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

[Mech_Engineer]

It's a bad idea to finance things that decrease in value. Cars, furniture, appliances...no way!

Thank you! If the entire US (including the government) thought this way, we'd be in a lot better place than we are now...

 

[mheslep]

It's a bad idea to finance things that decrease in value. Cars, furniture, appliances...no way!

I agree. The trick is in defining 'things' that the loan enables. If the loan enables say, a car PLUS a job that more than pays for the car and loan, then the overall net 'thing' has does not decrease in value over time.

 

[turbo]

It's a bad idea to finance things that decrease in value. Cars, furniture, appliances...no way!

So true. My wife and I have not had a bank-loan in decades, and the last one to be retired was on our previous house. Buy essential stuff with cash, take care of it, and repair or replace as needed. In the meantime, all the interest that you would have paid to lenders goes to your savings.

Today's bad news: My wife's ~10-year-old Subaru Legacy seems to have developed a leaky head-gasket. I checked around and found independent mechanics quoting around $1800 for head-gasket-replacement.

Today's good news: Car prices are stable, and dealers are eager to sell in this crappy economy, so I ought to be able to buy her a replacement at a decent price, plus get some extra bucks off for the trade-in without trying to saddle someone else with an expensive repair. The dealership can take their time repairing her car after they buy it, giving them an attractive used vehicle to sell at a fair price.

 

[mheslep]

Good seven point argument from a conservative Chicago school economist in favor of QE2, written to conservatives who oppose it.
http://www.themoneyillusion.com/?p=7875

1. The Fed isn’t really trying to create inflation.

The Fed doesn’t directly control inflation; they influence total nominal spending, which is roughly what Keynesians call aggregate demand. Whether higher nominal spending results in higher inflation depends on a number of factors, such as whether the economy has a lot of underutilized resources. But it’s certainly true that for any given increase in NGDP, the Fed would prefer more RGDP growth and less inflation. Even after QE2, the Fed still expects less than 2% inflation for years to come. If the Fed had any marketing sense, they’d be telling the public they are trying to boost recovery by increasing national income, not increasing the cost of living. It would also have the virtue of being true.

[...]

 

[Mech_Engineer]

I agree. The trick is in defining 'things' that the loan enables. If the loan enables say, a car PLUS a job that more than pays for the car and loan, then the overall net 'thing' has does not decrease in value over time.

The problem is, they could just as easily buy a cheap used car for cash that got them to and from the job (at least in the short-term). And of course there's public transport, and carpooling, etc. etc. It just wouldn't be as fashionable...

 

[turbo]

The problem is, they could just as easily buy a cheap used car for cash that got them to and from the job (at least in the short-term). And of course there's public transport, and carpooling, etc. etc. It just wouldn't be as fashionable...

If you live in central Maine, buying a car that can't perform in snow-storms before the roads are plowed isn't an option if you need to get to work and keep your job. My wife and I live in a town with only about 1000 people and she has to get work about 20 minutes away(IF the roads are clear and the weather is cooperative). Car-pooling is not an option, and there is no public transportation. We bought her present Legacy used (3 years old) and it has served us well, but that was a lucky private sale - no such luck on a dealer's lot.

I'm going to buy her another Legacy (or Forester, perhaps), new and for cash, and we'll maintain it and try to keep it alive for as long as possible. Minor investment to keep her in reliable transportation for another 10 years or so. And we won't pay a dime in interest.

 

[Mech_Engineer]

If you live in central Maine, buying a car that can't perform in snow-storms before the roads are plowed isn't an option if you need to get to work and keep your job. My wife and I live in a town with only about 1000 people and she has to get work about 20 minutes away(IF the roads are clear and the weather is cooperative). Car-pooling is not an option, and there is no public transportation. We bought her present Legacy used (3 years old) and it has served us well, but that was a lucky private sale - no such luck on a dealer's lot.

I'm going to buy her another Legacy (or Forester, perhaps), new and for cash, and we'll maintain it and try to keep it alive for as long as possible. Minor investment to keep her in reliable transportation for another 10 years or so. And we won't pay a dime in interest.

You can't tell me that you can't find a used AWD or 4WD vehicle for cheap, because I know better!

