What will pull the economy back up?

[NoahAddle]

Every time I try to imagine what the future holds for the economy, I come away with a really bad feeling. I don''t see any new drivers for job growth on the horizon, personal and institutional debt continue to grow exponentially, and government chooses to reward the bad behavior of "too big to fail" financial institutions in order to save the economy from collapsing while at the expense of introducing moral hazard. I'm worried that the middle class will disappear and we'll end up like Brazil with one small super rich group and a huge population of people just trying to scrape by.

Does anyone have a more positive outlook on the future?

[herbicidal]

Short answer: A miracle.... or lots of time.... It's not going to be hope... that's rather fleeting. Or "change", in a couple of years that may be all we have left. Some "spare change".

The US Government is broke beyond belief. Tax revenues are plumetting. International trade and shipping has collapsed. The government is creating money like it's going out of style (which it is). Manufacturing has disappeared. Government is raising taxes to try and fix things (only making things worse).

It has to get a lot worse before it will get better. The manufacturing base in the U.S. and Canada is a complete disaster. It has to get to the point where we can no longer afford Chinese and foreign made products. Then we can begin to introduce duties/tarrifs. Raise interest rates, so that we encourage saving. Invest in our own economies and rebuild our manufacturing. When Walmart's start closing that should be near the bottom.

But first we still have to finish off the mortgage crisis which is only half way finished. There are still Alt-A and other loans that are resetting in the next few months and years. The commercial/retail market still has to collapse. When the shopping malls are empty that should be the bottom. We still have to deal with rampant (20% or more per year) inflation and stifling debt and the only way through that is by defaulting. Essentially the US and possibly Canada will declare bankruptcy and introduce new currencies. Also the dollar will probably drop by more than 40% from current levels.

From there a very gradual climb out of a very deep hole. If you want to learn more on the economy check out goldismoney.info most of the users their seem to be INTJ's. That's how I found this site.

[Causa Mortis]

The manufacturing base in the U.S. and Canada is a complete disaster. It has to get to the point where we can no longer afford Chinese and foreign made products. Then we can begin to introduce duties/tarrifs. Raise interest rates, so that we encourage saving. Invest in our own economies and rebuild our manufacturing. When Walmart's start closing that should be near the bottom.

Where does one even begin?

1. You apparently don't understand the theory of comparative advantage in international trade. Its kinda important to understanding economics.
2. You apparently aren't aware of the fact that raising tariffs/duties is strongly empirically correlated with falling productivity and rising prices.
3. You have no basis for saying "the mortgage crisis...is only half way finished" that "when the shopping malls are empty that should signal the bottom".
4. You show no knowledge of spending/income relationships.

These are kinda important in macroeconomics.

Does anyone have a more positive outlook on the future?

Yes. The current crisis is the result of a collapse in velocity. The Federal Reserve and the federal government have both responded appropriately and vigorously. Once velocity picks back up, the issue will be inflation, not growth.

This notion that "what sector is going to bring us out" is a wrong headed notion. Healthy growth in the economy is not dominated in one sector - its rising levels of output in a variety of areas of the economy. That people think that one industry is going to dominate is a reflection of bad economic ideas and the last two bubble cycles.

[themuzicman]

1) Cut government spending. Suspend pork barrel projects, eliminate ear marks, sell all stocks owned by the government. End any talk of public health care. The dollar has been weak for too long. Time to shore it up a bit

2) Cut taxes across the board. Let those who earn it keep more of it.

3) Terminate all bailout agreements. Let companies that can't stand on their own fall. Keeping failing companies upright just prolongs the pain.


That's a good start right there.

[Valiyn]

From my experience (which is limited), the economy is like a sea-saw. Even when the majority of it might be down, there is always going to be a part that is rising regardless. It's now a downhill slop across the board. I work in the entertainment industry, and usually when something like this happens, our sales go up. An example would be the birth of Hollywood durring the Great Depression. Why? People want good stories especially when times are hard. It's a seller's market for stories, always has been, and always will be. The worse the economy gets, the more good games, comics, etc, are bought by the masses. And this isn't true of just the entertainment industry. The worse the economy gets, the more ratings and sales goes up in the news industry. My point being that parts of it are already on the rise and will correct itself in time naturally. Changing it drastically to speed it up in the cycle and/or slow it down is more or less a hit and miss operation. It would probably be best to leave it alone a few more years until the situation has been thoroughly assessed.

[Silverity]

I'd like to see more community-based initiatives to support local industries. Instead of focusing on global trade, I'd like to focus on local-trade. I don't really care about big businesses going under, those big businesses forced smaller local businesses under and we lost a lot of variety in both product and price when that happened (less competition). I kind of like the idea of going back to what we had previously. The world seems like it tried to go too big, too fast, maybe we should try and slow down a little.

[alrightgame]

Where does one even begin?

1. You apparently don't understand the theory of comparative advantage in international trade. Its kinda important to understanding economics.
2. You apparently aren't aware of the fact that raising tariffs/duties is strongly empirically correlated with falling productivity and rising prices.
3. You have no basis for saying "the mortgage crisis...is only half way finished" that "when the shopping malls are empty that should signal the bottom".
4. You show no knowledge of spending/income relationships.

These are kinda important in macroeconomics.



Yes. The current crisis is the result of a collapse in velocity. The Federal Reserve and the federal government have both responded appropriately and vigorously. Once velocity picks back up, the issue will be inflation, not growth.

This notion that "what sector is going to bring us out" is a wrong headed notion. Healthy growth in the economy is not dominated in one sector - its rising levels of output in a variety of areas of the economy. That people think that one industry is going to dominate is a reflection of bad economic ideas and the last two bubble cycles.

Is the downturn of the economy following the rules of macroeconomics?

[Causa Mortis]

Is the downturn of the economy following the rules of macroeconomics?

