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Barack Obama Is Moving to Head Off a Depression
http://www.usnews.com/articles/opini...epression.html
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...And of course we are going to need a massive fiscal stimulus to deal with the economic slump that is gathering momentum. It's likely that the much-talked-about $500 billion is not enough.
President-elect Obama and the Democrats are right to focus on infrastructure, commonly summarized as "bridges and highways," but it should be more than that. Mass transit (especially rail) needs great investments but has the collateral benefit of energy efficiency.
From the conservative Mortimer Zuckerman of U.S. News & World Report...
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Re: Barack Obama Is Moving to Head Off a Depression
http://www.economist.com/opinion/dis...ry_id=12637027
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No time to waste
Nov 20th 2008
From The Economist print edition
The American economy urgently needs a big fiscal stimulus. Too bad both parties are putting politics first
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
NWoD
From the conservative Mortimer Zuckerman of U.S. News & World Report...
Mort did what I did.
Bought into defense and infrastructure industries.
Bring on the stimulus!!!
My bank account is HUNGRY! }:D
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Re: Barack Obama Is Moving to Head Off a Depression
^^^ Deo you should have also went long on Sikorsky ... Ben Bernakke is going to need a fleet of new helicopters to fund Obama's $1 trillion dollar public sector stimulus with freshly printed money being dropped from the sky !!!
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Re: Barack Obama Is Moving to Head Off a Depression
Given a choice between inflation and depression, I choose inflation.
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Re: Barack Obama Is Moving to Head Off a Depression
^^^ I'm betting on the inflation option as well ... but probably for the wrong reasons. Inflation in the form of a devalued dollar would mean that underwater mortgages suddenly become right-side-up again, would mean that credit card debts, auto loan debts etc. all become 'smaller' etc. However this would also mean that everyone's tax rates will go up due to bracket creep. This will also mean that worldwide commodity prices in US dollars i.e. gasoline, food etc. will go up. But this also means that people who are savers will watch their CD's , 401k's etc 'shrink' in terms of real returns / purchasing power. An inflationary approach certainly favors the financially irresponsible and those heavily in debt ... as well a favoring the gov't via increased tax rates that don't have to be voted on ... which is the reason that our (new) gov't is pursuing inflationary policies !
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
dlabtot
Given a choice between inflation and depression, I choose inflation.
The problem is that when inflation is finally dealt with, the recession required to wring it out of the economy is far worse than any benefit derived from permitting it in the first place - Germany in the 1920's ; Argentina ( twice ) and the U.S. , at least three times - 1946-7 ; 1973-4 and 1980-3.
Congress LOVES inflation. Future obligations can be paid off in devalued dollars.
They can point to increased money spent on this program and that. Taxpayers are pushed into higher brackets and pay higher rates.
Who suffers most ? Retirees and others on fixed incomes. Savers. Investors. Anyone party to a long term contract including many union workers.
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Re: Barack Obama Is Moving to Head Off a Depression
Govt method of dealing with inflation: raise the prime rate to where the average rate of unemployment is above 5%. That is about the stupidest method I can think of, and I can think of several stupid ones. Believe me.
- First the national average unemployment can range all over the place, depending on local economies. So raising the rate can much more drastically affect people in places that are already hurting.
- Second it depends for effectiveness on the financial products market. Oh, that has worked out really well lately, hasn't it?
- Third, just who profits by raising that rate, and is it anyone we think that should get a benefit?
- Fourth, didn't we just have problems with the housing mortgage industry that is traditionally the whipping boy of interest rates?
- Fifth, it worked for Hoover, didn't it?
- Sixth, doesn't raising interest rates also raise prices, or do businesses just absorb those costs as a gesture of good will?
I could think of some more, but my point is made.
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
dlabtot
Given a choice between inflation and depression, I choose inflation.
Seconded..
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
threlayer
Govt method of dealing with inflation: raise the prime rate to where the average rate of unemployment is above 5%. That is about the stupidest method I can think of, and I can think of several stupid ones. Believe me.
- First the national average unemployment can range all over the place, depending on local economies. So raising the rate can much more drastically affect people in places that are already hurting.
- Second it depends for effectiveness on the financial products market. Oh, that has worked out really well lately, hasn't it?
- Third, just who profits by raising that rate, and is it anyone we think that should get a benefit?
- Fourth, didn't we just have problems with the housing mortgage industry that is traditionally the whipping boy of interest rates?
- Fifth, it worked for Hoover, didn't it?
- Sixth, doesn't raising interest rates also raise prices, or do businesses just absorb those costs as a gesture of good will?
I could think of some more, but my point is made.
Huh ??? I'm sorry but WHAT is your point ? Who are you trying to blame and for what exactly ?
