News What is wrong with the US economy? Part 2

[Jimmy Snyder]

It was humorous until you confused who the GOP was

My bad. In my defense, I've been told it's a common mistake.

 

[jal]

This does not sound very good.

http://news.yahoo.com/s/afp/20081120/bs_afp/financeeconomyusgulf_081120072928
US seeks 300 billion dlrs from Gulf states: report
Thu Nov 20, 2:29 am ET

KUWAIT CITY (AFP) – The United States has asked four oil-rich Gulf states for close to 300 billion dollars to help it curb the global financial meltdown, Kuwait's daily Al-Seyassah reported Thursday.
The daily also said that the United States has asked Kuwait to forgive its Iraqi debt estimated at around 16 billion dollars.

 

[Ivan Seeking]

What role did the credit rating agencies play in the current economic crisis? This week, a former managing director at Standard & Poor's speaks out on U.S. television for the first time about how he was pressured to compromise standards in a push for profits. Frank Raiter reveals what was really going on behind closed doors at the credit rating agencies the public relies on to evaluate the safety of their investments.

"During this period, profit was primary; analytics were secondary," Raiter tells NOW Senior Correspondent Maria Hinojosa.

Who was watching the watchers? Surprising new revelations about the economic debacle, this week on NOW...

http://www.pbs.org/now/shows/446/index.html

Very interesting.

 

[Astronuc]

What I see as a future problem is the how the government plans to repay the money borrowed. Something else will have to be cut, otherwise, the government will be on permanent revolving credit.

Some have mentioned that at some point the government will have to raise taxes, but there certainly will be a lot of resistance.


Also, it's not clear that the systemic flaws in the US economy are being addressed - primarily too much bought on credit, and too many defaults (with the result that too much is received for next to nothing).

Amendment: I would add economic disparity as another major flaw in the US economy.

 

[Jimmy Snyder]

otherwise, the government will be on permanent revolving credit.

Permanent? Oh no! According to the second chart on this page http://www.cedarcomm.com/~stevelm1/usdebt.htm" , the gov't has been on temporary revolving credit since 1791.

 

[mgb_phys]

U.S. Pledges Top $7.7 Trillion to Ease Frozen Credit
http://bloomberg.com/apps/news?pid=20601109&sid=arEE1iClqDrk&refer=home

 

[Ivan Seeking]

Another big rally today; up almost 400 points right now.

 

[Astronuc]

Permanent? Oh no! According to the second chart on this page http://www.cedarcomm.com/~stevelm1/usdebt.htm" , the gov't has been on temporary revolving credit since 1791.

Yeah - I should have said escalating revolving credit.

 

[mgb_phys]

the gov't has been on temporary revolving credit since 1791.

That's why we keep getting those annoying loan ads on TV aimed at countries that are in debt:
<sing>If you own your throne - you can get that loan - call 1-800-get...<.sing>

 

[Ivan Seeking]

Bloomberg says this will be the biggest two-day rally since 1987.

 

[jal]

The financial system has already consummed 40 - 50% of all the savings to cover their ***.
Now they will take the remainded.

http://money.cnn.com/2008/11/25/news/economy/paulson_consumer/index.htm?cnn=yes
Fed bets $800 billion on consumers
Central bank and Treasury announce a massive plan to jumpstart lending.
-----
When you lend money to a mining operation, (buy shares), you know that its for operating expenses that will generate a product that will generate revenues.
When you lend money to a the banking system, such as the bail out plan and buying shares, ask yourself, what operating costs are you covering and what will be the product that will be produced that will generate an income.
If the banking system is not covering its operating cost in the spread between borrowing and lending rates then it needs to raise/take money from your saving plans.

jal

 

[mheslep]

The financial system has already consummed 40 - 50% of all the savings to cover their ***.
Now they will take the remainded...

Who is 'they'? The recently proposed stimulus does not go financial institutions.

 

[Art]

Who is 'they'? The recently proposed stimulus does not go financial institutions.

From the new package, $100 billion is going to buy doubtful/bad debts from Freddie and Fanny and a further £500 billion is to be used to buy mortgage backed securities. How do you figure this money is not going to the financial institutions?

The remaining $200 billion is to be used to promote lending to consumers. Presumably this too will be through the existing banking system and so again primarily helps the banks especially if the banks, like the last lot of 'stimulus' cash they received, just stuff it under their mattress.

 

[mheslep]

From the new package, $100 billion is going to buy doubtful/bad debts from Freddie and Fanny and a further £500 billion is to be used to buy mortgage backed securities. How do you figure this money is not going to the financial institutions?

The remaining $200 billion is to be used to promote lending to consumers. Presumably this too will be through the existing banking system and so again primarily helps the banks especially if the banks, like the last lot of 'stimulus' cash they received, just stuff it under their mattress.

I mistook the above post to be about the 'new' $500B stimulus plan announced Monday Nov 25 by the Obama transition people; though the details are not out yet, that $500B I take to be real money out the door spending to municipalities and individuals, out of reach of any eventual treasury recovery. The money.cnn link from Jal is indeed more financial institution injections as you detailed, though there's a good chance the US treasury will recover part of that (TARP money).