Yes, its adequately explained by principles of business cycle theory, the quantity theory of money, the keynesian spending-income relationship and Keynes' animal spirits notion.

[jesse]

1) Cut government spending. Suspend pork barrel projects, eliminate ear marks, sell all stocks owned by the government. End any talk of public health care. The dollar has been weak for too long. Time to shore it up a bit

2) Cut taxes across the board. Let those who earn it keep more of it.

3) Terminate all bailout agreements. Let companies that can't stand on their own fall. Keeping failing companies upright just prolongs the pain.


That's a good start right there.

Don't forget about closing all foreign military bases and military operations as they are sucking up far too much public money, then we just might be able to get spending under control and begin managing the horrendous mountain of debt. This is off topic but what the hay, they are black holes where money simply disappears without doing much good, especially very little in terms of improving security for the US or the places where they are fighting against the nebulous notion of "terrorism".

Enough with outrageous spending already. Lawmakers have blown it out of proportion and now they want even more money to fix their disaster of keeping the budget within its means. If taxes and tariffs are increased now, we'll be stuck even deeper in the mud trying to keep our head from finally giving in and going under.

Point 3 is especially a good place to start with reducing spending. This is like a vicious cycle where the parents keep on rewarding a misbehaving child who is constantly breaking their possessions and those of others.

[lurk]

The Federal Reserve and the federal government have both responded appropriately and vigorously. Once velocity picks back up, the issue will be inflation, not growth.

This presumes that lenders will resume lending and borrowers will resume borrowing. This will happen eventually, but there's nothing to say that it'll be any time soon. Or that there won't be another financial crisis or two before it happens.
Yes, its adequately explained by principles of business cycle theory, the quantity theory of money, the keynesian spending-income relationship and Keynes' animal spirits notion.
Possibly true, but apparently Bernanke didn't see it coming:
According to publicly disclosed data, Bernanke’s assets were down -29% (about -$600,000) in 2008

[RBM]

Every time I try to imagine what the future holds for the economy, I come away with a really bad feeling. I don''t see any new drivers for job growth on the horizon, personal and institutional debt continue to grow exponentially, and government chooses to reward the bad behavior of "too big to fail" financial institutions in order to save the economy from collapsing while at the expense of introducing moral hazard. I'm worried that the middle class will disappear and we'll end up like Brazil with one small super rich group and a huge population of people just trying to scrape by.

Does anyone have a more positive outlook on the future?

Spoiler warning: the following may not be subjectively positive to you.

Ever heard of The Limits to Growth (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

The Limits to Growth is a 1972 book modeling the consequences of a rapidly growing world population and finite resource supplies, commissioned by the Club of Rome. Its authors were Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III. The book used the World3 model to simulate[1] the consequence of interactions between the Earth's and human systems. The book echoes some of the concerns and predictions of the Reverend Thomas Robert Malthus in An Essay on the Principle of Population (1798).

Five variables were examined in the original model, on the assumptions that exponential growth accurately described their patterns of increase, and that the ability of technology to increase the availability of resources grows only linearly. These variables are: world population, industrialization, pollution, food production and resource depletion. The authors intended to explore the possibility of a sustainable feedback pattern that would be achieved by altering growth trends among the five variables.

The most recent updated version was published on June 1, 2004 by Chelsea Green Publishing Company and Earthscan under the name Limits to Growth: The 30-Year Update. Donnella Meadows, Jørgen Randers, and Dennis Meadows have updated and expanded the original version. They had previously published Beyond the Limits in 1993 as a 20 year update on the original material.[2][3][4]

In 2008 Graham Turner at the Commonwealth Scientific and Industrial Research Organisation (CSIRO) in Australia published a paper called "A Comparison of `The Limits to Growth` with Thirty Years of Reality".[5][6] It examined the past thirty years of reality with the predictions made in 1972 and found that changes in industrial production, food production and pollution are all in line with the book's predictions of economic and societal collapse in the 21st century.

Interesting times, indeed.

[Causa Mortis]

This presumes that lenders will resume lending and borrowers will resume borrowing.

That's an increase in velocity, which was what I premised the statement on.

This will happen eventually, but there's nothing to say that it'll be any time soon.

You offset an exogenous fall in velocity, ie a rise in the rate of people preferring to hold real cash balances over other forms of assets, by:

1. Increasing the monetary base, which Bernake has done unlike any other fed chief in history. Under a normal velocity situation, this would be inflationary, and once velocity picks back up the Fed will have to be very tight in monetary policy to avoid an inflation.
2. Using government borrowing to stimulate velocity, which is being done at a record pace as well.

Possibly true, but apparently Bernanke didn't see it coming:

Then again there's nothing in any of the theories to suggest that they're predictable. We know they're part of the business cycles, but its impossible to predict the causal psychosocial factors that touch off exogenous and self-reinforcing declines in velocity.

Nor have I ever seen anyone suggest that the key gauge of a Fed Chief's ability to manage monetary policy was his return on personal assets. They're supposed to do whatever they can to avoid employment or inflation disasters, and Bernake has more or less done this by expanding the monetary base at unprecedented rates. It hasn't solved the problem, but he's done literally everything a Fed Chief can do. If velocity returns to normal levels, under current monetary policy an inflation would be an almost certainty.

Causa Mortis added to this post, 4 minutes and 47 seconds later...

Spoiler warning: the following may not be subjectively positive to you.

Ever heard of The Limits to Growth (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

Interesting times, indeed.

Fear sells books. More at 11.


This isn't the first, last, or worst of the economic downturns, and I'm only aware of one primary resource scarcity that is actually materializing.

[RBM]

Fear sells books. More at 11.
This isn't the first, last, or worst of the economic downturns, and I'm only aware of one primary resource scarcity that is actually materializing.

Just to clarify, I'm not fearful, and I'm not suggesting anyone else should be, Indeed it's been my experience the emotion of fear generally has limited value, especially when there is work to be done.

