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Thread: WHY stimulus hasn't and won't work.

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    Default WHY stimulus hasn't and won't work.

    Let's imagine all the members of S-web in a room. Let's say there are 1000 of us just to keep things in round numbers. ( I know. It's a big room.) 500 of us each lend $100 to the other 500.
    Who thinks the total amount of money in the room has increased ?

    The borrowers have to each pay $20 of their $100 borrowed dollars in taxes.

    Who thinks total tax revenues have gone up ?

    That's Obama's stimulus package in a nutshell. It's nothing more than money borrowed from one person and given to another. And the "hand-outs" get taxed.

    Contrast that with: We ALL go into the room with our own money to pay our taxes. The amounts vary depending on our incomes. When we get there, 400 of us are told to keep our money and go home. 500 of us are told to pay half what we paid last year and 100 of us are told to pay 2/3 of what they paid last year. Who thinks there won't be more money available to save, spend or invest ?
    Last edited by Eric Stoner; 09-11-2009 at 12:37 PM.

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    Default Re: WHY stimulus hasn't and won't work.

    It's nothing more than money borrowed from one person and given to another
    Not meaning to be argumentative, but there IS more involved than borrowing from one person and giving to another person to fund Obama's stimulus program ...

    - money is being borrowed from foreign lenders not domestic lenders ( in point of fact money the gov't previously borrowed from foreign lenders was already 'given' to domestic lenders to keep them out of bankruptcy )

    - money is being 'stolen' from anyone, foreign or domestic, who is holding US dollar assets ... via unprecedented printing of new US dollars causing those dollars to lose 'value'.

    - money is being taxed away from all middle class and 'rich' people at an accelerating rate. The federal gov't is transferring borrowed stimulus money to the states and using the states as agents to 'give away' this money in the form of social benefits, while the states are simultaneously increasing income and property tax rates.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Melonie View Post

    - money is being 'stolen' from anyone, foreign or domestic, who is holding US dollar assets ... via unprecedented printing of new US dollars causing those dollars to lose 'value'.
    again you're making stuff up that has no basis. It is accepted by those lending money in US dollars, that future dollars will be worth less than current dollars. Therefore those lenders receive interest in return for lending the money.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    Let's imagine all the members of S-web in a room. Let's say there are 1000 of us just to keep things in round numbers. ( I know. It's a big room.) 500 of us each lend $100 to the other 500.
    Who thinks the total amount of money in the room has increased ?

    The borrowers have to each pay $20 of their $100 borrowed dollars in taxes.

    Who thinks total tax revenues have gone up ?

    That's Obama's stimulus package in a nutshell. It's nothing more than money borrowed from one person and given to another. And the "hand-outs" get taxed.

    Contrast that with: We ALL go into the room with our own money to pay our taxes. The amounts vary depending on our incomes. When we get there, 400 of us are told to keep our money and go home. 500 of us are told to pay half what we paid last year and 100 of us are told to pay 2/3 of what they paid last year. Who thinks there won't be more money available to save, spend or invest ?
    The intent of the stimulus is not to increase tax dollars, it's to stimulate the economy. If those 500 people were to spend the full $100, they would be creating work and income for employees of those businesses where they spend the money.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    Let's imagine all the members of S-web in a room. Let's say there are 1000 of us just to keep things in round numbers. ( I know. It's a big room.) 500 of us each lend $100 to the other 500.
    Who thinks the total amount of money in the room has increased ?
    Eric, you have just described all banking. Yet, when I borrow $100 from someone and put it to work making money at a greater rate than the interest I pay on the borrowed money, then the total amount of money does increase.

    The borrowers have to each pay $20 of their $100 borrowed dollars in taxes.
    That's not the way the tax system works in the US. We pay taxes on income. So, if the $100 generates income of $20, then we pay taxes on it. Conversely, we get to deduct the interest we pay the lender from our taxable income.

    Who thinks total tax revenues have gone up ?
    No one does as your illustration is not how the tax code works. We do not get taxed on the receipt of a loan, and the lender does not pay taxes when the principal is repaid.

    That's Obama's stimulus package in a nutshell. It's nothing more than money borrowed from one person and given to another. And the "hand-outs" get taxed.
    No it's not. Again, you do not understand how the tax system works.