I don't subscribe to the Keynesian stimulus game; the last US stimulus months back accomplished little or nothing. If the stimulus suggestion means that greater deficits can be tolerated (and I don't know that they can), then I'd favor an across the board temporary tax cut instead. Indeed the Obama people stated 'tax cuts' would be part of their new stimulus package.
http://online.wsj.com/article/SB122747905110751527.html?mod=todays_us_page_one"

 

[CaptainQuasar]

I don't subscribe to the Keynesian stimulus game;

Does that mean that you only believe in Reganesque "trickle down" stimulus or that you don't believe it's possible for the government to stimulate the economy at all? I'm curious because by specifying "Keynesian" there it seems like you're leaving yourself an out to favor some sort of stimulus in the future if you designate it as "non-Keynesian."

⚛​

 

[Astronuc]

U.S. Details $800 Billion Loan Plans
http://www.nytimes.com/2008/11/26/business/economy/26fed.html

WASHINGTON — The Federal Reserve and the Treasury announced $800 billion in new lending programs on Tuesday, sending a message that they would print as much money as needed to revive the nation’s crippled banking system.

So much of the prosperity over the past two decades has been an illusion - given that many trillions of (virtual) $ in the equities and financial markets seems to evaporated.

'Trickle down' was more like 'tinkle down'.

 

[mgb_phys]

So much of the prosperity over the past two decades has been an illusion

You mean a $10T growth in economic activity and a $10T deficit at the same times wasn't just a coincidence?

 

[mheslep]

Does that mean that you only believe in Reganesque "trickle down" stimulus or that you don't believe it's possible for the government to stimulate the economy at all? I'm curious because by specifying "Keynesian" there it seems like you're leaving yourself an out to favor some sort of stimulus in the future if you designate it as "non-Keynesian."

⚛​

'Stimulus' of late pretty much implies a direct government invention; I believe 'trickle down' is generally considered an action of the private economy.

I believe the only real factors in economic growth are productivity increases, infrastructure, education and the rule of law, then perhaps tax cuts after all the above. The federal government can directly fund infrastructure to positive effect, though often inefficiently, but that takes some time.

 

[Office_Shredder]

'Stimulus' of late pretty much implies a direct government invention; I believe 'trickle down' is generally considered an action of the private economy.

Trickle down usually refers to cutting taxes for rich people in order that they spend it and the money 'trickles down' to the lower classes. Cutting taxes to get this effect is as much government intervention as anything else

 

[mheslep]

Trickle down usually refers to cutting taxes for rich people in order that they spend it and the money 'trickles down' to the lower classes. Cutting taxes to get this effect is as much government intervention as anything else

Ok, call it what you will, I'd favor an across the board tax cut before simply mailing checks, though other than for the capital gains and corporate tax rates, I don't think that would help much with jobs either. Those cuts should go along with spending cuts - there are some areas like Obama's just mentioned farm credits to the rich - that not even the most stimulus minded could claim actually stimulate.

Productivity, infrastructure, education, rule of law.

 

[turbo]

Trickle down usually refers to cutting taxes for rich people in order that they spend it and the money 'trickles down' to the lower classes. Cutting taxes to get this effect is as much government intervention as anything else

It is an entirely disingenuous form of "intervention" because it is premised on the notion that when the wealthy get tax cuts, they plow the money right back into investments that create jobs for the poor and middle-class of the US. That has proven NOT to be the case - it is a neocon fiction used to justify welfare for the wealthy. The people who benefit most from the US economy should pay a proportionately higher share of taxes - an idea floated again and again by Warren Buffet. Reagan and W did their level best to destroy progressive taxation in the US, and it's going to be a tough road for Obama if he wants to reverse the damage.

 

[Office_Shredder]

It is an entirely disingenuous form of "intervention" because it is premised on the notion that when the wealthy get tax cuts, they plow the money right back into investments that create jobs for the poor and middle-class of the US. That has proven NOT to be the case - it is a neocon fiction used to justify welfare for the wealthy. The people who benefit most from the US economy should pay a proportionately higher share of taxes - an idea floated again and again by Warren Buffet. Reagan and W did their level best to destroy progressive taxation in the US, and it's going to be a tough road for Obama if he wants to reverse the damage.

I used the word intervention not to imply it was a good way of fixing the economy, but to simply indicate that it is government meddling in the economy in an attempt to fix it

 

[mheslep]

...The people who benefit most from the US economy should pay a proportionately higher share of taxes ...

They do pay a much higher share now as you know, overwhelmingly so. Of course they benefit, but one could also argue that those people do the most to create the economic growth.

 

[kronon]

Apologies if this has already been posted. Its extraordinary. Video of Peter Schiffs comments over 2006/07.

 

[OmCheeto]

Apologies if this has already been posted. Its extraordinary. Video of Peter Schiffs comments over 2006/07.

