patrick.net

indigenous says

Instead of the money going to these failing sources it would instead go where
there is real demand.

OK great. Please illustrate by telling everyone where demand exists that is not being met because of lack of capital.

sbh says

indigenous says

no main st companies were in ANY danger as it would not have spread.

You say lot's of dumb shit all the time but this one takes first place. Main street mom and pop businesses don't make payroll from petty cash, they borrow it. They don't purchase inventory with petty cash, they borrow it. The banking system was the width of a piece of paper away from seizing up because no one could calculate the solvency of any source of lending: everyone was too risky; there was no financial trust; we were one moment from disaster. You're willing to say anything, AND you're an idiot.

Read my response above.

tatupu70 says

indigenous says

Instead of the money going to these failing sources it would instead go where

there is real demand.

OK great. Please illustrate by telling everyone where demand exists that is not being met because of lack of capital.

That is the cool part nobody knows. It was Captain Shudup who said the economy never grows the same was as it did before a correction.

In 1983 who could have foreseen home computer taking off, in the early 90's who could have foreseen the impact of the internet.

Krugman said "By 2005 or so, it will become clear that the Internet's impact on the economy has been no greater than the fax machine's."

If the investment capital is mis-allocated in GM or GS or ... it is not available to finance small companies to grow investment in producer goods to meet real demand.

sbh says

You haven't said anything new in so long everyone on this forum could make your kool-aid talking points for you.

That is encouraging.

indigenous says

That is the cool part nobody knows

I'm laughing. So, you're saying there are businesses starved for capital. Or ideas that aren't being exploited becuase of lack of funding. All the while interest rates are at or near all time lows??

How do you reconcile that? Does that make sense in your world??

Investors are putting their money in treasuries earning slightly more than nothing instead of into these great ideas that are dying from lack of capital??? It's ridiculous. Even for you.

indigenous says

No, Main St was impacted because of the bailouts.

The problem is the market was not allowed to clear.

The mass layoffs happened way before the market would clear anyway. Mainstreet was impacted by the crisis.

It is clear that you need to purge the rot created by the bubble. No one contests that. That means writing off loans, foreclosing houses, reducing extra capacity where it applies. But if you do it by destroying the entire financial system, you destroy far more than what should be cleared. Especially in a high debt environment like we had. The fallout would have been explosive.

It's like doing a hair cut with a guillotine.

The market clearing happens regardless of everything else. It's just less painful to do it overtime even if the price is low growth for a while.

indigenous says

Only the highly leveraged financial companies would have been hurt.

That is a large number of US companies, representing a large percent of the GDP and a large number of jobs.

The question is do you consider that they are themselves "malinvestments" and purge them, just because of high leverage, or do you consider that they are sustainable a priori until proven otherwise.

Lets take a look at this hypothetical scenario. A risk averse saver with $100,000 in the bank in beginning of 2008. His competitor is a low level 1 percenter who had $5 million in stock market in index fund. Lets also say that he/she had 10% of assets in cash ($500,000). So, their wealth disparity is 5.4 million. Lets assume that conservative saver managed to save $20,000 in 2008. Ending value = $120,000 cash savings. The one percenter lost 37% in the index fund in 2008 - so their account value at end of 2008 is $3,348,500 + original 500K = $3,848,000. Lets assume they balled and spent all their savings since they got compacent. End of 2008 wealth disparity = $3,728,500. Thus, the wealth disparity difference between beginning of 2008 and end of 2008 is $1,671,500 - that's how much closer the conservative saver with much more modest means was to the 1 percenter investor.

And then QE occured. Index fund had positive years every single year since then in no small part due to QE. By my calculations, by end of 2013, the account value of the 1 percenter is almost $7,640,000. Assuming that conservative risk averse saver still managed to save $20,000 per year, that amounts to wealth disparity of ($7,640,000+ $500,000) - ($120,000 + $100,000) = $7,920,000 by end of 2013. So, yes, it is undoubtedly correct that QE ifluenced stock market climb enhanced wealth disparity. And that's assuming that the 1 percenter made no additional savings at all!

On a further note, the assumption that the 1 percenter would pounce on everything at "fire sale" prices is very hard to believe. That's only true if they had their assets in cash. But most american high rollers are in the stock market. So, to assume that they would look at their decimated portfolio and decide to cash out to buy other assets at "fire sale" prices runs counter to most people's psychological makeup. I think they would be more likely to jump off the bridge or stand in front of caltrain....

Heraclitusstudent says

In the same family, you may have 25 yrs old millennials who have nothing, and are starting in a bad job market with a debt handicap. Most will just never buy real-estate at current prices.

