patrick.net

Blurtman says

Somebody has to help control inflation, after all, and so unemployment, underemployment and crappy wages are an expression of patriotism.

This is a consequence of devaluing the dollar as well, as imports become more expensive. It forces savings at the consumer level and at the government level. It has to do with the current account, as the dollar is devalued American products become cheaper to foreign countries. Which drives down imports and drives up exports.

If the goal is to circulate money in the economy, cut the hell out of taxes for the lower and middle class.

What will be the catalyst for that 4 trillion to get circulating?

Blurtman says

Right. But how do you propose that the $4 trillion will get circulated? Wages are flat. Folks have exited the labor force. Many workers are underemployed.

A small fraction of society can be allowed access to the money, but not most folks. Somebody has to help control inflation, after all, and so unemployment, underemployment and crappy wages are an expression of patriotism.

True.

To some extent all that is needed is that people start spending a bit more. Then inflation takes off and everyone (who has cash) rushes to spend before prices go up, pushing prices even more.

I don't think this would happen. It will take a long time for money to circulate, but it will.

I don't know if I would call it hoarding but yes, I'm not buying a lot of things right now.

The Feds' Keynesian mumbo-jumbo is seriously broken.

They honestly do believe that they can stimulate an economy by bringing forward demand by devaluing savings and using inflation pressure to get people to buy stuff right now.

This can work for a little while, but it's not sustainable, you can't bring demand forward forever, and we've reached the point where ZIRP and QE are no longer working. People are tapped out. No matter how low the interest rate, you're not going to get more credit if you're in debt up to your ears already. There is simply very little creditworthy demand to bring forward anymore. We're in for a crash.

As for inflation, that's a hard thing to predict for a reserve currency. If we were Zimbabwe, we'd probably have a similar monetary trajectory, but we're not. The value of the dollar is driven by supply and demand, like any other commodity. The Fed has certainly increased supply, but international economic problems have also increased demand, since the dollar is still respected worldwide. Losing 97% of its value in a century is a lot better than losing that much in a few years (Argentina, Venezuela, for example).

Whether we have inflation is tied a lot to the trade deficit as well. America is a net importer of stuff, and a net exporter of dollars. People all over the world are taking our paper in exchange for goods. If I ever see the deficit start decreasing, that's when I'll start to worry about inflation, because those dollars are no longer exported and they'll drive prices up at home.

sbh says

No, money is held, in whatever form, because it's possessed in quantity by less and less of us. Those who have virtually no choice but to spend everything they have are great in number but low in aggregate ownership.

For me, this is true: I save more because what I save earns less. I really want to retire at some point in this life.

I also completely agree that many people don't have the option of saving. I guess I think that both of these can be true.

So what if we have low interest rates if only a small percentage of people can take advantage of them. I don't see how this is helping the majority of folks.

bg says

For me, this is true: I save more because what I save earns less. I really want to retire at some point in this life.

This desire to retire sometime is actually what drove the creation of Social Security _after_ the Fed's policy of inflation. Social Security wasn't needed pre-fed, since increasing efficiency drove prices down, and things like housing were priced as shelter, not as investments. Once the evil fuckers at the Jekyll Island meeting which created the Fed started devaluing the dollar, the public saw their future livelihoods in peril, and so, the time was ripe for the government to fix a problem it had created.

I'm so pissed at those political motherfuckers. I'm well past the halfway point of my working life, and I'm seeing it more difficult to provide the basics for my family. Sure, I live in an expensive area, but I drive a 20-year old car that I fix myself because I have no alternative, and as cost of living goes up, I've been unable to save as much as when I was younger and earning less.

This is another thing about official inflation - the numbers are bullshit. My housing costs, food costs, energy costs, and transportation costs have increased a good 5x in the time I've been working. My income has about tripled.

Analyzer says

So what if we have low interest rates if only a small percentage of people can take advantage of them. I don't see how this is helping the majority of folks.

It's not supposed to help folks, at least not directly. It helps business, as their cost of capital is lower. In olden times, that would help people as businesses would hire. It would also expand consumer borrowing theoretically as interest rates would be lower. But things are a bit broken now. Companies are borrowing cheaply to buy back stock. Created jobs can be overseas. A lot of consumers are tapped out plus have dodgy credit histories which matters unless you are a company. And cheap money means more Wall Street speculation.

Blurtman says

Analyzer says

So what if we have low interest rates if only a small percentage of people can take advantage of them. I don't see how this is helping the majority of folks.

It's not supposed to help folks, at least not directly. It helps business, as their cost of capital is lower. In olden times, that would help people as businesses would hire. It would also expand consumer borrowing theoretically as interest rates would be lower. But things are a bit broken now. Companies are borrowing cheaply to buy back stock. Created jobs can be overseas. A lot of consumers are tapped out plus have dodgy credit histories which matters unless you are a company. And cheap money means more Wall Street speculation.

So what is wrong with the following suggestion?

cut the hell out of taxes for the lower and middle class

sbh says

Analyzer says

So what is wrong with the following suggestion?

cut the hell out of taxes for the lower and middle class

Nothing, but the GOP will insist on doing it for the wealthy as well, and that will worsen the deficit. The wealthy have to pony up if tax relief is to come to the lower and middle class, but the wealthy own the GOP, and Tea Party terrifies the GOP, so the deficit will keep the tax cuts from coming until the GOP wins the WH, at which point deficits will once again not matter. But they'll probably do tax reform for businesses instead, trying a new round of trickle down in truer conservative fashion.