The only effective way of controlling inflation is to decrease the rate of growth of the money supply so that goods and services can increase and catch up. The only institution that can do that is the Fed mostly by raising the Fed Funds rate and selling Government bonds to suck cash out of the economy. The "Prime" rate is what banks charge their best customers on loans.
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Re: Barack Obama Is Moving to Head Off a Depression
^^^ I would also add that, these days, there is extremely little relationship between the FED rate of 0.25% (which is the rate that banks are able to borrow money at) and the 7-8-10%+ interest rates that banks and bond investors demand that businesses pay for financing. The difference between these two rates i.e. the 'spread', directly translates into profit margin for the banks and bond investors.
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
Melonie
^^^ I would also add that, these days, there is extremely little relationship between the FED rate of 0.25% (which is the rate that banks are able to borrow money at) and the 7-8-10%+ interest rates that banks and bond investors demand that businesses pay for financing. The difference between these two rates i.e. the 'spread', directly translates into profit margin for the banks and bond investors.
Twer it only true. Usually what you say is correct which would translate into gouging by the banks. These days they "need" the large spread to sop up all the red ink on their books from bad loans.
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Re: Barack Obama Is Moving to Head Off a Depression
^^^ Understood, obviously ! My point was that lowering the FED funds rate does not necessarily translate into easier credit availability OR lower de-facto interest rates for businesses as well as individuals.
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
NWoD
Seconded..
I don't.
I have savings. Cash.
This country has been at war with savers for years. It's fucking bullshit.
Trailer homes selling for a million bucks and condo's worth 80K selling for 300K are signs of inflation gone wild already. 24K for a decent car?
We have been inflating our way out of trouble since before the tech bubble.
These days it's "What can you make for me and am I willing to pay for it?"
These days we are finding we don't make much and people ain't willing to pay much for it.
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
Eric Stoner
Huh ??? I'm sorry but WHAT is your point ? Who are you trying to blame and for what exactly ?
The only effective way of controlling inflation is to decrease the rate of growth of the money supply so that goods and services can increase and catch up. The only institution that can do that is the Fed mostly by raising the Fed Funds rate and selling Government bonds to suck cash out of the economy. The "Prime" rate is what banks charge their best customers on loans.
Wrong. We have a new player in the game.
The consumer.
When they are tapped out and no longer credit worthy and unable to continue their payments - money is destroyed rapidly.
Poof.
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Re: Barack Obama Is Moving to Head Off a Depression
^^^ which brings us right back to the distinction between the supposed 'liquidity' problem being addressed by politicians and mainstream media, and the real world 'solvency' problem being experienced by most American consumers. As the first wave of gov't backed 'subprime' mortgage bailouts is clearly showing ( because 58% of bailed out 'subprime' homeowners winding up defaulting on their 'second' subprime mortgage terms within months of being bailed out), there is an inherent shortfall between the actual productivity / value / globalized pay rate of most US workers and the actual cost of houses / cars / etc. During the past decade, that inherent shortfall was 'covered' by most US workers taking on ever increasing levels of additional debt.
However, now that avenues of obtaining additional borrowed money to continue covering that inherent shortfall are being systematically shut down, the economic reality is now staring US consumers in the face ! That reality means that many US workers simply don't produce enough 'value' to ever afford a median priced house. That reality means that many US workers simply don't produce enough 'value' to ever afford a new car. Arguably, gov't bailout efforts cannot change this fact for all US workers without changing the amount of 'value' produced per worker. Arguably, gov't bailout efforts simply restribute proceeds obtained from a relatively small number of high 'value' Americans to selectively subsidize a relatively small number of other Americans.
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
Eric Stoner
Huh ??? I'm sorry but WHAT is your point ? Who are you trying to blame and for what exactly ?
The only effective way of controlling inflation is to decrease the rate of growth of the money supply so that goods and services can increase and catch up. The only institution that can do that is the Fed mostly by raising the Fed Funds rate and selling Government bonds to suck cash out of the economy. The "Prime" rate is what banks charge their best customers on loans.
First para: It's well enough stated. I'm blaming only the conventional means.
Second para: That's the conventional thought pattern, all right. Mel brings up another point, about bank-gouging when the rate spirals.
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Re: Barack Obama Is Moving to Head Off a Depression
^^ Some individuals can live beyond their means with only personal effects. But when the majority choose to do so, you know we're in trouble. But people make their choices and when it gets this bad, many of the rest of us suffer for the hedonistic lives of the majority.
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
Deogol
Wrong. We have a new player in the game.
The consumer.
When they are tapped out and no longer credit worthy and unable to continue their payments - money is destroyed rapidly.
Poof.
Money is NEVER "destroyed" but VALUATIONS can be and have been.