[Krazy P]

Money velocity - especially the best guess about M3 - has tanked (as I am sure you are aware).

That, along with numerous other indicators, especially the actions of Mr. B, tell us that deflation is the fear. And it is a big fear.

Mr. B has gone through all the steps outlined in his 2002 speech on the subject, is still printing and velocity is still in the tank. Not good.

BRIC is the main reason for long term optimism. Brazil, Russian, India and China have the largest emerging middle class in the history of the planet - and it is huge.

Whoever sells them stuff they need will be rich beyond their wildest dreams. This will take time, however. Maybe a decade or so if we go down Japan's path.

So, learn Chinese!

P.S. The Fed is actually exchanging US Treasuries for Fannie and Freddie securities that foreign governments hold through a custodial account to flood even more dollars into the world economy. Velocity is still not budging. For you nerds out their, the St Louis Fed is the best source for info re these issues.

[zibber]

Every time I try to imagine what the future holds for the economy, I come away with a really bad feeling. I don''t see any new drivers for job growth on the horizon, personal and institutional debt continue to grow exponentially, and government chooses to reward the bad behavior of "too big to fail" financial institutions in order to save the economy from collapsing while at the expense of introducing moral hazard. I'm worried that the middle class will disappear and we'll end up like Brazil with one small super rich group and a huge population of people just trying to scrape by.

Does anyone have a more positive outlook on the future?

SOCIALISM

No, not an evil dictatorship.

People working together, for each other.

No mechanisms that allow a small group of people with capital to keep drawing away money from the lower/middle classes.

There always has been enough for everyone. There is no crisis other than the crisis of individualist, wild west, dog-eat-dog capitalism.

(Yes, in order to restore some normalcy we're all going to have to share. I'm very sorry about this.)


BRIC is the main reason for long term optimism. Brazil, Russian, India and China have the largest emerging middle class in the history of the planet - and it is huge.

Whoever sells them stuff they need will be rich beyond their wildest dreams. This will take time, however. Maybe a decade or so if we go down Japan's path.

So, learn Chinese!

Or: listen to the crazy man and start the next cycle. See you in, what, twenty years?

[Seducer]

There's no economic problem as far as I'm concerned. My online sales have increased quite a bit since all that banking/mortgage crisis started. Sales are still good. If anybody is having a financial problem, then as far as I'm concerned it is their own fault and they have to find a way out of it.

[elsdfr]

If you are talking the US then any form of inflation should do the trick. Its seems to me like someone knowing they have cancer but they are unwilling to tell the whole family about it or seek treatment due to some kind of religious believe.

Or you could just do the Japanese thing and leave rates low and allow your economy to grow from the ground up again but I'm not sure how well that will go with the USD being the reserve currency.

[Lucid]

If anybody is having a financial problem, then as far as I'm concerned it is their own fault and they have to find a way out of it.

Wow. That's got to be the most ignorant and naive thing I've heard someone say in a long time. Let them eat cake, right Seducer? lol

[RBM]

This guy is generating some buzz elsewhere in cyberspace:

The Economy is a Lie, Too By PAUL CRAIG ROBERTS (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

Americans cannot get any truth out of their government about anything, the economy included. Americans are being driven into the ground economically, with one million school children now homeless, while Federal Reserve chairman Ben Bernanke announces that the recession is over.

The spin that masquerades as news is becoming more delusional. Consumer spending is 70% of the US economy. It is the driving force, and it has been shut down. Except for the super rich, there has been no growth in consumer incomes in the 21st century. Statistician John Williams of shadowstats.com reports that real household income has never recovered its pre-2001 peak.

The US economy has been kept going by substituting growth in consumer debt for growth in consumer income. Federal Reserve chairman Alan Greenspan encouraged consumer debt with low interest rates. The low interest rates pushed up home prices, enabling Americans to refinance their homes and spend the equity. Credit cards were maxed out in expectations of rising real estate and equity values to pay the accumulated debt. The binge was halted when the real estate and equity bubbles burst.
...
That's his warmup
...
Try to find some acknowledgement of this in the “mainstream media,”
or among economists, who suck up to the offshoring corporations for grants.

Looking ahead:

The worst part of the decline is yet to come. Bank failures and home foreclosures are yet to peak. The commercial real estate bust is yet to hit. The dollar crisis is building.
When it hits, interest rates will rise dramatically as the US struggles to finance its massive budget and trade deficits while the rest of the world tries to escape a depreciating dollar.

Since the spring of this year, the value of the US dollar has collapsed against every currency except those pegged to it. The Swiss franc has risen 14% against the dollar. Every hard currency from the Canadian dollar to the Euro and UK pound has risen at least 13 % against the US dollar since April 2009. The Japanese yen is not far behind, and the Brazilian real has risen 25% against the almighty US dollar. Even the Russian ruble has risen 13% against the US dollar.

What sort of recovery is it when the safest investment is to bet against the US dollar?

There's more.

And this author isn't some lefty commie:

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions. This fall CounterPunch/AK Press will publish Robert's War of the Worlds: How the Economy Was Lost. He can be reached at: To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.

[TheHmmmm]

1) Cut government spending. Suspend pork barrel projects, eliminate ear marks, sell all stocks owned by the government. End any talk of public health care. The dollar has been weak for too long. Time to shore it up a bit

2) Cut taxes across the board. Let those who earn it keep more of it.

3) Terminate all bailout agreements. Let companies that can't stand on their own fall. Keeping failing companies upright just prolongs the pain.


That's a good start right there.

As much as I love personal responsibility, allowing large companies to fail might lead to a depression. As the large companies begin to fail shareholders pull their stocks out causing the company to plummet further. Because our economy is supported by a nice, tightly woven net of large companies we cannot afford to lose such crucial strings.

I agree with Hamilton on this one; you can't let the rich fail. While the working class is vital as well, it's much less likely that the class will collapse. It's very easy to crash Wall Street, however.