    Contrast that with: We ALL go into the room with our own money to pay our taxes. The amounts vary depending on our incomes. When we get there, 400 of us are told to keep our money and go home. 500 of us are told to pay half what we paid last year and 100 of us are told to pay 2/3 of what they paid last year. Who thinks there won't be more money available to save, spend or invest ?
    That is a description of a tax cut. A tax cut might work to stimulate the economy, it has before. The proper question is can taxes be cut enough, quickly enough to cause a Keynesian stimulus? Next, can taxes be restored quickly enough after the stimulus to preserve sufficient revenue for the government? Will the restoration of taxes cause a double dip recession?

    HTH
    Z

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Melonie View Post
    Not meaning to be argumentative, but there IS more involved than borrowing from one person and giving to another person to fund Obama's stimulus program ...

    - money is being borrowed from foreign lenders
    Only 29 percent of it.

    not domestic lenders
    Only 71 percent of it.

    - money is being 'stolen' from anyone, foreign or domestic, who is holding US dollar assets ... via unprecedented printing of new US dollars causing those dollars to lose 'value'.
    Only if there is a major dose of inflation. Given the interest rates on US Treasuries, most investors are not buying your hyper-inflation theory. In fact, the real risk is deflation. Not that we should not be concerned about the deficit, but even if it reaches 100 percent of GDP it will not be a seriously large amount. Remember, Japan and the UK have both managed to recover from deficits that exceeded 200 percent of GDP. (Well, Japan is in the process of recovering from that huge deficit. They still have not recovered.)

    - money is being taxed away from all middle class and 'rich' people at an accelerating rate. The federal gov't is transferring borrowed stimulus money to the states and using the states as agents to 'give away' this money in the form of social benefits, while the states are simultaneously increasing income and property tax rates.
    The states are minor recipients of stimulus money. However, you are correct that they are raising tax rates, though they may not be raising tax revenues by as much as their shortfall. Some, perhaps most states, have also cut budgets.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by eagle2 View Post
    The intent of the stimulus is not to increase tax dollars, it's to stimulate the economy. If those 500 people were to spend the full $100, they would be creating work and income for employees of those businesses where they spend the money.
    Yes. The INTENT was to stimulate BUT it hasn't worked.
    No. The INTENT was not to increase tax revenues. That's obvious.

    The problem is that money was BORROWED and it has to be paid back out of TAX REVENUES.

    Any short term increase in consumer spending, which hasn't materialized btw, is historically followed by inflation and then a painful restoration of price stability.
    Last edited by Eric Stoner; 09-12-2009 at 01:23 PM.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Zofia View Post
    Eric, you have just described all banking. Yet, when I borrow $100 from someone and put it to work making money at a greater rate than the interest I pay on the borrowed money, then the total amount of money does increase.

    That's not the way the tax system works in the US. We pay taxes on income. So, if the $100 generates income of $20, then we pay taxes on it. Conversely, we get to deduct the interest we pay the lender from our taxable income.

    No one does as your illustration is not how the tax code works. We do not get taxed on the receipt of a loan, and the lender does not pay taxes when the principal is repaid.

    No it's not. Again, you do not understand how the tax system works.

    That is a description of a tax cut. A tax cut might work to stimulate the economy, it has before. The proper question is can taxes be cut enough, quickly enough to cause a Keynesian stimulus? Next, can taxes be restored quickly enough after the stimulus to preserve sufficient revenue for the government? Will the restoration of taxes cause a double dip recession?

    HTH
    Z
    I wasn't describing the currently existing upward yield curve for banks. They borrow money for next to nothing from the Fed and lend it out at low to high rates depending on the borrower.

    In Obama's package, a lot of what has been spent so far was nothing more than transfer payments and the ultimate recipients have to pay taxes on that money. Even when the infrastructure projects finally get going, the construction companies and their workers have to pay taxes on their profits and salaries respectively.

    With tax cuts, at least we'd cut out a lot of the middle men and let people make rational choices with their OWN money.
    Last edited by Eric Stoner; 04-25-2022 at 08:05 AM.

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    Default Re: WHY stimulus hasn't and won't work.

    Only 29 percent of it. ... Only 71 percent of it.
    Again you are relying on the 'official' FED data, and ignoring the reality that FED Custodial Accounts ( that are officially counted as domestic but typically owned by foreign central banks) continue to grow at a record pace ...