Consumer debt is a problem caused by low intro rates on cc's and mortgages. Homeowners were encouraged to use their houses like piggy-banks and rack up too much debt on home equity lines of credit and the like. Lately, consumers have rediscovered SAVING. What a concept.
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Re: Barack Obama Is Moving to Head Off a Depression
^^ The whole market is merely an illusion. The only real valuation it has is what values one can place on the liquidated companies' assets plus committed dividends. The rest is essentially just hope.
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Re: Barack Obama Is Moving to Head Off a Depression
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Lately, consumers have rediscovered SAVING. What a concept.
well, you're probably half right ! In point of fact, former US consumers are discovering that they have been and will continue to be denied additional credit on 'affordable' terms ... which has indeed reduced consumption, but not necessarily as a voluntary choice on the part of the consumer.
As to actual savings, in point of fact there really hasn't been much of an actual increase in this regard. What has been taking place is the (arguably similarly forced) paydown / refinancing of some high interest rate pre-existing consumer debt. But while this arguably strengthens some consumer balance sheets, this is still not the same as actual 'savings'. If and when actual 'savings' starts to occur on the part of American consumers, it will no longer be necessary for the US gov't and US financial institutions to go hat in hand to foreign lenders for additional capital !!!
And with ultimate irony the FED has just reduced interest rates to zero, meaning that any totally 'safe' place for US consumers to actually save their money is going to pay them essentially nothing in the way of positive interest. Yes you can get 4% on a GMAC or ING CD right now ... but consumers who buy CD's from these troubled financial institutions advertising above market interest rates may in fact wind up getting paid 0% interest while waiting for the FDIC to eventually pay back their principal with freshly printed (i.e. devalued) dollars !
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
Melonie
well, you're probably half right ! In point of fact, former US consumers are discovering that they have been and will continue to be denied additional credit on 'affordable' terms ... which has indeed reduced consumption, but not necessarily as a voluntary choice on the part of the consumer.
As to actual savings, in point of fact there really hasn't been much of an actual increase in this regard. What has been taking place is the (arguably similarly forced) paydown / refinancing of some high interest rate pre-existing consumer debt. But while this arguably strengthens some consumer balance sheets, this is still not the same as actual 'savings'. If and when actual 'savings' starts to occur on the part of American consumers, it will no longer be necessary for the US gov't and US financial institutions to go hat in hand to foreign lenders for additional capital !!!
And with ultimate irony the FED has just reduced interest rates to zero, meaning that any totally 'safe' place for US consumers to actually save their money is going to pay them essentially nothing in the way of positive interest. Yes you can get 4% on a GMAC or ING CD right now ... but consumers who buy CD's from these troubled financial institutions advertising above market interest rates may in fact wind up getting paid 0% interest while waiting for the FDIC to eventually pay back their principal with freshly printed (i.e. devalued) dollars !
While the hard data on saving has yet to come in, there is plenty of evidence of deferred gratification i.e. consumers are only buying what they can afford and are saving up to buy big ticket items.
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Re: Barack Obama Is Moving to Head Off a Depression
Too bad the banks are not going to make as much profit off their 'credit cards' than they were able to before. The credit card thing is almost a complete swindle.
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Re: Barack Obama Is Moving to Head Off a Depression
^^^ yes but there is a flip side. Because banks will not be allowed to earn as much money from high risk borrowers, they will A. cut off the availability of credit to potentially high risk borrowers (including self-employed dancers whose incomes are difficult to verify), and they will charge higher interest rates from 'prime' borrowers.
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While the hard data on saving has yet to come in, there is plenty of evidence of deferred gratification i.e. consumers are only buying what they can afford and are saving up to buy big ticket items
again, it remains to be seen whether this has been a voluntary change, or a change FORCED upon them by the denial of additional credit. Obviously this is a positive development in either case in regard to the 'health' of family balance sheets ... providing of course that the cutback in spending doesn't also result in the loss of a job !!!
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Re: Barack Obama Is Moving to Head Off a Depression
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Originally Posted by
Melonie
^^^ yes but there is a flip side. Because banks will not be allowed to earn as much money from high risk borrowers, they will A. cut off the availability of credit to potentially high risk borrowers (including self-employed dancers whose incomes are difficult to verify), and they will charge higher interest rates from 'prime' borrowers.
again, it remains to be seen whether this has been a voluntary change, or a change FORCED upon them by the denial of additional credit. Obviously this is a positive development in either case in regard to the 'health' of family balance sheets ... providing of course that the cutback in spending doesn't also result in the loss of a job !!!
I think it's economic reality and an unwillingness to take on new debt. A lot of people are trying to reduce debt and thus are spending less.
I haven't used my credit cards in months and have paid my balances down to zero. Everything I bought for Christmas was paid for in cash. I spent less this year than last year.