuc said:
Wobbly, as in on it's knees or stumbling trying to get up.

On it's butt would be something like 20-30% unemployment. We were probably headed that way if AIG, Merrill Lynch, Wachovia, Morgan Stanley, Goldman Sachs, Citigroup, and others had been forced into bankruptcy. ...
I slightly agree, but there's a good argument (by e.g. economist John Taylor) that says the government's involvement helped create panic and uncertainty by, e.g., Paulson going to Congress with OMG the world will end scenarios if you don't give us $1T right now.
 
  • #214
mheslep said:
I slightly agree, but there's a good argument (by e.g. economist John Taylor) that says the government's involvement helped create panic and uncertainty by, e.g., Paulson going to Congress with OMG the world will end scenarios if you don't give us $1T right now.
Andrew Ross Sorkin addressed that in his book, "Too Big to Fail". The inconsistency in dealing with Bear Stearns (rescued before bankruptcy), then Fannie Mae and Freddie Mac, followed by the collapsed of Lehman Bros (bankruptcy) caused a lot of turmoil in the markets.

On the other hand, the weekend Lehman went insolvent (Sep 15, 2008, at 0100 EST), Bank of America stepped into rescue Merrill Lynch (Sep 14, 2008). Merrill would have been next to file bankruptcy followed by Morgan Stanley, AIG, and probably Goldman and Citigroup, and then Wachovia and others - simply because clients and hedge funds were pulling money out of the investment banks, and their liabilities greatly exceeded their cash, and the commercial banks covered by the FDIC would have lost their loans. It was a liquidity crisis that could have blown up into a full scale crash. JP Morgan Chase and Citigroup were pressuring the investment banks for cash and collateral, but much of the collateral was fastly becoming worthless.

AIG has insured huge amounts of debts with their CDSs, but they didn't anticipate that all the CDOs and derivatives would go bad simultaneously.

Barclays might have been able to save Lehman, but they couldn't do it that weekend. They needed to work through British regs and shareholder approval. Had Lehman started a month or so earlier, they might have been saved without government intervention.

There were various attempts at deals going on during the weeks before the Lehman collapse, but the due diligence revealed 10's of billions of $ of bad assets in Lehman, Merrill, MS, GS, Citi, AIG, Wachovia, . . . . that deals couldn't get done.

Read Sorkin's book. It's stunningly surreal.

Paulson, Bernanke and Geitner had their hands tied in the beginning because they weren't set up to deal with catastrophic failure of the US financial industry.

Edit: I forgot to mention that short sellers (e.g., David Einhorn) were slamming Lehman, Merrill and other institutions. The downturn in stock hurt their capitalization and caused other financial institutions to make collateral calls. Einhorn made ton of cash off the short selling, and so did others. There were also allegations the individuals in companies like GS were talking down Lehman and others, which added to the decline in equities.
 
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  • #215
I think the bailout of the U.S. financial industry, whether necessary ultimately or not, was the right thing to do. IMO, it would have been irresponsible in the highest for President Bush to wake up, have Ben Bernanke, the Chairman of the Federal Reserve and a man who has spent his entire professional career studying the causes and effects of the Great Depression, come in and say, "Mr. President, if you do not bail out the financial system, this nation could end up in an economic depression worse than the Great Depression," and for President Bush to essentially flip a coin and decide to "Let them fail."

If they were allowed to fail and the economy didn't crash, well great, but if they did end and then anarchy is ensuing because the entire economic system was collapsing, well OOPS.

The Great Depression itself is what led to the rise of Adolf Hitler, Mussolini, and so forth.
 
  • #216
Nebula815 said:
I think the bailout of the U.S. financial industry, whether necessary ultimately or not, was the right thing to do. IMO, it would have been irresponsible in the highest for President Bush to wake up, have Ben Bernanke, the Chairman of the Federal Reserve and a man who has spent his entire professional career studying the causes and effects of the Great Depression, come in and say, "Mr. President, if you do not bail out the financial system, this nation could end up in an economic depression worse than the Great Depression," and for President Bush to essentially flip a coin and decide to "Let them fail."