    (snip)"Understanding the gap between the TIC and the Custody numbers
    One thing you might have noticed is that the TIC report only shows $50 billion in foreign bank inflows for 2009, while the custody account grew by $277 billion.

    How is it possible for the TIC report to show smaller inflows than growth in the custody account? We can see that clearly in this table, which compares the two. (Note: These are 12 monthly yr/yr changes, so the numbers will be different than the YTD numbers I just cited):



    In this game, Central Bank A prints up a bunch of money and buys the debt of Country B. Then the central bank of Country B prints up a bunch of money and buys the debt of Country A.

    Both enjoy the appearance of strong demand for their debt, both governments get money to use, and nobody is the wiser. Except that the world's total stock of central bank reserves keep on growing and growing and growing, as reflected in the custody account, which will someday result in thoroughly unserviceable amounts of debt, an unmanageable flood of money, or both.

    If this strikes you as a scam, congratulations; you get it.


    If that was all there was to the story, then it would be far less interesting than it actually is. When we dig into the custody account data, we find that the total picture is hiding something quite extraordinary. Even as the total custody account has been growing steadily and faithfully, the composition of that account has been changing dramatically.



    These are the three critical points to remember as you read further:

    1.The US government has record amounts of Treasuries to sell.

    2.Foreign central banks, which have a big pile of agency bonds in their custody account, would like to help but want to keep things somewhat under the radar to avoid scaring the debt markets.

    3.The Federal Reserve does not want to be seen directly buying US government debt at auctions (and in fact is not permitted to, but many rules have been 'bent' worse during this crisis), because that could upset the whole illusion that there is unlimited demand for US government paper, but it also desperately wants to avoid a failed auction.

    For various reasons, the Federal Reserve cannot just up and start buying all the Treasury paper that becomes available in record amounts, week after week, month after month.

    Instead, it uses this three-step shell game to hide what it is doing under a layer of complexity:

    Shell #1: Foreign central banks sell agency debt out of the custody account.

    Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.

    Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction.

    Shuffle, shuffle, shuffle, shuffle, shuffle, SHUFFLE, shuffle! Confused yet?

    Don't be. If we remove the extraneous motion from this strange act, we find that the Federal Reserve is effectively buying government debt at auction. This is exactly, precisely what Zimbabwe did, but with one more step involved, introducing just enough complexity to keep the entire game mostly, but not completely, hidden from sight. They can scramble the shells all they want, but the pea is still there somewhere - the pea being the fact that the Fed is creating money to fund the purchase of US debt.(snip)

    from


    Given the interest rates on US Treasuries, most investors are not buying your hyper-inflation theory. In fact, the real risk is deflation
    On the surface, this is exactly what 'official' financial data wants you to believe. The latest example of which is the gov'ts admission that the recent $3,500-$4,500 cash for clunkers checks will be included in the next CPI report as if the price of new cars dropped by $3,500-$4,500. But the same author of my above link shows that the same 'sleight of hand' measures are being used to obscure mounting inflation buried in FED data ...

    (snip)"The Federal Reserve has effectively been monetizing far more US government debt than has openly been revealed, by cleverly enabling foreign central banks to swap their agency debt for Treasury debt. This is not a sign of strength and reveals a pattern of trading temporary relief for future difficulties.

    This is very nearly the same path that Zimbabwe took, resulting in the complete abandonment of the Zimbabwe dollar as a unit of currency. The difference is in the complexity of the game being played, not the substance of the actions themselves.

    When the full scope of this program is more widely recognized, ever more pressure will fall upon the dollar, as more and more private investors shun the dollar and all dollar-denominated instruments as stores of value and wealth. This will further burden the efforts of the various central banks around the world as they endeavor to meet the vast borrowing desires of the US government.

    One possible result of the abandonment of these efforts is a wholesale flight out of the dollar and into other assets. To US residents, this will be experienced as rapidly rising import costs and increasing costs for all internationally-traded basic commodities, especially food items. For the rest of the world, the results will range from discomforting to disastrous, depending on their degree of dollar linkage.

    Under these circumstances, "inflation vs. deflation" is not the right frame of reference for understanding the potential impacts. For example, it would be possible for most of the world to experience falling prices, even as the US experiences rapidly rising prices (and hikes in interest rates) as a consequence of a falling dollar. Is this inflation or deflation? Both, or neither? Instead, we might properly view it as a currency crisis, with prices along for the ride.