[MikeC]

I agree with Causa Mortis' regurgitated economic theories; but the fundamental solution is simple, yet seemingly difficult to implement in practice:


Save a higher %age of your discretionary income
Spend less

[timetraveler]

Every time I try to imagine what the future holds for the economy, I come away with a really bad feeling. I don''t see any new drivers for job growth on the horizon, personal and institutional debt continue to grow exponentially, and government chooses to reward the bad behavior of "too big to fail" financial institutions in order to save the economy from collapsing while at the expense of introducing moral hazard. I'm worried that the middle class will disappear and we'll end up like Brazil with one small super rich group and a huge population of people just trying to scrape by.

Does anyone have a more positive outlook on the future?


War and a draft is the only thing that will pull the US economy out of the brink and even that probably wont work with the corrupt leaders we have. But if our leaders weren't corrupted then the solution is simple, invest 1 trillion dollars a year every year into small businesses and the US economy would create more jobs than we'd know what to do with. This will never happen though because big businesses control the US gov and they don't want competition from small businesses.

[realJim]

This isn't the first, last, or worst of the economic downturns, and I'm only aware of one primary resource scarcity that is actually materializing.

Lots of sound thoughts, Causa Mortis and others.

These are unprecedented times. When GW said, "outsourcing will permit Americans to pursue more valuable activities", I lost the last shred of belief in him. I guess our more valuable activities are looking for new jobs along with a lot of other people looking for where the cheese has moved to.

Government spending is borrowing on tomorrow's income. We will pay for that soon.

Commercial real estate is the other shoe that is dropping now. Residential is still falling down.

What to do? Ride the short term rise of the markets and bail before the next crash. Kind of like the hokey pokey, put your money in, take your money out, buy some cans of pork and beans and shake them all about....

seriously, I'm worried.

[elsdfr]

There's not much point saving cash when its going to be inflated away.

Plus someone has to pay back the debt.

There is no easy/painless solution, should be interesting though.

[lurk]

Ithe fundamental solution is simple, yet seemingly difficult to implement in practice:


Save a higher %age of your discretionary income
Spend less


Problem is that what's good for the individual is bad for the economy at large, i.e. the paradox of thrift (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.). When lots of people do what MikeC suggests, it brings about precisely what we're seeing - credit deflation. Ultimately I see that as a good thing since the credit conditions that prevailed in 2000 thru 2007 were completely insane. But the adjustment process is surely painful.

[alrightgame]

Sell marijuana, then enforce it. I'd imagine this could at least put a dent in the national debt.

Also, it isn't about spending less and saving, it is about spending less and investing smartly. When you invest smartly, it will save you money and it also becomes invested in the economy. It is a shame about the bad business practices floating around totally destroying those who do invest though. This is my understanding of it, but I am not an economist, so correct me if I'm wrong.

[Visum]

The words, fleeting, sea-saw, and floating around remind me of another global indicator.

Revealed: The ghost fleet of the recession anchored just east of Singapore (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)
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[elsdfr]

Taxes on industries that use a lot of "bad" energy are OK provided there are incentives or alternatives for these industries to take.

Everyone wants manufacturers to be green but no one wants to pay for it.

I think the post-industrial age may be coming to a end and if the US it to lead the way (survive) then it will have to again have to be the leader in these new industries.

I don't think we have seen a bottom yet either. The last year was just a distraction.

[Architectonic]

1) Cut government spending. Suspend pork barrel projects, eliminate ear marks, sell all stocks owned by the government. End any talk of public health care. The dollar has been weak for too long. Time to shore it up a bit

2) Cut taxes across the board. Let those who earn it keep more of it.

3) Terminate all bailout agreements. Let companies that can't stand on their own fall. Keeping failing companies upright just prolongs the pain.


4) Allow free banking so that guys like Greenspan don't keep fucking up your economy by encouraging irrational exuberance.

By fudging the CPI to remove the effects of land values, economists created the bubble and the subsequent contraction.

[MikeC]

Problem is that what's good for the individual is bad for the economy at large, i.e. the paradox of thrift (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.). When lots of people do what MikeC suggests, it brings about precisely what we're seeing - credit deflation. Ultimately I see that as a good thing since the credit conditions that prevailed in 2000 thru 2007 were completely insane. But the adjustment process is surely painful.

Well, I posed the old adage not as a fixer-upper to the current situation, but as a basis to avoid such calamity to adversely affect oneself. You can never do poorly when growth is organic - spending beyond one's means is just silly. This applies at both individual and macro levels.

I don't see how saving rates would improve, though. The credit card culture is pervasive, and here to stay. Given the debt levels, the opportunity cost of saving is simply tremendous.

Of course, I am not saying that one has to save all the time. That would be just as silly. I barely made it during the '97 Asian crisis - but have learnt to save when others are borrowing, and to spend when others are selling their soul to borrow even more. Lady Rothschild was right.

The quickest answer is to default on payment and have a ticketyboo adjustment period - but this would mean an increase in transaction costs, and ultimately total cost of living, in the future.


Question: Do you guys think it is the government's job to "fix" the economy?





MikeC added to this post, 8 minutes and 50 seconds later...

Sell marijuana, then enforce it. I'd imagine this could at least put a dent in the national debt.


Who are you going to export it to, I dare ask?


Also, it isn't about spending less and saving, it is about spending less and investing smartly. When you invest smartly, it will save you money and it also becomes invested in the economy. It is a shame about the bad business practices floating around totally destroying those who do invest though. This is my understanding of it, but I am not an economist, so correct me if I'm wrong.

saving isnt half bad. The decision to invest is dependent on one's aversion to risk. Buy hey, investing is not for everyone. If you want to make passive real earnings over inflation, let an agent (i.e. banks) guarantee minimal risks and provide baseline 'investment' returns for you.