If they were allowed to fail and the economy didn't crash, well great, but if they did end and then anarchy is ensuing because the entire economic system was collapsing, well OOPS.
Hindsight as to what was coin flip and what was not. I don't recall Bernanke/Paulson offering guarantees that the TARP would work, that is TARP was also a coin flip. I know other financiers / economists were offering opinions that it would not - only nationalizing the banks would work, etc. As to what Bernanke's studies of the Great Depression, he also well knows the http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm" (not the '29 panic). Hopefully he could keep that in mind when ordering drastic Federal Reserve action.

Bernanke said:
I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

Nebula815 said:
The Great Depression itself is what led to the rise of Adolf Hitler, Mussolini, and so forth.
The Depression is only part of what led to the rise fascism.
 
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  • #217
The other aspect of the bailout that was problematic is the misallocation of resources. Money as a technology is suppossed to give resource access to those who are the best fit to produce what is in demand. When the government interferes with this process and starts picking winners and losers, resources wind up misallocated.
 
  • #218
Galteeth said:
The other aspect of the bailout that was problematic is the misallocation of resources. Money as a technology is suppossed to give resource access to those who are the best fit to produce what is in demand. When the government interferes with this process and starts picking winners and losers, resources wind up misallocated.
Good point. An appropriate time to tally the all the pros and cons. My take:

TARP ~$800B
Pros:
o Stopped a catastrophic credit collapse (?). Likely, but not for certain.

Cons:
o Huge moral hazard established. Become too big to fail, and you won't fail. Therefore take even more risks next opportunity.
o Government interference in the market - picking winners and losers, breeds corruption.
o Bad precedents for control of government spending - money clearly allocated to credit institutions, but was redirected to the auto industry without Congressional authority.
o Breeds misplaced confidence that the government can somehow continuously and forever solve financial crisis with taxpayer money.
o Edit!: $200-$300B of tax money spent, or borrowed.
 
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  • #219
mheslep said:
o Bad precedents for control of government spending - . . . .
Erm - what control? :biggrin: :rolleyes:
 
  • #220
mheslep said:
Hindsight as to what was coin flip and what was not. I don't recall Bernanke/Paulson offering guarantees that the TARP would work, that is TARP was also a coin flip. I know other financiers / economists were offering opinions that it would not - only nationalizing the banks would work, etc. As to what Bernanke's studies of the Great Depression, he also well knows the http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm" (not the '29 panic). Hopefully he could keep that in mind when ordering drastic Federal Reserve action.

True, but the Fed caused the Great Depression because it did NOT bail out the financial system at the time, letting the banking system fail. Also the Smoot-Hawley tariff which ground global trade to a halt and some massive tax increases.

EDIT: Bernanke's main concern was that since the Fed allowed the banking system to fail after the crash of '29, which played a large role in causing the Great Depression, that if the federal government allowed the financial system to outright fail this time, it would create an even worse problem.

TARP ~$800B

Cons:
o Huge moral hazard established. Become too big to fail, and you won't fail. Therefore take even more risks next opportunity.

I'd say the government needs to either subject these institutions to much more severe regulations and oversight than smaller financial institutions, this being the price they pay for having a taxpayer bailout very likely should they ever fail because otherwise it could bring down the system, or, break them up into smaller institutions (what I would do).
 
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  • #221
Nebula815 said:
True, but the Fed caused the Great Depression because it did NOT bail out the financial system at the time, letting the banking system fail. Also the Smoot-Hawley tariff which ground global trade to a halt and some massive tax increases.


QUOTE]

Although that is the popular view, I think it is relevant to consider that the Fed's actions in the twenties lead to a speculative bubble in real estate and agriculture.


Also, my point about misallocation of resources could be put a different way. If the economy was on the brink of collapse, one could infer that was because the underlying structure of resource and labor organization was fundamenally unsound. By simply patching up the existing system without allowing the full corrective processes, it stands to reason that fundamental unsound structure is still in place.
 