    Further, all efforts to supplant private debt creation with public debts should be met with skepticism, because gigantic programs are no substitute for the collective decisions of tens of millions of individuals and cannot realistically meet millions of individual needs in a timely or appropriate manner.

    The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt."(snip)

    ~
    Last edited by Melonie; 09-12-2009 at 01:01 PM.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Melonie View Post
    Again you are relying on the 'official' FED data,
    No, I am relying on Treasury data. They are different from the Federal Reserve Board.

    and ignoring the reality that FED Custodial Accounts ( that are officially counted as domestic but typically owned by foreign central banks) continue to grow at a record pace ...
    If we assume that all the growth in the Fed's custodial accounts is "hidden" foreign ownership of US Treasuries, that would only add, by your own figures, $431 billion. That is a little less than four (4) percentage points of the over all debt. So, lets call foreign debt at 33% rather than 29%. The sky is still not falling and we are still not enduring hyper inflation, inflation or even modest price growth. The short term risk remains over capacity at home and abroad.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Zofia View Post
    No, I am relying on Treasury data. They are different from the Federal Reserve Board.

    If we assume that all the growth in the Fed's custodial accounts is "hidden" foreign ownership of US Treasuries, that would only add, by your own figures, $431 billion. That is a little less than four (4) percentage points of the over all debt. So, lets call foreign debt at 33% rather than 29%. The sky is still not falling and we are still not enduring hyper inflation, inflation or even modest price growth. The short term risk remains over capacity at home and abroad.
    The Fed and the Treasury are two totally different things. The Treasury collects and doles out Federal Government funds. The Fed prints the money; holds accounts for major banks; lends those banks money; buys and sells U.S. Government bonds and other securities.

    We are not experiencing hyperinflation ( 100 % ; 50 % or even 20% ) and inflation has not struck. Yet. But if you add up all the money that has been printed and borrowed in the last year, there is an inflation piper that MUST be paid somewhere down the line. Inflation is caused by too much money chasing too few goods. The Fed is creating the money and industry is not creating the goods.

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    Default Re: WHY stimulus hasn't and won't work.

    ^^^ which explains why retail gasoline prices have increased 8% in the past month. Retail food prices have also increased, although it is difficult to quantify that increase given that manufacturers are resorting to smaller package sizes to disguise their price increases. The increased price of raw materials from copper to plastic to steel, and the increased price of exotic materials such as neodymium and platinum, will require a little time lag to percolate into prices for durable / manufactured goods. All of the above are the direct result of devaluation of the US dollar exchange rate due to 'money printing' and related gamesmanship (i.e. printing new T bonds which are repurchased with newly printed money), and indeed have caused an increase in the US dollar denominated price of these global commodities despite stagnant or marginally declining global demand.

    And despite mainstream financial media's massive efforts to squelch it, news of rising inflation is beginning to leak out ...

    (snip)"[Delta Global Advisors chief economist - sic] Pento's primary concern is that the Fed's easy money policies are going to lead to further weakness in the dollar, which is down 14% since March vs. a basket of other currencies. Pento believes we're facing a major inflation threat - and much sooner than most people expect.

    On Tuesday, the government said PPI rose a much stronger-than-expected 1.7% in August. Come December, the price of oil will be up 100% from a year ago, Pento notes; given energy's major weighting, that will have huge ramifications for PPI and CPI data going forward. (Wednesday morning brought a higher-than-expected report on CPI. Both CPI and PPI remain negative on a year-over-year basis but the declines are narrowing and both are trending higher: for example, CPI is up 4.9% on a 3-month annualized basis, according to Miller Tabak.)

    "Everybody knows inflation is here and is going to grow much, much worse," Pento says."(snip)

    from

    ~
    Last edited by Melonie; 09-16-2009 at 05:44 PM.

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    Default Re: WHY stimulus hasn't and won't work.

    ^^^ That's right. If you look at the PPI ( what oil companies pay for crude before turning it into gasoline, motor oil, heating oil etc. ; what car companies pay for steel ; what pipe makers pay for copper etc. ) it has been sloping up for months. The CPI usually lags the PPI by a few months for obvious reasons.