[LincolnBeardGuy]

In order to revive the economy we need to do two things primarily:

1) Employ more people in productive and sustainable ventures that produce real wealth
2) Stop spending more than we produce

The FIRE (Finance Insurance Real Estate) economy has shifted American workers from productive wealth-producing ventures to non-productive FIRE industries for several decades now. In 2008 the FIRE bubble finally burst.

In order to live increasingly higher standards of living, people need to generate real wealth not paper wealth. Real wealth consists of things like food, energy, tools, shelter, etc. In order to produce wealth you need people working in food production, energy generation, healthcare, manufacturing, tangible services like plumbing, etc. While things like insurance, bonds, stock trading, etc are necessary to some degree in a modern society they cannot be the entire basis for national wealth.

In the FIRE economy everyone wanted to get rich by trading stocks, swapping houses, speculating with financial instruments, or by any means except actual wealth production. It was totally uncool to "work" since everyone wanted to make money selling, trading, swapping, hedging, and insuring. People who worked an honest job were mocked, and people getting rich trading paper were respected.

FIRE activities suck productive resources from the economy. We now have millions of empty homes that were once prized investment assets but actually worth nothing to society since nobody lived in them. We spent the last three decades focusing on housing, financial services, and the stock market while our factories and industrial capacity were left to rot. For a while our impressive paper wealth was enough to convince the rest of the world to do the real wealth-producing work to subsidize our debt-fueled lifestyles.

The game is up as of 2008. The only sustainable recovery must involve a return to a real wealth-producing economy. Bailouts, financial stimulus, cash for clunkers and to date every single action enacted or proposed by the government will not solve the problem, as they are just another reincarnation of the same tired old theme that we can generate wealth by shuffling money and financial instruments around in a different way.

Part two is quite simple. Spending more than one produces in a simple but effective way to become a debt slave, and we're coming closer every day. Every dollar spent on debt service is one less dollar available to purchase real goods or services. Debt should never be used for consumption. Debt should only be used to finance the creation of ventures which will in time yield wealth greater than the cost of the venture required.

[timetraveler]

Small businesses create the jobs, we need to stop telling people to get a job and tell people to start a business. We need to give people the tools and money to do it rather than bailing out big businesses. But this can't happen because big businesses run government.

[Functianalyst]

This may be an oversimplification, but what can I say I am a SP looking from the perspective of common people. We first went wrong in trying to save big businesses, which made no sense if you do not save the consumers. Otherwise who will buy the products. There is an old saying that investors save, consumers spend. The economy needs for people to spend.

I think we will see a paradigm shift. Consumers found themselves caught with their pants down, in over extended credit card debt. Generally we have short memories of rececessions, so would be right back in the same predicament within 7 to 10 years. However this economic downturn is being compared to the Great Depression. People who lived during that era had a particular mindset and spending habits as a result. I think that we will see people cutting back on holiday spending and splurging.

In the end, you don't work your way out of these sort of conditions. Instead we weather the storm and one day it's over. Attempting to control economic conditions, in my opinion, is no different than attempting to control the weather. They're both futile.

[alrightgame]

I wonder if people are starving right now due to this so called "depression"?

Does anyone else dislike it when it is compared to the Great Depression?

[lurk]

Nor have I ever seen anyone suggest that the key gauge of a Fed Chief's ability to manage monetary policy was his return on personal assets.
Absolutely correct. My original comment was poor.

Well, I posed the old adage not as a fixer-upper to the current situation, but as a basis to avoid such calamity to adversely affect oneself.
Didn't mean to suggest otherwise.

Question: Do you guys think it is the government's job to "fix" the economy?Personally, I do not. I think that the best government can do to take steps avoid similar situations in the future. I tend to agree with Functianalyst that trying to control the economy is a bit like trying to control the weather.

Does anyone else dislike it when it is compared to the Great Depression?
Well history never repeats exactly, but there is some indication that the comparison is apt.
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[Functianalyst]

I wonder if people are starving right now due to this so called "depression"?

Does anyone else dislike it when it is compared to the Great Depression?I know quite a few people who lived in during the Great Depression. There was ample resources, food and everything else. People just could not afford to buy because lack of employment. If we reach the 25% unemployment rate from then, we would be far worse off.

Here is a tidbit about the Great Depression: A depression is a severe economic downturn that lasts several years. Fortunately, the U.S. economy has not experienced a depression since The Great Depression of 1929, which lasted ten years. The GDP growth rates were of a magnitude not seen since:
1. 1930 -8.6%
2. 1931 -6.4%
3. 1932 -13%
4. 1933 -1.3%.
During the Depression, unemployment was 25% and wages (for those who still had jobs) fell 42%. Total U.S. economic output fell from $103 to $55 billion and world trade plummeted 65% as measured in dollars.
The Depression was aggravated by poor monetary policy. Instead of pumping money into the economy, and increasing the money supply, the Federal Reserve allowed the money supply to fall 30%. The "New Deal" created many government programs to end the Depression, but government programs alone could not end it. Unemployment remained in the double-digits until 1941, when the U.S. entry into World War II created defense-related jobs.
A Depression on the scale of that in 1929 could not happen exactly the way it did before. Many laws and government agencies were put in place because of The Great Depression with the express purpose of preventing that type of cataclysmic economic pain. Central banks around the world, including the U.S. Federal Reserve, are so much more aware of the importance of monetary policy in regulating the economy.
However, there is only so much monetary policy can do without fiscal stimulus. The incredible size of the national debt limits government spending that could be used to stimulate the economy. Both monetary and fiscal policy are needed to prevent a global depression. Here are our GDPs since the end of 2006:Q2 2009 GDP: -1%
Q1 2009 GDP: -6.4%
Q3 2008 GDP: -2.7%
Q2 2008 GDP: 1.5%
Q1 2008 GDP: -.7%
2007 GDP: 2.1%
Q4 2007: 2.1%
Q3 2007 GDP: 3.6%
Q2 2007 GDP: 3.2%
Q1 2007 GDP: 1.2%
2006 GDP for the Year: 2.7% (Was 2.8%)
Q4 2006 GDP: 3% (Was 1.5%)

[thod]

In order to live increasingly higher standards of living, people need to generate real wealth not paper wealth. Real wealth consists of things like food, energy, tools, shelter, etc. In order to produce wealth you need people working in food production, energy generation, healthcare, manufacturing, tangible services like plumbing, etc. While things like insurance, bonds, stock trading, etc are necessary to some degree in a modern society they cannot be the entire basis for national wealth.