  • #222
Nebula815 said:
True, but the Fed caused the Great Depression because it did NOT bail out the financial system at the time, letting the banking system fail.
The point was that the Federal Reserve by both action and inaction, the caused the Depression by cutting the money supply of the US by by one third from 1928 to 2932:
Bernanke 2004 speech said:
[...]monetary forces caused the Great Depression, Friedman and Schwartz revisited the historical record and identified a series of errors--errors of both commission and omission--made by the Federal Reserve in the late 1920s and early 1930s. According to Friedman and Schwartz, each of these policy mistakes led to an undesirable tightening of monetary policy, as reflected in sharp declines in the money supply. Drawing on their historical evidence about the effects of money on the economy, Friedman and Schwartz argued that the declines in the money stock generated by Fed actions--or inactions--could account for the drops in prices and output that subsequently occurred.2
http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm
Four Fed contributing actions:
1. 1928: Fed raised interest rates with economy coming out of recession, started cutting the money supply.
2. 1931: Fed raised interest rates to stem a run on the dollar by speculators.
3. 1932: With deflation seriously under way, making borrowing very expensive, Fed cuts rates for awhile, but not nearly enough given the deflation. Later the Fed reversed even these cuts.
4. 1930-33. Fed refused to lend cash to banks (normal Fed window lending), following a "the weak ones need to fail" philosophy, though the reality was the Fed had largely caused the weakness in 1-3 by reducing the money supply. The banks closed/failed by the thousands.


Also the Smoot-Hawley tariff which ground global trade to a halt and some massive tax increases.
Yep, but that was Hoover and Congress not the Federal Reserve.
 
  • #223
mheslep said:
The point was that the Federal Reserve by both action and inaction, the caused the Depression by cutting the money supply of the US by by one third from 1928 to 2932:

http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm
Four Fed contributing actions:
1. 1928: Fed raised interest rates with economy coming out of recession, started cutting the money supply.
2. 1931: Fed raised interest rates to stem a run on the dollar by speculators.
3. 1932: With deflation seriously under way, making borrowing very expensive, Fed cuts rates for awhile, but not nearly enough given the deflation. Later the Fed reversed even these cuts.
4. 1930-33. Fed refused to lend cash to banks (normal Fed window lending), following a "the weak ones need to fail" philosophy, though the reality was the Fed had largely caused the weakness in 1-3 by reducing the money supply. The banks closed/failed by the thousands.


Yep, but that was Hoover and Congress not the Federal Reserve.

One other thing Friedman also said was there was some major anti-Semitism within the Federal Reserve at the time, and that they purposely allowed what was the largest bank in the nation at the time to fail, I think it was called the Bank of the United States, which just happened to be Jewish-owned.

The problem was many in the general public thought it was THE central bank of the nation, and so the Fed was warned, "DO NOT let this bank fail, it will panic people and start runs on the banking system," but they allowed it to fail and thus the runs began.
 
  • #224
Nebula815 said:
One other thing Friedman also said was there was some major anti-Semitism within the Federal Reserve at the time, and that they purposely allowed what was the largest bank in the nation at the time to fail, I think it was called the Bank of the United States, which just happened to be Jewish-owned.

The problem was many in the general public thought it was THE central bank of the nation, and so the Fed was warned, "DO NOT let this bank fail, it will panic people and start runs on the banking system," but they allowed it to fail and thus the runs began.

? Could you provide a source for this.

I don't think Paul Warburg was an anti-semite...
 
  • #225
Galteeth said:
? Could you provide a source for this.

I don't think Paul Warburg was an anti-semite...

It's either in Milton Friedman's Free to Choose or Capitalism and Freedom.
 
  • #227
Ivan Seeking said:
Got this from my buddy, David Plouffe, today.

http://img19.imageshack.us/img19/34/021610roadtorecovery.jpg

Are you bragging or complaining?

I heard a report yesterday that we now have more government jobs (mostly union) than we have manufacturing jobs - looking for a link.

The chart doesn't indicate that anyone who lost a job has gotten a new job - only that job losses have peaked and slowed.
 
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  • #228
WhoWee said:
Are you bragging or complaining?

I heard a report yesterday that we now have more government jobs (mostly union) than we have manufacturing jobs - looking for a link.

The chart doesn't indicate that anyone who lost a job has gotten a new job - only that job losses have peaked and slowed.

The chart indicates to me that we are headed in the right direction.