    History proves that when you have a weakening dollar , massive growth in M2 and higher prices for gold and commodities, you get a healthy dose of inflation. There are some economists who are actually saying : "Not to worry because wages aren't going up." Afaic they're nuts ! So what if wages are stagnant ? If every other element of the production and service picture is going up, especially energy costs, then prices are going to go up.
    Last edited by Eric Stoner; 04-25-2022 at 08:07 AM.

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    Default Re: WHY stimulus hasn't and won't work.

    That's all theoretical, because it is working, but we have a long way to go yet.

    I again want to thank Mr. Bush for providing us with this most interesting financial interlude.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by threlayer View Post
    That's all theoretical, because it is working, but we have a long way to go yet.

    I again want to thank Mr. Bush for providing us with this most interesting financial interlude.

    Not just Bush. We all have to keep remembering that. There are three branches of equal responsibility in this government.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    We are not experiencing hyperinflation ( 100 % ; 50 % or even 20% ) and inflation has not struck.
    Glad you noticed.

    Yet. But if you add up all the money that has been printed and borrowed in the last year, there is an inflation piper that MUST be paid somewhere down the line. Inflation is caused by too much money chasing too few goods. The Fed is creating the money and industry is not creating the goods.
    Your prediction would be correct, if there was not so much over capacity in industry right now.

    HTH
    Z

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Zofia View Post
    Glad you noticed.

    Your prediction would be correct, if there was not so much over capacity in industry right now.

    HTH
    Z
    I see you've joined hands with Threlayer and have decided to let your wishes father your thoughts.

    I am not talking so much about the current CPI and PPI even though both have been going up. I am talking about the freight train of inflation heading down the tracks straight for us. There is NO instance in history when increasing commodity prices, a weak dollar and massive growth in M2 did NOT result in double digit inflation.

    The overcapacity in industry is just one part of the puzzle. So are depressed wages. It's when you look at the larger picture that the alarm bells start going off. The excess in the money supply is already here. As is double digit unemployment. The notion that we can't possibly have double digit inflation and double digit unemployment simultaneously is ridiculous. We had the exact thing under Carter and so have plenty of other countries who debased their own currencies.

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    Default Re: WHY stimulus hasn't and won't work.

    Then, while 'everyone' was buying so much and piling up credit, why wasn't inflation in other places than just real estate?

    I have to agree with Stoner, that in the long run unless some huge GNP and Fed tax recuperation takes place, we have set ourselves up for some serious inflation with the bailouts (if they are not repaid) and the stimulus. But there is that uncertainty over China's banks AND huge healthcare costs.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Deogol View Post
    Not just Bush. We all have to keep remembering that. There are three branches of equal responsibility in this government.
    But Bush's hirees and appointees did not do their jobs in redirecting the unfolding of improper financial industry actions. And Congress had their own partisan and self-serving interests, as usual. Not sure about the judiciary. But I am sure that the populace is greatly to blame for being dumb enough to be easily hoodwinked into permitting inflation in the real estate system and not complaining about the credit card companies' abusive practices.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    I see you've joined hands with Threlayer and have decided to let your wishes father your thoughts.
    I try to keep objective and explore better ways for our society, rather than try to justify continuing on with our current troubled system.

    Quote Originally Posted by Eric Stoner View Post
    The overcapacity in industry is just one part of the puzzle. So are depressed wages. It's when you look at the larger picture that the alarm bells start going off. The excess in the money supply is already here. As is double digit unemployment. The notion that we can't possibly have double digit inflation and double digit unemployment simultaneously is ridiculous. We had the exact thing under Carter and so have plenty of other countries who debased their own currencies.
    Wage depression is a result of the current unemployment and of the long-standing inflation in the healthcare system.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    God/dess threlayer's Avatar
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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Melonie View Post
    ^^^ which explains why retail gasoline prices have increased 8% in the past month. ... All of the above are the direct result of devaluation of the US dollar exchange rate due to 'money printing' and related gamesmanship...and indeed have caused an increase in the US dollar denominated price of these global commodities despite stagnant or marginally declining global demand.

    On Tuesday, the government said PPI rose a much stronger-than-expected 1.7% in August. Come December, the price of oil will be up 100% from a year ago, Pento notes; given energy's major weighting....
    Locally gasoline prices are down about 5-6 % over the last month. But normally that's expected. But maybe you were talking seasonally adjusted gasoline prices.