The problem with producing these 'real' wealth items is that there are no jobs there. One man driving a tractor produces enough food for an entire town. The same applies to manufacturing. We have gotten better and better at producing goods with less and less labour. Thus everything we need is provided with very few man hours of labour. This process will continue with smarter robots. All you consume in a week produced with a single man-hour of labour. We have a vast oversupply of labour. Everyone is trying to sell their labour into a market that does not need it. We have overcapacity in everything that can be made.

What is happening is that those fortunate to have jobs are producing goods for those who do not. They complain about the taxes going to welfare but they never offer to work fewer hours to allow another to be employed. The best way to cut unemployment is to mandate a 20 hour working week with fines for those that overproduce.

There is no shortage of 'real' wealth in terms of goods, the shops are full of them. The problem is people are unable to sell their labour at a high enough rate to buy those goods. It is not wise to stimulate the economy by promoting a throw away society. This would increase consumption and stimulate production but leads to resource depletion.

See the future. The outlook for those that sell their labour is bleak. Technology and overseas will continue to reduce the market. Anyone receiving a wage is selling labour. Those that think they are selling knowledge, are still selling labour since others will learn and enter that market. Capital is on the ascendency and labour on the decline. Those that own the automated factories can trade with each other, everyone else is redundant.

[nocturne]

Hi NoahAddle,

I mostly agree with Causa Mortis and Architectonic.

The crisis is that money velocity has fallen and that threatens deflation. However, I disagree with Causa Mortis that "animal spirits" explain the sudden increase in money demand.

A real misallocation of resources occurred into sectors like housing because of systemic price distortions. In short, the Federal Reserve expanded the money supply too much (i.e. money supply increased relative to money demand), and the Federal Government, through institutions like Fannie Mae and Freddie Mac, helped funnel these new dollars into sectors like housing. Since relative price distortions have a propensity to adjust back toward equilibrium, constant monetary expansion is necessary to maintain them. When the Federal Reserve eventually began to slow or halt monetary expansion, the bubble they had created finally popped.

Once old prices were revealed to have been sending false signals, a panic ensued and there was a "rush to liquidity" i.e. money demand spiked. In order to maintain monetary equilibrium (or velocity), the Federal Reserve had to flood the banks with money. However, the intent of the Federal Reserve is rather puzzling, because while expanding the monetary base they simultaneously started paying interest on bank reserves -- a policy that would reduce money velocity. I would also criticise other actions and pronouncements which, in my opinion, seemed to make the crisis worse by increasing fear and uncertainty in the financial sector.

Regards,
Lee

[Stickman]

People bash on services because it doesn't appear to produce anything tangible but it's actually an important part of the economy.

If there's a farm or factory where some "tangible" item is being produced then someone needs to: research what kind of people are interested in this item, transport them, market them so people know it exists, and coordinate this entire endeavor. Those are all services and would be essential actions in any economy, capitalist or otherwise.

Financial services have an important role in managing people's wealth. People with money are looking for people who need money for their mortgage, small business or whatever. Financial professionals broker this exchange and many others like it.

In my opinion, the problem with the economy currently lies in the mathematical models used to price capital. Individually the models are fine, but from a systems design point of view it's broken. I think in 7-8 days I might elaborate more on why I think this way but for now I won't offer an explanation even if you ask for it because I'll be in Cuba.

[MikeC]

There is an old saying that investors save, consumers spend. The economy needs for people to spend.


I think there is a point when you can overspend. And having budget deficit is one of the indicators. Particularly if income is spent on non-returning consumables.


What is happening is that those fortunate to have jobs are producing goods for those who do not. They complain about the taxes going to welfare but they never offer to work fewer hours to allow another to be employed. The best way to cut unemployment is to mandate a 20 hour working week with fines for those that overproduce.


You are making terrible assumptions here:

Labour is NOT perfectly mobile and transferable. Not anyone can be professionals or businesspeople.
Assuming those people who deserve to have the jobs (that they are fully capable of doing) are willing to take hour cuts. This is preposterous. You do not want brain drain from the economy. Why bother working part time when I won't be able to pay my bills anyway?


Let the market determine the price of labour. If you truly want to intervene, cut minimum wages instead. Businesses exist to make a margin, and entrepreneurs expect compensation for their capital and risks. Do not forget that.

But I am one to think that people have to much unfounded pride to be working in certain professions. I'm just sayin'.





MikeC added to this post, 4 minutes and 40 seconds later...

People bash on services because it doesn't appear to produce anything tangible but it's actually an important part of the economy.


I absolutely agree with you. The tertiary industry is a vital part of the new economy.

[saberu]

eliminate the federal reserve and eliminate almost all federal trade policy

let each state enforce the previous federal policy and slowely deregulate as it deems neccessary

eliminate the legal tender laws and let each state control its own banks , still of a national currency, under the guidance of the fed

eliminate the feds ability to create any type of public debt insrument

reduce federal income taxes to 7% permanently

allow money to be loaned only to private individuals and without interest, its the individual ability of each person to create a debt based currency and profiteering from someones promise to work hard and build for the future is wrong

allow all new business to not pay any taxes their first year

allow healthcare coverage for employees and their friends families to be a 100% tax write off

states should offer incentives for people creating new job markets in new industries

make it easier to get a building permit than it is to get a welfare check

allow businesses that spend more than the previous year a serious tax break

completely overhaul the public school system so that students are dumb as dirt and can actually perform

let each state run its own damn affairs so that we can simultaneously test 50 differnet economic models instead of just one!!!!