Why do you hate the job creators? :>)

sbh says

As to buying, if, as most do, I need to borrow in order to purchase a house, an increase in borrowing costs makes the house more expensive, not the other way around. I don't see it as driving down the cost of the house, I see it as forcing a different (cheaper, smaller, etc.) house to be bought.

In that scenario, the higher priced homes would come down in price and the smaller homes might increase in price as the demand would shift to them because of the higher interest rates

myob says

This can work for a little while, but it's not sustainable, you can't bring demand forward forever, and we've reached the point where ZIRP and QE are no longer working. People are tapped out. No matter how low the interest rate, you're not going to get more credit if you're in debt up to your ears already. There is simply very little creditworthy demand to bring forward anymore. We're in for a crash.

Commercial and Industrial Loans are up:
http://research.stlouisfed.org/fred2/series/CIBOARD?cid=100

Overall bank credit is up:
http://research.stlouisfed.org/fred2/series/TOTBKCR?cid=101

There is a reason the feds are tapering.

Heraclitusstudent says

There is a reason the feds are tapering.

Because the majority of people are hoarding money?

Analyzer says

cut the hell out of taxes for the lower and middle class.

Agree.

No one with income under $100K or assets below $1M should pay taxes.

zzyzzx says

How can people be "hoarding money" when so many people are so far into debt?

How about Gates, Buffet, etc start spending their hoards first?

John Bailo says

Analyzer says

cut the hell out of taxes for the lower and middle class.

Agree.

No one with income under $100K or assets below $1M should pay taxes.

I am reasonable, lets just start with 1 year of no income taxes. These people need to have some guts to try something out of the box. It is undeniable that more money would be flowing in the economy as the result.

Analyzer says

I am reasonable, lets just start with 1 year of no income taxes.

I'm against income taxes and business taxes of any kind.

John Bailo says

Analyzer says

I am reasonable, lets just start with 1 year of no income taxes.

I'm against income taxes and business taxes of any kind.

Capital gains, estate, death taxes are a complete joke and a form of robbery.

Analyzer says

Capital gains, estate, death taxes are a complete joke and a form of robbery.

Taxing someone with $100K of income and no assets is insane.

John Bailo says

Analyzer says

Capital gains, estate, death taxes are a complete joke and a form of robbery.

Taxing someone with $100K of income and no assets is insane.

How do these rich law makers look themselves in the mirror?

Analyzer says

How do these rich law makers look themselves in the mirror?

They have a servant polish it with a baby seal skin chamois, while serving them caviar from a solid gold platter.

myob says

Analyzer says

How do these rich law makers look themselves in the mirror?

They have a servant polish it with a baby seal skin chamois, while serving them caviar from a solid gold platter.

Great, I knew it had to be different from how we do it.

The fed is filled with a bunch of morons.

It is obvious that wealth inequality is growing in the U.S.-
http://economix.blogs.nytimes.com/2014/04/02/the-wealth-gap-is-growing-too/?_php=true&_type=blogs&_r=0

That means that the rich are getting even richer. The rich do not need to spend 80% of their paycheck as a middle class family does.

This the fed calls "consumers" are hoarding.

This QE experiment shows that a interventionist monetary policy often causes more harm than good and that the goals of monetary policy are far more elusive than the central planners claim.

John Bailo says

alyzer says

I am reasonable, lets just start with 1 year of no income taxes.

I'm against income taxes and business taxes of any kind.

income tax is pernicious enough but then you take what is left over and buy a mutual fund and make a little money on it, so they tax your gain there. Then you die and they tax what's left

smaulgld says

John Bailo says

alyzer says

I am reasonable, lets just start with 1 year of no income taxes.

I'm against income taxes and business taxes of any kind.

income tax is pernicious enough but then you take what is left over and buy a mutual fund and make a little money on it, so they tax your gain there. Then you die and they tax what's left

I think most agree that we all should pay some of the tax burden, it is the double and triple taxation that is unnerving.

Ok, I confess ... I'm hoarding money, so that I can see some whores!

Where does one draw the line between saving and hoarding?

dublin hillz says

Where does one draw the line between saving and hoarding?

When the 1% does it, it's saving, when the low/middle class does it, it's hoarding.

This guy makes my exact point re dollar demand around the 7 minute mark http://goldswitzerland.com/?p=17129

smaulgld says

This guy makes my exact point re dollar demand around the 7 minute mark

That was interesting. I guess we have inflation from the QE but also foreigners wanting value for their dollar.

What I also found interesting was his simple analysis that the world was out of balance regarding financial services.

Also he said that bond yields and interest rates have never been this low going back centuries.

He said financial services have become parasitical to the economy.

IOW the world is over leveraged which portends deflation. The Fed will keep it going as long as possible but at some point there has to be a rebalancing.

Its all about financial services
We dont produce more stuff we just produce more dollars

smaulgld says

Its all about financial services

We dont produce more stuff we just produce more dollars

Actually, we produce more fictitious financial products.

& we produce dollars in abundance!
http://patrick.net/?p=1248758

smaulgld says

We dont produce more stuff we just produce more dollars

There will be a re balancing willy nilly. And it is going to be ugly.

Not just regarding the financial services but with foreign trade.

If you look at it as Chris Martenson does we have peak oil, peak economy (leverage) and peak environment. I think technology can solve the energy and environment but the leverage of everything financial has got to change to sound money. Regardless of anyone's disposition, it will change willy nilly.

indigenous says

If you look at it as Chris Martenson does we have peak oil, peak economy (leverage) and peak environment. I think technology can solve the energy and environment but the leverage of everything financial has got to change to sound money. Regardless of anyone's disposition, it will change willy nilly.

good point, you can use technology to solve your energy problems but not your debt ones