I've never heard of him before, but I think I like this Peter Schiff.

http://www.financialsense.com/fsu/editorials/schiff/2008/1121.html"
by Peter Schiff, Euro Pacific Capital | November 21, 2008
...
This transformation will not be fun, but it is necessary. Our standard of living must decline to reflect years of reckless consumption and the disintegration of our industrial base. Only by swallowing this tough medicine now will our sick economy ever recover. By accepting a lower standard of living today, we will eventually be rewarded with a higher one tomorrow.

This seems to mirror my "wheelbarrows full of cash" statement a few weeks ago.

He must be brilliant.

 

[kronon]

yep, he was able to predict your statement 3 years in advance - he must be brilliant!

what gets me most about the clip is actually seeing the madness of crowds in action. Its pretty scary and shows just how way off things can get.

He almost reminds me of the first guy who dared say, "erm , maybe the sun won't actually care if the first born is not sacrificed".

 

[OmCheeto]

yep, he was able to predict your statement 3 years in advance - he must be brilliant!

what gets me most about the clip is actually seeing the madness of crowds in action. Its pretty scary and shows just how way off things can get.

He almost reminds me of the first guy who dared say, "erm , maybe the sun won't actually care if the first born is not sacrificed".

I would like to say, that with 6 billion people on the planet, someone is bound to get lucky and make a correct prediction of what is going to happen 3 to 6 years down the road.

But as far as I can tell, Mr. Schiff wasn't guessing. He knew.

It's good to know that there is someone that I can now trust enough to listen to regarding economic matters. I would guess that my previous disinterest in the subject was because I recognized that the world has been far too full of "experts" pushing their opinions around as fact.

I wonder how far back his predictions go. Right after the start of the 2nd gulf war(5.7 years ago), I decided(based on many factors) the the US government should raise taxes on gasoline so the total cost would be around $4.00 per gallon. We should use that money to build an alternate fuel infrastructure. Of course, people have been saying similar things since the mid 1950's from what I've read. But I thought it was funny how my $4/gal number came true, in a roundabout, not so funny, capital sucking, economy crippling kind of way.

Unfortunately, http://www.financialsense.com/fsu/editorials/schiff/archive.html" only go back to 2005. I'll have to email him and see if he thinks the idea is still viable.

 

[Al68]

Trickle down usually refers to cutting taxes for rich people in order that they spend it and the money 'trickles down' to the lower classes. Cutting taxes to get this effect is as much government intervention as anything else

Trickle down usually refers to a fictional economic theory, which no politician has ever claimed to believe in. Which makes it a strawman argument.

And letting people keep their own money instead of confiscating it is "government intervention"? Wow. Just wow.

 

[Astronuc]

Trickle down usually refers to a fictional economic theory, which no politician has ever claimed to believe in. Which makes it a strawman argument.

'Trickle down theory' is considered a pejorative term synonymous with Reaganomics, and various people in the Reagan administration used the term to justify the tax and spending policies of the Reagan years. Reagan believed it, and so did David Stockman in the early 80's.

. . . Yet he was conceding what the liberal Keynesian critics had argued from the outset—the supply-side theory was not a new economic theory at all but only new language and argument to conceal a hoary old Republican doctrine: give the tax cuts to the top brackets, the wealthiest individuals and largest enterprises, and let the good effects "trickle down" through the economy to reach everyone else. Yes, Stockman conceded, when one stripped away the new rhetoric emphasizing across-the-board cuts, the supply-side theory was really new clothes for the unpopular doctrine of the old Republican orthodoxy. "It's kind of hard to sell 'trickle down,'" he explained, "so the supply-side formula was the only way to get a tax policy that was really 'trickle down.' Supply-side is 'trickle-down' theory."
. . . .

The Education of David Stockman (Dec, 1981)
http://www.theatlantic.com/doc/198112/david-stockman/5


Meanwhile - Meltdown far from over, new mortgage crisis looms
http://news.yahoo.com/s/ap/20081128/ap_on_bi_ge/meltdown_coming_soon

WASHINGTON – Black Friday's retail shoppers hunting for holiday bargains won't be enough to stave off what's likely to become the next economic crisis. Malls from Michigan to Georgia are entering foreclosure, commercial victims of the same events poisoning the housing market.

Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.

That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit.

"We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.

. . . .

It appears that the next problem in the US economy is the wave of defaults and foreclosures on commercial property. I've already seen that locally. Some commercial properties are going for half their previous value.

 

[Al68]

'Trickle down theory' is considered a pejorative term synonymous with Reaganomics, and various people in the Reagan administration used the term to justify the tax and spending policies of the Reagan years. Reagan believed it, and so did David Stockman in the early 80's.

Every time I've heard "trickle down economics" described by democrats, it's not even remotely similar to Reaganomics or supply side economics as they would be understood by their adherents, or anything that actually happened in the 1980s.

I've never heard a politician say "Gee, we, as government, should just give all the money to rich people so that it will trickle down to the rest". That's too absurd to even be worthy of discussion.

Claiming that their opponents believe such nonsense is obviously not an attempt to sway the opinion of smart people. It's to stir up hatred in the rest.