 

[turbo]

You can't tell me that you can't find a used AWD or 4WD vehicle for cheap, because I know better!

Come here and point me to one. In this economic climate, people are nursing their vehicles along. You can buy plenty of vehicles with problems (disclosed and undisclosed), and plenty of 4WDs that get really crappy gas mileage. It took me weeks of dedicated searching to find my wife's current Legacy - luckily a college instructor was REALLY nervous about the Legacy's warranty running out, and we got a real good deal on it. I figured if that guy was so anal about the warranty, he probably babied the car and kept up with oil, oil filter, air filter, etc. It worked out fine.

I'll buy new this time. Peace-of-mind is worth it. All winter long, my wife leaves for work in the dark and returns home in the dark, or dusk at best. I want her to have a reliable vehicle that meets her needs.

 

[Mech_Engineer]

Come here and point me to one. In this economic climate, people are nursing their vehicles along. You can buy plenty of vehicles with problems (disclosed and undisclosed), and plenty of 4WDs that get really crappy gas mileage.

The point is, in my opinion if a person has saved up $5000 and wants a car to get to work, they should be buying a $5000 car not using it for a down payment on a $30k car. I'm not saying you should never spend more than $5000 on a car...

It took me weeks of dedicated searching to find my wife's current Legacy - luckily a college instructor was REALLY nervous about the Legacy's warranty running out, and we got a real good deal on it. I figured if that guy was so anal about the warranty, he probably babied the car and kept up with oil, oil filter, air filter, etc. It worked out fine.

Weeks of searching is nothing! I spend months researching and looking before I buy, and I'm not afarid to drive 2000 miles to get what I want!

I'll buy new this time. Peace-of-mind is worth it. All winter long, my wife leaves for work in the dark and returns home in the dark, or dusk at best. I want her to have a reliable vehicle that meets her needs.

In my opinion, you can buy the same peace of mind with a 2-3 year old car, and at the same time you can save a lot of money.

 

[turbo]

In my opinion, you can buy the same peace of mind with a 2-3 year old car, and at the same time you can save a lot of money.

I did exactly that when we bought her Legacy. I have not bought a new vehicle in about 25 years, until I got my current Forester. I don't like to take the "new-car" depreciation, but when you buy with an eye toward long-term return and reliability, it can make sense - especially when new car prices are depressed and relatively short-used cars (leases and such) are too expensive and difficult to evaluate. I'm not paying mechanics to do forensics on used car after used car, so until recent years, I relied on my gut, and what I could find out about previous owners.

 

[Astronuc]

Something to look forward to or ponder - what if -

California Will Default On Its Debt, Says Chris Whalen
http://finance.yahoo.com/tech-ticker/article/535616/California-Will-Default-On-Its-Debt%2C-Says-Chris-Whalen

He makes some interesting points.

 

[turbo]

Something to look forward to or ponder - what if -

California Will Default On Its Debt, Says Chris Whalen
http://finance.yahoo.com/tech-ticker/article/535616/California-Will-Default-On-Its-Debt%2C-Says-Chris-Whalen

He makes some interesting points.

And some salient points. The rest of the US can't be expected to bail out CA, or any other state that benefited so much from the boom-times and excesses of the past few decades. We didn't share in the largess and shouldn't have to pick up the tab for the crash.

 

[WhoWee]

And some salient points. The rest of the US can't be expected to bail out CA, or any other state that benefited so much from the boom-times and excesses of the past few decades. We didn't share in the largess and shouldn't have to pick up the tab for the crash.

Let's not forget, they need financial support to pay for their social spending and union contracts. They need to make drastic spending cuts - otherwise a bailout will only encourage them to spend more.