    Last year we saw extreme speculator manipulation of petroleum prices, as I repeatedly pointed out in this forum, and earlier this year we saw some (relative to last year) moderate manipulation (notice how much it increases in spite of a very severe recession, not classic supply-demand). It only stopped when they had to cover themselves. Since mid summer of this year we have seen little of that, but certainly irrational price-demand behavior could return.

    Generally we have a ways to go yet in the consumer sector because prices are still widelty depressed. I'm talking the USA, not Central America.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    God/dess Zofia's Avatar
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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    I see you've joined hands with Threlayer and have decided to let your wishes father your thoughts.
    No, threlayer and I deal with the world as it is, not from a perma-bear gold bug, worst case scenario fantasy.

    I am not talking so much about the current CPI and PPI even though both have been going up. I am talking about the freight train of inflation heading down the tracks straight for us. There is NO instance in history when increasing commodity prices, a weak dollar and massive growth in M2 did NOT result in double digit inflation.
    You are the one who posed the classic too many dollars chasing too few goods prescription for inflation. Or don't you remember that you wrote: "Inflation is caused by too much money chasing too few goods. The Fed is creating the money and industry is not creating the goods."? Now you are posing an entirely different theory. Still not one that most economists are worried about in the short run. In the long run, inflation is a problem that the President has dealt himself by back loading his stimulus program. It remains to be seen how he and the Fed will respond to it. Suffice to say, the Fed has many more tools for fighting inflation than deflation. And, deflation is the immediate concern.

    The notion that we can't possibly have double digit inflation and double digit unemployment simultaneously is ridiculous. We had the exact thing under Carter and so have plenty of other countries who debased their own currencies.
    Of course that is possible again. But, there was considerable inflationary pressure in the economy at the time. Wages were rising rapidly, oil prices were rising rapidly. At the same time, the money supply was out of control. The only real brake on the inflation rate was unemployment which remained high while wages rose. (Automatic cost of living adjustments in lots of contracts, higher rates of unionization, near automatic COLA adjustments in federal benefits all lead to a remarkable and not likely to repeat situation where unemployment did not brake the wage spiral.) Those conditions are not present today. What is left is the money supply and capacity.

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    Banned Eric Stoner's Avatar
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    Default Re: WHY stimulus hasn't and won't work.

    There were a LOT of underreported little financial tid-bits released yesterday. One of which was Obama's TARP czar admitting that hundreds of billions in TARP money will NEVER be paid back. Particularly the money paid to GM, Chrysler, AIG and several others.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    The overcapacity in industry is just one part of the puzzle. So are depressed wages. It's when you look at the larger picture that the alarm bells start going off. The excess in the money supply is already here. As is double digit unemployment. The notion that we can't possibly have double digit inflation and double digit unemployment simultaneously is ridiculous. We had the exact thing under Carter and so have plenty of other countries who debased their own currencies.
    No we didn't. The unemployment rate was approximately 7.5% when Jimmy Carter left office. The unemployment rate didn't get above 10% until the Fed raised interest rates to around 20% early in Reagan's first term. This pushed the unemployment rates up to 10%, but it also brought inflation down from 14% to around 4%.
    Last edited by eagle2; 09-26-2009 at 11:37 PM.

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    Default Re: WHY stimulus hasn't and won't work.

    Quote Originally Posted by Eric Stoner View Post
    ^^^ That's right. If you look at the PPI ( what oil companies pay for crude before turning it into gasoline, motor oil, heating oil etc. ; what car companies pay for steel ; what pipe makers pay for copper etc. ) it has been sloping up fo months. The CPI usually lags the PPI by a few months for obvious reasons.
    The PPI fell 0.9% in July.

    Quote Originally Posted by Eric Stoner View Post
    History proves that when you have a weakening dollar , massive growth in M2 and higher prices for gold and commodiities, you get a healthy dose of inflation. There are some economists who are actually saying : "Not to worry because wages aren't going up." Afaic they're nuts ! So what if wages are stagnant ? If every other element of the production and service picture is going up, especially energy costs, then prices are going to go up.
    We've had a weakening dollar, significant growth in M2, and higher prices for gold and commodities for the past 10 years and we haven't had any significant inflation.

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