[realJim]

we may not be able to stop the decline of the economy, but we can name it! Instead of the Great Depression, we could call it the Era Responsible Of Times Increadibly Crappy Depression (EROTIC Depression). Any better ideas?

I liked the solution circulated as an internet joke. Give everyone over 50 (79 million of us) several million dollars (less than the current bailouts), providing that they that is, we ;) do the following

1) Quit Work, early retirement will provide many job openings
2) Pay your house off or buy a new one, this will help solve the housing crisis
3) Buy a new car, automakers will rejoice and hire many

I think of this as the 'trickle up' solution. Much better than the 'trickle down' solution, which brings up an image of fat cats pissing off the roof onto the masses clamoring for financial security.

[lurk]

Here is a tidbit about the Great Depression:
Here are our GDPs since the end of 2006:
It is certainly true that US GDP has not fallen nearly as much in 2008-9 as it did in 1929-30. I attribute this to the fact that GDP has been propped up by massive federal debt - both in the official federal deficit and in the dark recesses of the Federal Reserve. We are told that this is the proper response given current economic theory. However I hasten to point out that it is only a theory, and it remains to be seen whether the medicine (federal debt) will kill the patient (the economy).

Returning to the comparison, I suppose it would possible the compute the GDP loss that would have resulted in the absence of this financial stimulus, if only the real numbers were known. I can pretty much guarantee though that the current stimulus far exceeds anything that was done in 1930's. So my point is that comparing only US GDP numbers may be misleading.

[SuperBenjamin]

Yes. The current crisis is the result of a collapse in velocity. The Federal Reserve and the federal government have both responded appropriately and vigorously. Once velocity picks back up, the issue will be inflation, not growth.

This is a dumb statement. You supposedly mean an increase in lending and spending will bring back the economy? We can only produce/manufacture our way out of crises, not print our way out of crises. That was how America got out of the gr8 depression, through their manufacturing capability. You Americans don't have that now, honestly you produce nearly nothing now. This is not Economics 101 anymore, this is economics for dummies. The whole crises was started when Tim Geithner introduced new laws that prevented the US gov to control the derivative bubble the second allow the banksters to create more exotic derivative that is backed by nothing. They allowed the use of Gaussian Copula function that price CDO with no statistics on any data to back it up (the function dumb down the quants, so that they won't pick up anything). The crises rooted from Tim Geithner and the derivative. Did they fire him? No they made him an adviser to your beloved Obama. I like Americans in general(I was even educated there) but honestly many of them seems really shortsighted and unbelievably biased.

The only thing that can pull the economy back for real is when you folks face the truth and fight for your freedom. Frankly Good luck with that.

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[elsdfr]

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Ouch.. so he's saying the instruments that created this mess wouldn't have been possible if the banks hadn't lobbied for trading regulations to be removed in 2000? Here I was thinking these regulations where never there in the first place... oh that burns!

[jimnorris]

(1) the markets have never really been allowed to correct themselves. this is a trademark of a capitalistic society. markets do fluctuate and when they become troubled they correct themselves.

(2) get government off the backs of entrepreneurs. you can not progressively confiscate more of what they produce and expect continued growth.

(3) forbid government bailouts/buyouts. if you own a business and you fail to manage it properly, sorry but you failed. no bailout. on the flip side, the government ought not be allowed to simply take over a corporation. the only reason GM can offer 60 day return on new cars is because the taxpayer is now backing them. if they were totally private they would never offer such a deal.

(4) this is my personal peeve. restore the beauty of owning property. if the government does not recognize my right to own property and dispose of it as i see fit then what is the reason for me to exercise my creative talents and buying power. if my property can just be taken from me then it was never really mine to begin with.

[realJim]

(4) this is my personal peeve. restore the beauty of owning property. if the government does not recognize my right to own property and dispose of it as i see fit then what is the reason for me to exercise my creative talents and buying power. if my property can just be taken from me then it was never really mine to begin with.

Eminent domain is a necessary evil that is SO abused. Yes, I can see the value of putting in a new highway or train line, BUT too many profiting and corrupt people are using it to pad their wallets. Everyone that is facing eminent domain claims on their property should have the right to challenge the claim at least 3 levels higher (probably at the federal level), AND be able to charge abusers with criminal intent and/or punitive damage. At MINIMUM, they should be compensated at TRUE fair market value, not a cooked up value by the takers.

[Functianalyst]

It is certainly true that US GDP has not fallen nearly as much in 2008-9 as it did in 1929-30. I attribute this to the fact that GDP has been propped up by massive federal debt - both in the official federal deficit and in the dark recesses of the Federal Reserve. We are told that this is the proper response given current economic theory. However I hasten to point out that it is only a theory, and it remains to be seen whether the medicine (federal debt) will kill the patient (the economy).

Returning to the comparison, I suppose it would possible the compute the GDP loss that would have resulted in the absence of this financial stimulus, if only the real numbers were known. I can pretty much guarantee though that the current stimulus far exceeds anything that was done in 1930's. So my point is that comparing only US GDP numbers may be misleading.Clearly we cannot make an accurate comparison since we are still in the current recession. I think the comparison to the Great Depression is based on the fact that this is the worst recession in modern times and because it exceeds any past recessions, the only comparison is to the 1930s. Can anyone think of anything worse since that era?

We may be able to compare it to some recessions during the 1800s, but it would be almost impossible since we did not keep data. I think that a compelling sign will be how much this recession changes the world's mindset on spending habits and consumption.