BTW, "Healthcare Reform" doesn't appear to be helping their situation
http://www.dhcs.ca.gov/Documents/Health Care Reform Fiscal Summary Chart 8-5-2010.pdf

The "Notes":

"Note: Cost and savings estimates have been adjusted for inflation and/or population growth (6% annual for Medi-Cal Costs, 1.45% annual for Eligibility Determinations, and 6% annual for State-Only Programs). Inpatient rate increases have not been assumed but would cost an additional $900 million to $1.25 billion in General Funds, not adjusted for inflation. General Fund impact may also be greater than estimated depending on demand of newly enrolled individuals for county-administered programs including mental health, alcohol and drug treatment, and in-home supportive services and due to the loss of Disproportionate Share Hospital (DSH) funding for county hospitals. Reduction to the state’s DHS funding has not been included. Costs to California for the expansion population will increase further in the year 2020 when federal financial participation for the expansion population decreases to 90 percent.
Finally, we note that uncertainties in enrollment/population/caseload and other economic factors over the ten-year estimate window may impact long-term costs and savings. Changes in those factors relative to current assumptions may produce fluctuations in costs or savings above or below the estimates presented here."

 

[brainstorm]

Most all adults in modern free economies acquire some debt. To say all such people are indentured servants is silly, so I'll move on ...

I'm just curious. Do you really consider this kind of normative reasoning sufficient? If someone says they slap their wife around on a daily basis to keep her submissive and to call it spouse-abuse is silly, would you accept that as sufficient reason to withdraw your claim that it is abusive?

 

[brainstorm]

And some salient points. The rest of the US can't be expected to bail out CA, or any other state that benefited so much from the boom-times and excesses of the past few decades. We didn't share in the largess and shouldn't have to pick up the tab for the crash.

The problem is that prosperity trickles down to some degree in all directions. So you can't really say that no one benefited from a CA boom, the same as homeless people can't say that they don't benefit from other people's labor and prosperity. The problem with these bailouts, imo, is that they try to prevent the bubbles from collapsing completely instead of just providing people with basic means to get by and restart their lives, such as food-stamps, access to abandoned property, etc.

 

[czelaya]

And some salient points. The rest of the US can't be expected to bail out CA, or any other state that benefited so much from the boom-times and excesses of the past few decades. We didn't share in the largess and shouldn't have to pick up the tab for the crash.

Agreed.

California has continued to extended benefits to a larger populace, and has failed to be fiscally responsible. However, the government will intervene. Then the rest of the US will be burdened with helping California. There will be no lesson learned.

States have to be responsible for their actions. California going into insolvency while not economically viable… must happen. There has to be corrections made. If we continue with advocating fiscal irresponsibility, the US economy as a whole will be next. And this is what exactly is happening.

I just can’t understand while people complain about the trickling effects of insolvency with more government intervention. All it does is extend what eventually will fail.

I live in Louisiana, overall our economy is doing well. The state has taken steps every year to decrease spending. As a graduate student, I've personally felt the cuts in education. However, we make do. More cuts are coming but compared to the rest of the United States our losses haven’t been that great. The state has saved though out the years and has been dipping into its general saving but at the same time returning revenue back.

 

[readaynrand]

A lot of this mess could be largely avoided if the government hadn't stepped in years ago to continue this crazy scherade of propping up the US economy against the rest of the world and continuing to rely on the cheap easy credit that has moved the US economy along for the past 10-15 years.

Absolutely correct. In a system with sound money (like gold and silver), a crisis like this would never have occured. Government involvement is the source of the problems.

 

[Astronuc]

Absolutely correct. In a system with sound money (like gold and silver), a crisis like this would never have occured. Government involvement is the source of the problems.

And business played a role.

 

[turbo]

And business played a role.

A big role. More government involvement (regulation of derivative investment products for instance, and requiring heavy capitalization levels for companies engaging in very risky investments, for instance) might have saved us from some of the devastation. Instead, financial giants packaged over-rated "investment" products of dubious worth and made billions until the bubble collapsed, and the taxpayers found themselves on the hook for billions more. "Too big to fail" is a license to steal.

 

[Al68]

A big role. More government involvement (regulation of derivative investment products for instance, and requiring heavy capitalization levels for companies engaging in very risky investments, for instance) might have saved us from some of the devastation.

Yeah, more government interference as a solution for problems caused by government interference. Nice vicious cycle we're in there. How convenient is that for power hungry politicians?

 

[WhoWee]

A big role. More government involvement (regulation of derivative investment products for instance, and requiring heavy capitalization levels for companies engaging in very risky investments, for instance) might have saved us from some of the devastation. Instead, financial giants packaged over-rated "investment" products of dubious worth and made billions until the bubble collapsed, and the taxpayers found themselves on the hook for billions more. "Too big to fail" is a license to steal.