I read a similar sentiment on here a lot. With renting the same cost as buying--what are millenials going to do then? Live in a car? Under a bridge?

You have to be very careful when using wages as a benchmark for estimating house values. Homeowners are a subset of the population--usually the higher earners. So comparing median income with median home price is a flawed ratio from the start.

control point says

I simply pointed to Somalia and Zimbabwe as two places that have not found "work arounds, and a new better system....in a heartbeart."

You are wrong. Somalia actually found a better system than what they had under dictatorship. They do have a long way to go though. But you need to look how a specific society functions under certain conditions. You can't compare Somalia with Sweden at the current stage.

And refusing to bail out failed industries is actually the upholding of the rule of law. Doing anything otherwise is the opposite.

control point says

.Heavy-handed policies of the brutal government had nothing to do with this.

You are totally wrong on this. Here is a typical "right-wing" source called Wikipedia:
>>
Crucial to both components is discipline over the creation of additional money. However, the Mugabe government was printing money to finance involvement in the Democratic Republic of the Congo and, in 2000, in the Second Congo War, including higher salaries for army and government officials. Zimbabwe was under-reporting its war spending to the International Monetary Fund by perhaps $22 million a month.[11]

Another motive for excessive money creation has been self-dealing. Transparency International ranks Zimbabwe's government 134th of 176 in terms of institutionalised corruption.[12] The resulting lack of confidence in government undermines confidence in the future and faith in the currency.
>

Or, do you like right-wing newspaper called New York Times?
http://www.nytimes.com/2006/05/02/world/africa/02zimbabwe.html?pagewanted=all&_r=0

At the same time, Mr. Mugabe's government has printed trillions of new Zimbabwean dollars to keep ministries functioning and to shield the salaries of key supporters — and potential enemies — against further erosion. Supplemental spending proposed early in April would increase the 2006 spending limits approved last November by fully 40 percent, and more such emergency spending measures are all but certain before the year ends.

On Friday, the government said it would triple the salaries of 190,000 soldiers and teachers. But even those government workers still badly trail inflation; the best of the raises, to as much as $33 million a month, already are slightly below the latest poverty line for the average family of five.

control point says

And I would say they are about on par with Kenya too.

Point is - yes they have improved (but honestly, TVs, comparing the 1980s to the 2000s? No surprise an increase there)

Kenya is in better shape than Ethiopia. And, Kenya has higher economic freedom than Ethiopia as well. Of course, these two things cannot be related.

Heraclitusstudent says

I haven't read Stockman and I won't comment on this, but I understand why conceptually a deflationary spiral leads to an implosion of the financial system - and we reached the implosion point in 2008. We are talking of the collapse all major banks worldwide. To believe that you could let this happen and main street would not be impacted is naive as far as I can tell.

You should read Stockman's book, and/or many other economics books not tainted by Keynesianism. It is naive to believe the banksters' hyperbole. All the major banks of Iceland collapsed. Their economy recovered much much faster than the rest of the western world that's caught the bailout disease.

At it happened main street was impacted in spite of the bailout.

Not "in spite of" but "because of." Main Street was/is being robbed by Wall Street via the bailouts. That's why we are witnessing Great Depression #2 on Main Street, while record bonuses on Wall Street.

Uncontrolled dependencies: You can't punish the banksters without punishing main street, and you cannot bailout main street without implicitly bailing out banksters.

It's not about punish or not punish. Let the individual people of the society decide whether they want to do business with the specific banksters on Wall Street, or with someone else. It's as simple as that. The current system is punishing people on Main Street every time the specific banksters on Wall Street cook up another bomb. Any wonder why they are rather fond of cooking those bombs with increasing frequency?

Heraclitusstudent says

Depressions are not has bad as you think on a human level. Sure there are a few jumpers. But you stand in the bread line, get to know your neighbor, learn some humility, start again, learn to save, learn the true value of things. - By opposition of today's raw arrogance of people throwing money around like it means nothing, being rewarded for stupid speculations, while prudent people are getting screwed en masse.

A Depression actually would not bring on the bread line or the prolonged hardship that we are experiencing. Prolonged hardship is the result of a Great Depression caused by government intervention trying to hold up prices to artificial levels and preventing transactions/trade from taking place.

gsr says

You are totally wrong on this. Here is a typical "right-wing" source called
Wikipedia:

Inflation exceeded 50% per year in Zimbabwe before any of this, starting in the late 90s AFTER the US and UK cut them off and revolutionairies seized and tortured white landowners. Sanctions came, the economy crashed, and Zimbabwe printed even more to meet its obligations to the IMF. After printing started en masse to meet debt obligations, inflation surged from 100% per year to 1000% to 1,000,000%.