[alrightgame]

That was how America got out of the gr8 depression, through their manufacturing capability. You Americans don't have that now, honestly you produce nearly nothing now.
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Manufacturing of cheap flying vehicles for everyone! Come on, Americans can be the first to take to the skies and sell them to foreign nations!

[Causa Mortis]

This is a dumb statement.

Let's examine your arguments that a) have zero supporting evidence b) have little supporting rationale and c) are often factually inaccurate.

You supposedly mean an increase in lending and spending will bring back the economy?

You don't understand the meanings of the term "money supply" and "velocity". Velocity is the rate at which money changes hands in an economy. When people start hoarding money and lending collapses, consumption and investment both collapse. A collapse in consumption and investment means unemployment. That's precisely what's happened, and yes, "lending and spending" are vital economic activities and, when they collapse, real economic activity collapses behind them.

We can only produce/manufacture our way out of crises, not print our way out of crises.

So, you're saying that the only meaningful economic activity is manufacturing? That agricultural goods, doctor's visits, university education, etc, have no value? Asinine.

That was how America got out of the gr8 depression, through their manufacturing capability.

This is the silliest analysis of the "gr8 depression" I've ever read.

The Great Depression was caused by a collapse in velocity followed by a large reduction in the money supply, and was worsened by protectionist and anti-market measures. This has been firmly established by Friedman and Schwartz, and saying it was "manufacturing capacity" is just asinine - per hour productivity in manufacturing expanded significantly during the Depression. The problem was that there was no demand for the goods that were produced, which was due to the collapse in velocity and money supply.

The Great Depression ended when aggregate demand picked up with the massive government expenditure and accommodating federal resrve in the second world war. And, yes, this was achieved with "lending and spending" to generate demand for industrial production.

You Americans don't have that now, honestly you produce nearly nothing now.

You have no idea what you are talking about. Its the leading industrial producer and the 2nd largest exporter. It also has the world's largest GDP and the highest GDP/person among large nations.


GDP (purchasing power parity):
$14.26 trillion (2008 est.)

GDP - composition by sector:
agriculture: 1.2%
industry: 19.2%
services: 79.6% (2008 est.)

Labor force - by occupation:

farming, forestry, and fishing 0.6%, manufacturing, extraction, transportation, and crafts 22.6%, managerial, professional, and technical 35.5%, sales and office 24.8%, other services 16.5%
note: figures exclude the unemployed (2007)

Industries:
leading industrial power in the world, highly diversified and technologically advanced; petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining

Exports:
$1.291 trillion (2008 est.)
country comparison to the world: 4
$1.148 trillion (2007 est.)

Exports - commodities:
agricultural products (soybeans, fruit, corn) 9.2%, industrial supplies (organic chemicals) 26.8%, capital goods (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment) 49.0%, consumer goods (automobiles, medicines) 15.0% (2003)


The whole crises was started when Tim Geithner introduced new laws that prevented the US gov to control the derivative bubble the second allow the banksters to create more exotic derivative that is backed by nothing.

1. Only Congress and the President can create laws.
2. The crisis started before Geithner was in a position of significant authority.
3. Financial bubbles themselves do not cause a doubling of unemployment.


hey allowed the use of Gaussian Copula function that price CDO with no statistics on any data to back it up (the function dumb down the quants, so that they won't pick up anything). The crises rooted from Tim Geithner and the derivative. Did they fire him? No they made him an adviser to your beloved Obama. I like Americans in general(I was even educated there) but honestly many of them seems really shortsighted and unbelievably biased.

Yeah all the ad homs in your post are cute but, given the quality of your arguments, difficult to take seriously.

[SuperBenjamin]

I have all the facts and evidence, I just can't be bothered to collect them and type them here. From how you sound you are too brainwashed to the point that facts means nothing to you. There are better things to do with my time then trying to convince you when the evidence is soooo easy to get and obvious. You are talking about the symptoms of the problem, what the media want you to believe. I am talking about the root of it which I have just expressed.

[Causa Mortis]

I have all the facts and evidence, I just can't be bothered to collect them and type them here. From how you sound you are too brainwashed to the point that facts means nothing to you. There are better things to do with my time then trying to convince you when the evidence is soooo easy to get and obvious. You are talking about the symptoms of the problem, what the media want you to believe. I am talking about the root of it which I have just expressed.

Whatever dude, I'm calling copout.

If you're going to call other people's arguments "dumb" be prepared to back your shit up. I backed mine up with a) evidence b) supporting rationale and c) demonstrated factual inaccuracies on your part. You've responded with "I can't be bothered".

[Hanfgeist]

At this point the world financial system is close to total collapse and I suspect that the post industrial western nations are now at the end of the line regarding the borrowing, money printing and other financial jiggery pokery they can do to keep it all running and are now in a state of total denial about this, the only thing that can bring them back now is a really big conventional war or a plague (don't think that this isn't being considered by TPTB)

In the case of the war, that will get production and demand going again and also get rid of a lot of welfare and social security claimants, the boom times will be back....

In the case of the plague, that will get rid of the welfare claimants and leave a shortage of workers so wages and contract rates will rise, giving those remaining more purchasing power to buy all that shiny stuff in the stores so again the boom times return....(this happened after the black death in Europe)

[lurk]

At this point the world financial system is close to total collapse and I suspect that the post industrial western nations are now at the end of the line regarding the borrowing, money printing and other financial jiggery pokery they can do to keep it all running and are now in a state of total denial about this
I concur. I think that for the past several decades the definition of wealth has morphed into the notion that it can be created through debt. I don't believe it can.

[Cimejes]

I do see a recovery on the horizon. The growth that we've had was based largely on consumer and corporate debt and was irresponsible and unsustainable I don't see how to can get out of this until we find a way for our economy to function that isn't 70% consumer spending and allows for saving. Or else we'll end up with European levels of unemployment and be in economic purgatory like Japan was/is.