Perhaps LESS Government mandates that lead to some of these problems should be considered?

 

[turbo]

Perhaps LESS Government mandates that lead to some of these problems should be considered?

Where is the government mandate that made financial firms bundle risky loans, classify them as grade-A investments, and sell them to unsuspecting investors? We not only need to re-regulate the financial markets, we need to enforce the regulations already on the books. And actually punish the people who break the law. Fraud is and has been against the law for a long time - why aren't the crooks being prosecuted?

 

[mheslep]

A big role. More government involvement (regulation of derivative investment products for instance, and requiring heavy capitalization levels for companies engaging in very risky investments, for instance) might have saved us from some of the devastation. [...]

Good grief. We have a $3.5 trillion government employing some two million people, not including the military, and that's just the federal government. Yet the answer is "more government involvement"?

 

[mheslep]

Something to look forward to or ponder - what if -

California Will Default On Its Debt, Says Chris Whalen
http://finance.yahoo.com/tech-ticker/article/535616/California-Will-Default-On-Its-Debt%2C-Says-Chris-Whalen

He makes some interesting points.

I'm curious about the predicted results of a California default. I noted the other the day that roughly half of the states defaulted on their debts in the 19th century, from building canals and such, yet they and the union are still here.

 

[Al68]

Where is the government mandate that made financial firms bundle risky loans, classify them as grade-A investments, and sell them to unsuspecting investors?

You already know the answer to this. Fannie and Freddie sought to buy risky mortgages, ostensibly to make it easier for people to get credit.

Edit: As if the above isn't common knowledge, here's a link to Fannie bragging about their "chartered mission to increase the amount of funds available in order to make homeownership and rental housing more available and affordable": http://www.fanniemae.com/kb/index?page=home&c=aboutus

Here's a link to Fannie easing their underwriting standards: http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

They were classified as grade-A because their value was ensured by the demand of government sponsored enterprises.

So the mistake that private companies made was to go along with that government scheme. And your conclusion is to blame private companies for their participation instead of the politicians who devised the scheme?

And you are well aware that mortgages meeting private lending standards were not a part of the problem.

 

[WhoWee]

Where is the government mandate that made financial firms bundle risky loans, classify them as grade-A investments, and sell them to unsuspecting investors? We not only need to re-regulate the financial markets, we need to enforce the regulations already on the books. And actually punish the people who break the law. Fraud is and has been against the law for a long time - why aren't the crooks being prosecuted?

Are you serious?
http://www.ffiec.gov/CRA/
http://www.federalreserve.gov/dcca/cra/

 

[Astronuc]

Are you serious?
http://www.ffiec.gov/CRA/
http://www.federalreserve.gov/dcca/cra/

Yes he is serious. From the second link:

Neither the CRA nor its implementing regulation gives specific criteria for rating the performance of depository institutions. Rather, the law indicates that the evaluation process should accommodate an institution's individual circumstances. Nor does the law require institutions to make high-risk loans that jeopardize their safety. To the contrary, the law makes it clear that an institution's CRA activities should be undertaken in a safe and sound manner.

The CRA wasn't responsible for the subprime crisis. If one disagrees - please provide the evidence that supports such a view. For example, please provide the volume of subprime loans by type and year for the GSEs, and then provide the default rates. Then provide the same data for the non-GSEs, e.g, Bear Stearns, Merrill Lynch, Lehman Bros, Citibank, Goldman Sachs, AIG, . . . . .

http://www.law.cornell.edu/uscode/12/usc_sec_12_00002901----000-.html

The federal spending and the GSEs were part of the problem, but perhaps a bigger problem with the distressed corporate debt that exploded in the 2000s, and in conjunction with the CDOs, CLOs, and various derivatives undermined the financial markets.

Making risky subprime loans is actually in violation of the CRA.

The government didn't force, bribe or coerce anyone in making fraudulent (illegal) or risky loans. People freely chose (as in free market) to do so.

And at the moment, government spending and lack of revenue is a really big problem - and it's unsustainable.