They would have had high inflation without the US and UK backing out and sanctions, but they would not have had currency collapse.

control point says

Inflation exceeded 50% per year in Zimbabwe before any of this, starting in the late 90s AFTER the US and UK cut them off and revolutionairies seized and tortured white landowners. Sanctions came, the economy crashed, and Zimbabwe printed even more to meet its obligations to the IMF. After printing started en masse to meet debt obligations, inflation surged from 100% per year to 1000% to 1,000,000%.

They would have had high inflation without the US and UK backing out and sanctions, but they would not have had currency collapse.

While I'm not a fan of IMF, I hope you do realize that IMF obligations are not denominated in local currency, so it's rather absurd to claim a need to print local money to meet IMF debt.

The real reason for the massive money printing was quite simple: Mugabe administration destroyed its own tax base (the productive farms across the country) and still had to pay its political base (the "revolutionaries"). So, just like numerous hyperinflating regimes throughout history, it resorted to money printing.

Reality says

While I'm not a fan of IMF, I hope you do realize that IMF obligations are
not denominated in local currency, so it's rather absurd to claim a need to
print local money to meet IMF debt.

I know that they did not pay the IMF in local currency - but it is the exact same thing that happened in Weimar Germany. The "drain" on the economy from the IMF debt relative to production under sanctions forced them to print to pay the local bills.

No IMF debt, no drain, no need to print.

The sanctions desroyed productivity, not the seizing of the farms per se. One led to the other, but regardless of the "owner" of production the production could have still existed. Cutting off the demand from the outside world for that production is what killed the economy.

If the Canadians nationalized their oil reserves - the oil reserves would still exist. Their economy would crash if we didn't buy from them any more. If we still bought from them - no issue.

control point says

I know that they did not pay the IMF in local currency - but it is the exact same thing that happened in Weimar Germany. The "drain" on the economy from the IMF debt relative to production under sanctions forced them to print to pay the local bills.

That's not what happened in Weimar Germany either, despite Hitler's propaganda claiming so. Weimar hyper inflation was the result of French and Belgian occupation of Saar and Ruhr, which accounted for the bulk of German industrial output at the time, after German government refused to make debt payment; meanwhile, German government was printing up the money to pay all the workers on strike in Saar and Ruhr. Hyperinflation is always a monetary problem. Taxation by foreigners would be just like taxation and running big government surplus, which is usually deflationary not inflationary.

control point says

No IMF debt, no drain, no need to print.

IMF does not print Zim money. Zim central bank prints Zim money. There were plenty needs to print even without IMF:
War in Congo/Zaire
Pay for "revolutionaries"
tax revenue shortfall due to government destruction of its own tax base, the productive farms, for political reasons.

The sanctions desroyed productivity, not the seizing of the farms per se. One led to the other, but regardless of the "owner" of production the production could have still existed.

That's a classic fallacy among the socialist crowd. The Soviets, the Chinese, the Cambodians, etc. etc. all proved conclusively that mass famine can take place on the very same land that used to be productive when ownership and management are changed. Production can be drastically curtailed when you put the morons in charge. Contrary to Marx' beliefs, the society is not run by idealized amateurs like himself, but specialists who specialize in different expertise. When Mugabe yanked the specialist farmers and put the "revolutionaries" in charge of the farms, the result is precipitous fall in farm productivity . . . just like we witnessed in Soviet Union, in China and in Cambodia half a century or more earlier.

Cutting off the demand from the outside world for that production is what killed the economy.

Never mind the exports, the domestic economy was being crushed by Mugabe's policies. Most of Zim's exports could have been sold to the neighboring countries (especially South Africa), which did not participate in the sanction. The primary export of Zim was farm products, not gold and diamonds like South Africa had been during apartheid, so western sanction did not have real bite on Zim.

If the Canadians nationalized their oil reserves - the oil reserves would still exist. Their economy would crash if we didn't buy from them any more. If we still bought from them - no issue.

Oil reserve existing is irrelevant if the technology and the economic incentive to bring it out of ground are not there. Numerous countries witnessed their oil production stall and decline after nationalization.

Reality says

Weimar hyper inflation was the result of French and Belgian occupation of Saar
and Ruhr

In response to Germany not paying WWI reparations. They took it as payment.

I always enjoy reading your alternative histories.

control point says

Reality says

Weimar hyper inflation was the result of French and Belgian occupation of Saar

and Ruhr

In response to Germany not paying WWI reparations. They took it as payment.

I always enjoy reading your alternative histories.