I actually didn't believe the graph was real until I ran the numbers myself.

rate_of_change_in_unemployment_bush_vs_obama.jpg

change in unemployment from Jan 2008 to Jan 2010
inverted to match Plouffe's graph
smoothed a bit as the actual numbers jump all over the place
source of data: http://www.bls.gov/"

If anyone would like to make their own graph --> 5.0,4.8,5.1,5.0,5.4,5.5,5.8,6.1,6.2,6.6,6.9,7.4,
7.7,8.2,8.6,8.9,9.4,9.5,9.4,9.7,9.8,10.1,10.0,10.0,9.7
 
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  • #229
OmCheeto said:
The chart indicates to me that we are headed in the right direction.
Then be sure to forward it to some friends who are out of work so they can see how grateful they should be with ~10% unemployment.
 
  • #230
mheslep said:
Then be sure to forward it to some friends who are out of work so they can see how grateful they should be with ~10% unemployment.

!0% is much better than 25%.
 
  • #231
The runaway Republican freightrain had to be stopped before we could begin to recover. By all accounts, the recession is now over and we are into recovery. When Obama took over we were losing almost 800,000 jobs a month. But soon after he took over, the job losses began to drop precipitously.

Great job Obama!

The loss of manufacturing jobs goes back in part to insane free-trade agreements. Also, Obama wants to cut the Republican tax benefits for companies that oursource their labor or move overseas.

For Republican corporatists to complain about the loss of manufacturing jobs is absurd.

That is your free market at work. How do you like it?

Nevermind that other countries don't have OSHA, the EPA, child labor laws, or other liabilities to consider like the skyrocketing cost of health insurance. No, we must let the free market operate no matter how great the imbalance of liabilities. Don't worry about the job losses - the ideological imperative is what matters. Right?
 
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  • #232
WhoWee said:
Are you bragging or complaining?

I heard a report yesterday that we now have more government jobs (mostly union) than we have manufacturing jobs - looking for a link.

The chart doesn't indicate that anyone who lost a job has gotten a new job - only that job losses have peaked and slowed.


That shouldn't be a surprise we have been off shoring manufacturing jobs since the 90's. Our manufacturing base is now toilet paper and processed foods.
 
  • #233
  • #235
Ivan Seeking said:
Since it's the one-year anniversary of the stimulus plan, a look at the GDP would be appropriate as well.

Yeah, we'd better get something for dropping all that money into the economy. I'll be paying for it for a long time...
 
  • #236
CRGreathouse said:
Yeah, we'd better get something for dropping all that money into the economy. I'll be paying for it for a long time...

As you can see, as a fraction of the GDP, which is what counts the most, Obama's spending barely registers as more than a blip on the map. The debt as a fraction of the gdp began to increase quickly, for the first time since WWII, under Reagan [and his tax cuts]; continued under Bush I; was reduced under Clinton [the only time since WWII]; began to rise again under Bush II.

514px-USDebt.png
 
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  • #237
Ivan Seeking said:
The runaway Republican freightrain had to be stopped before we could begin to recover. By all accounts, the recession is now over and we are into recovery. When Obama took over we were losing almost 800,000 jobs a month. But soon after he took over, the job losses began to drop precipitously.

Great job Obama!

The loss of manufacturing jobs goes back in part to insane free-trade agreements. Also, Obama wants to cut the Republican tax benefits for companies that oursource their labor or move overseas.


I believe you are referring to NAFTA? Better check your facts.
 
  • #238
Ivan Seeking said:
As you can see, as a fraction of the GDP, which is what counts the most, Obama's spending barely registers as more than a blip on the map.

I certainly dispute that.

Ivan Seeking said:
The debt as a fraction of the gdp began to increase quickly, for the first time since WWII, under Reagan [and his tax cuts]; continued under Bush I; was reduced under Clinton [the only time since WWII]; began to rise again under Bush II.

This is true (well, except that 43 wasn't a II), although more than a bit unfair to give Clinton credit for the bubble and Bush the blame for same.
 
  • #239
Skyhunter said:
!0% is much better than 25%.

Now, now. Let's not exaggerate. If Plouffe's graph had not reversed itself, we would only be sitting at about 19% unemployment today.

pf_eek_unemployment_Jan2008_thru_Feb2009.jpg




We wouldn't have hit 25% until this coming July.
 
  • #240
CRGreathouse said:
This is true (well, except that 43 wasn't a II), although more than a bit unfair to give Clinton credit for the bubble and Bush the blame for same.
Look at the Congress during those periods, the Congress, the Congress...
 

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