 

[WhoWee]

Yes he is serious. From the second link:
The CRA wasn't responsible for the subprime crisis. If one disagrees - please provide the evidence that supports such a view. For example, please provide the volume of subprime loans by type and year for the GSEs, and then provide the default rates. Then provide the same data for the non-GSEs, e.g, Bear Stearns, Merrill Lynch, Lehman Bros, Citibank, Goldman Sachs, AIG, . . . . .

http://www.law.cornell.edu/uscode/12/usc_sec_12_00002901----000-.html

The federal spending and the GSEs were part of the problem, but perhaps a bigger problem with the distressed corporate debt that exploded in the 2000s, and in conjunction with the CDOs, CLOs, and various derivatives undermined the financial markets.

Making risky subprime loans is actually in violation of the CRA.

The government didn't force, bribe or coerce anyone in making fraudulent (illegal) or risky loans. People freely chose (as in free market) to do so.

And at the moment, government spending and lack of revenue is a really big problem - and it's unsustainable.

Sometimes all you need is a little light along the path to go in the wrong direction.

As we've discussed in other threads, this all dates back to the S&L mess - the problem was never solved - just delayed and re-packaged.

 

[Al68]

The government didn't force, bribe or coerce anyone in making fraudulent (illegal) or risky loans. People freely chose (as in free market) to do so.

They chose to freely accept the bribe. Demand for risky loans was artificially created by government. That's not what "free market" means. And the fact that the demand was created by government has been substantiated many times here, including recently in this thread. And the fact that banks were not forced to "take the bribe" doesn't make such an arrangement a "free market".

And at the moment, government spending and lack of revenue is a really big problem - and it's unsustainable.

One seventh of the entire nation's GDP collected by the federal government alone is a "lack of revenue"? On what planet?

 

[Gokul43201]

They chose to freely accept the bribe.

Are you saying that the entirety of the blame lies with the briber, and none of it with the bribee?

 

[WhoWee]

These guys are analphabets of economics.

Welcome to PF. You might want to take a quick look at the rules.

 

[WhoWee]

One seventh of the entire nation's GDP collected by the federal government alone is a "lack of revenue"? On what planet?

Tax revenues are down - look back a page or 2 - (could be in the other thread).

 

[Al68]

Are you saying that the entirety of the blame lies with the briber, and none of it with the bribee?

No, I'm saying that government's share of the blame lies in their bribery, not in their supposed failure to adequately regulate the bribees.

 

[Al68]

Tax revenues are down - look back a page or 2 - (could be in the other thread).

Yeah, they're down from way, way, way, way, way, way, way, way, way, way too much to way, way, way, way, way, way, way, way, way too much.

 

[mheslep]

Yes he is serious. From the second link:
The CRA wasn't responsible for the subprime crisis. If one disagrees - please provide the evidence that supports such a view.

Evidence that supports your statement of fact?

Making risky subprime loans is actually in violation of the CRA.

Source? No the fed link doesn't state that subprime loans are prohibited by the CRA. Risky is your characterization.

I'll grant that one can argue the CRA wasn't directly responsible for the financial crisis, or at least say the evidence connecting the CRA to the subprime crisis is convoluted. I don't grant that you can just announce here that there's no connection as a statement of fact, or in other words "absence of evidence is not evidence of absence".

 

[readaynrand]

Welcome to PF. You might want to take a quick look at the rules.

Thanks. Well, I already got two warnings. Guess I'm out of here pretty soon.

One last thing I'd like to express:Which is the bigger insult; to say "I want more government control" (i. e. "I want the you to sacrifice your interests, and I intend to imprison you if you try to control your own life"), or to say "Jesus Christ", thereby expressing my despair at this insolent attitude?

 

[WhoWee]

http://www.heritage.org/budgetchartbook/growth-federal-spending-revenue

 

[WhoWee]

Thanks. Well, I already got two warnings. Guess I'm out of here pretty soon.

One last thing I'd like to express:Which is the bigger insult; to say "I want more government control" (i. e. "I want the you to sacrifice your interests, and I intend to imprison you if you try to control your own life"), or to say "Jesus Christ", thereby expressing my despair at this insolent attitude?

Bye-bye.