You are the one relying on alternative propaganda histories; in this case, Nazi propaganda. You are also committing intellectual dishonesty by chopping up my post mid-sentence. The occupation itself would not have caused hyperinflation if not for Weimar central bank printing up the money to pay the workers in Ruhr and Saar to stay on strike instead of working at the factories during the occupation. In other words, the hyperinflation was the result of deliberate German policy to prevent the French and Belgians from taking Ruhr and Saar (their economic output) as "payment."

Reality says

You are the one relying on alternative propaganda histories; in this case, Nazi
propaganda.

It isn't propoganda, it is a sequential fact path:
1. Reparations.
2. Occupation
3. Printing
4. Hyperinflation

You want to say the hyperinflation is because of the printing and loss of economic output. Those 3 happened because of Germanies inability to pay the reparations.

We both agree there is a baby, which came from an pregnancy. I am saying if there wasn't a man (or at least sperm) involved somewhere, there never would have been a pregnancy followed by a baby.

Reality says

You are also committing intellectual dishonesty by chopping up my post
mid-sentence.

That was not my intention - and if I did that I apologize. I would not do that intentionally - and I wonder if the rest of the sentence has been added after the fact...

I don't know why I would make my counter point, given what you said in the rest of that sentence now. I read your entire post but somehow either:

a.) missed that part of the sentance
b.) you edited and added it after the fact.

If it was my mistake, I apologize.

control point says

Reality says

You are the one relying on alternative propaganda histories; in this case, Nazi

propaganda.

It isn't propoganda, it is a sequential fact path:

1. Reparations.

2. Occupation

3. Printing

4. Hyperinflation

You can add the invention of light bulbs and automobile to the front of the list. Would that make light bulbs and automobile the cause of Weimar hyperinflation? The Occupation did not have to lead to hyperinflation, which was the direct result of Germany central bank's money printing to keep workers in Ruhr and Saar on strike.

You want to say the hyperinflation is because of the printing and loss of economic output.

Hyperinflation happened because of the money printing by the German central bank to keep workers in the occupied industrial zones on strike. If our government raises minimum wage to $100/hr, thereby banning the vast majority of the jobs out there, then print up "unemployment"/disability/welfare to match their former job pays, we'd have hyperinflation within a few weeks to a few months too.

Those 3 happened because of Germanies inability to pay the reparations.

The reparation burden was onerous, but not outside German ability to pay. The foreign direct investment flowing into Germany exceeded the reparation debt service burden. If the German leaders knew what would happen with hyperinflation, they probably would not have made that deliberate choice.

We both agree there is a baby, which came from an pregnancy. I am saying if there wasn't a man (or at least sperm) involved somewhere, there never would have been a pregnancy followed by a baby.

How is that analogy even relevant? A sperm is a necessary condition for pregnancy. Taxation by foreigners is neither a necessary nor a sufficient condition for hyperinflation. Government monetary decision to print with abandon however is necessary and sufficient condition for hyperinflation.

Reality says

You can add the invention of light bulbs and automobile to the front of the
list. Would that make light bulbs and automobile the cause of Weimar
hyperinflation?

Nice Strawman, or at least reductio ad absurdum. It is foolish to think that the reparations did not contribute to the occupation, which was not a factor for the printing. Reality says

The reparation burden was onerous, but not outside German ability to pay.

That is certainly an opinion.

Reality says

If the German leaders knew what would happen with hyperinflation, they probably
would not have made that deliberate choice.

If the French and British leaders would have known that the reparations would have led to the rise of Nazism, they probably would not have demanded them.

We can go round and round all day, but I would rather not.

control point says

Reality says

You can add the invention of light bulbs and automobile to the front of the

list. Would that make light bulbs and automobile the cause of Weimar

hyperinflation?

Nice Strawman, or at least reductio ad absurdum. It is foolish to think that the reparations did not contribute to the occupation, which was not a factor for the printing.

War reparation was not a sufficient nor necessary condition for hyperinflation. Any of a zillion forms of short-term thinking could lead the central bank into printing with abandon when it has no particular fear of hyperinflation. There are always crises in government.

At the time of Weimar hyperinflation, there was an almost concurrent hyperinflation that started a couple years earlier in the Soviet Union, right next door to Weimar Germany, from 1918 to 1924. There was no war reparation imposed on the Soviet Union after the collapse of the German Empire in 1918.

If you have to look for a primary reason for Weimar hyperinflation, the prolonged price stability in the previous decades lulling the central banks into not fearing hyperinflation, and the initial seeming success in Soviet Union when massive money printing helped reinforce the regime as it robbed the peasantry may have been bigger factors in Weimar government's decision to print with abandon.