 

[Al68]

Yeah, they're down from way, way, way, way, way, way, way, way, way, way too much to way, way, way, way, way, way, way, way, way too much.

http://www.heritage.org/budgetchartbook/growth-federal-spending-revenue

Thanks for the link to support my (unnecessarily specific ) claim above.

 

[brainstorm]

Where is the government mandate that made financial firms bundle risky loans, classify them as grade-A investments, and sell them to unsuspecting investors? We not only need to re-regulate the financial markets, we need to enforce the regulations already on the books. And actually punish the people who break the law. Fraud is and has been against the law for a long time - why aren't the crooks being prosecuted?

The funny thing is that bundling mortgages is exactly what Freddie/Fannie had been doing since their inception, only they weren't privatized until I forget how recently. Bundling is indeed the cause of economic overheating and meltdown, but it is something that occurs in numerous ways from stock-sales to insurance policies. Basically, anything that pools large amounts of funds and makes them available as a single large budget creates the opportunity to spend excessively and with less discipline than an individual with an individual's budget, who is responsible for their own losses. Any market can meltdown when there is sufficient capital available to drive appreciation to the point of inflation and disconnect between sellers and buyers, no?

 

[WhoWee]

Yes he is serious. From the second link:
The CRA wasn't responsible for the subprime crisis. If one disagrees - please provide the evidence that supports such a view. For example, please provide the volume of subprime loans by type and year for the GSEs, and then provide the default rates. Then provide the same data for the non-GSEs, e.g, Bear Stearns, Merrill Lynch, Lehman Bros, Citibank, Goldman Sachs, AIG, . . . . .

http://www.law.cornell.edu/uscode/12/usc_sec_12_00002901----000-.html

The federal spending and the GSEs were part of the problem, but perhaps a bigger problem with the distressed corporate debt that exploded in the 2000s, and in conjunction with the CDOs, CLOs, and various derivatives undermined the financial markets.

Making risky subprime loans is actually in violation of the CRA.

The government didn't force, bribe or coerce anyone in making fraudulent (illegal) or risky loans. People freely chose (as in free market) to do so.

And at the moment, government spending and lack of revenue is a really big problem - and it's unsustainable.

Again, as we've discussed before, the CRA didn't cause all of the problems - Bill Clinton (unintended consequences) also helped.
http://2010.newsweek.com/top-10/history-altering-decisions/clinton-signs-securities-legislation.html

 

[Gokul43201]

One seventh of the entire nation's GDP collected by the federal government alone is a "lack of revenue"? On what planet?

The same planet where nearly every other other developed country collects more?

 

[Gokul43201]

Why then should capitalism take the blame today - when capitalism doesn’t even exist?

Since it doesn't exist, I suppose it can not take credit for anything either.

 

[turbo]

Government involvement NEVER solve problems, it CREATES problems.

Such free-market absolutism is disturbing. Can you provide any support for such statements?

 

[WhoWee]

Were we visited by Dr. Who (or something)?
(I meant this to post BEFORE turbo - not in response to)

 

[Evo]

Since it doesn't exist, I suppose it can not take credit for anything either.

He was copying directly from the Ayn Rand website gokul, these are not his thoughts or words.

 

[brainstorm]

He was copying directly from the Ayn Rand website gokul, these are not his thoughts or words.

Ironically, Ayn Rand was staunchly opposed to thought/speech conformity.

 

[Al68]

He was copying directly from the Ayn Rand website gokul, these are not his thoughts or words.

His (or her) attempts to hide the fact that he (or she) was a Rand supporter didn't work on me. The screen name and self description of "objectivist" tipped me off right away.

 

[brainstorm]

His (or her) attempts to hide the fact that he (or she) was a Rand supporter didn't work on me. The screen name and self description of "objectivist" tipped me off right away.

Don't say "Rand supporter." Say, "Rand dogmatist" or "Rand worshipper." I like Ayn Rand's ideas but I don't worship them. There's nothing wrong with finding validity in Ayn Rand's writing.

 

[Evo]

His (or her) attempts to hide the fact that he (or she) was a Rand supporter didn't work on me. The screen name and self description of "objectivist" tipped me off right away.