How much is $17 trillion? Visualized for reference.

[Tony_SS]

Originally Posted by GregWeld

I get JP's position on increasing employment - with stimulus - which creates tax income etc. Except that we're still borrowing from Peter to pay Paul and we'll end up with a sore Peter...

Right, but the fundamental flaw in that premise, is the theory that the govt knows how to spend your money better than you. If that was the case, the govt or the Fed would have never gotten us into this mess or have gotten us out by now. Quite simply, the Congress is very ignorant to monetary policy and the Fed is private, global institution protecting their own interests.

The other argument is investment or stimulus and doing so creates enough prosperity to turn things around. This is also flawed in that yes, you can bail out a failed business, but unless they change their protocol they're going to fail again. It's like giving money to a shopaholic to buy therapy. They will choose to buy something else.

The other HUGE problem is our fiat currency. I think it's interesting that the only thing that gives a $100 bill more value than a $1 is numeral printed on that paper. Fiat currencies always fail. History shows this. It needs to be competing with world currencies and backed by commodities to have value.

Also, I'm feeling the need to dispell the myth that is this "Paradox of Thrift"

The Paradox of Thrift
The whole idea that saving money is bad for the economy comes from the economist John Maynard Keynes, who referred to it as the “paradox of thrift.” (“Paradox of thrift” and John Maynard Keynes is one of those things you can bust out at a party to seem quite smart.) He believed that if everyone saved more money during times of recession, then demand for goods will fall. If demand for goods falls, then economic growth will stall, causing all sorts of additional economic problems (lost jobs, failed businesses, etc.).

It makes some sense on the surface. If everyone stopped spending money tomorrow, the economy would indeed fall apart. There are two big factors that keep this from happening.

First, when demand falls, prices fall, and when prices fall, people are more likely to spend money. That’s why sales always work – and thus businesses regularly have sales. If demand falls across the board, then businesses will lower their prices to get more customers.

and...

Savings Accounts Contribute to the Economy
The second factor – and this is the big one – that makes the “paradox of thrift” fail is that putting money in savings accounts does not remove it from the economy. When you put money in a savings account, it becomes money that the bank can then lend out to businesses. Thus, when more people save, the banks have more resources to pump out to businesses, and when the businesses have more resources, they employ more people, innovate new products, and find new ways to sell.

By saving, you’re actually doing your economic duty, just as you would be if you were buying things. A healthy economy needs plenty of both.

Taken from:
http://www.thesimpledollar.com/2009/...r-the-economy/

[Shmoov69]

Where's Andrew in this discussion!?! LOL!

[parsonsj]

http://economywatch.msnbc.msn.com/_n...utmk=187396776

A quick summary of the MSNBC article --

1. Exuberance due to low borrowing costs in the early part of the European common currency experiment, resulting in large capital investments in Spain from other portions of Europe, much of which was led by banks around Europe. Much of the exuberance was caused by misreading risks -- investors figured that Spanish investment was the same as German investment.
2. Which caused a big real estate / housing boom in Spain.
3. When the bubble burst, and the economy contracted, the investors pulled their money out of the Spanish economy.
4. As millions of Spaniards lost their jobs (current unemployment is twice that of the US, with young people even higher) government revenues plummeted.
5. As the government started cutting spending to deal with lower revenue, that caused even more job losses. Austerity measures proved to be counter-productive, and as Spanish government spending dropped, revenues dropped faster.
6. Bond yields are climbing, as the time needed for a reasonable economic recovery seems longer and longer, and as Spanish sovereign default looms.
7. Spain seems unable to fix this themselves, and there's a reason why: they don't have their own currency. They don't have a Fed that can backstop their banks and be the lender of last resort.
8. The long-term fix is for Spain to cut prices -- but to cut prices it needs to cut wages, and that's a very difficult problem. Wages are sticky; they are difficult to cut across the whole Spanish economy. Once again, the common currency is the root of the problem. If Spain had its own currency, it could allow it to devalue, effectively cutting the country's wages without having to physically cut the wages of all of its citizens.


A final point: at no point does the article mention high taxes, or people unwilling to work. In fact the article lays more blame on investors misreading risk than on Spanish worker laziness or entitlements.

Tying this back to home: this scenario is similar to the US -- our economy was wrecked by risky trading of mortgage-backed securities that resulted in a housing bubble that burst when investors misread the risks. The good news is that we have stabilized our banks, which now have enough liquidity to weather this de-leveraging of private debt, and there is no risk of sovereign default. Investors are signaling their agreement with that by accepting historically low yields on Treasuries. However, our economy still has millions of people out of work -- through no fault of theirs -- and our revenues are suffering as a result, and you know the rest of my argument.

And thank goodness we have our own currency, and a Fed that can intervene to prevent disaster.

[Bucketlist2012]

Originally Posted by parsonsj;

They don't have a Fed that can backstop their banks and be the lender of last resort

And thank goodness we have our own currency, and a Fed that can intervene to prevent disaster.

While I think your argument is full of more holes than swiss cheese, I must give you a .

I count on the madness you speak of from this administration, and i have made more money on Precious Metals than I spent on my car..

So while I don't agree with you, I am laughing all the way to the bank. Sure I am shaking my head in disgust about what is happening to the Country and the Devalued dollar, and I think the FEDS are crooks, I will continue to make money due to the exact things you talk about..

I will continue to run my Portfolio betting on exactly what you argue, because although I know your argument is the wrong thing to do for this Country, I sure will take advantage of it at every turn...

Normally I only run 5% in Metals for Insurance, but until the administration changes, I will stay where I am, betting on the FEDS

[parsonsj]

Here's another article from the NY Times:

http://www.nytimes.com/2012/07/25/wo...pagewanted=all

The article describes how the austerity measures levied on the Greek government in exchange for bailout funds from the rest of Europe may have made the problem worse.

Now, Greece is different than Spain in 2 key ways:
1. Greece has a long history of tax avoidance. Some analysts estimate that Greece loses 30% of its tax revenue due to fraud.
2. Greece has a long history of graft, cronyism, and outright fraud within its government. Despite their ancient history, most of recent Greek history is that of far right governments, and democracy as we know it has only been in place for a few decades.

[Bucketlist2012]

For me, anything that comes from the New York Times is lining for the bottom of a Bird cage to collect poo..

I will stick to the analysis from the Wall Street Journal and other Fiduciary Economists, before I even think of the Times for analysis.

And the Euro was a disaster from the Beginning..Greece would have never even made it into the Euro had Goldman Sachs not stepped in and cooked the books for Greece in 2000. Then they stepped in , in the mid 2000's to re-cook the books.

The Federal Reserve is the problem and not the solution...But again, I make money every time they print...

They will not spend there way out of this....No one wants to take the small pill now....

[Tony_SS]

I think we are verging on apples to oranges territory, so I'll keep my comments about our country and its monetary policy.

Originally Posted by parsonsj

Tying this back to home: this scenario is similar to the US -- our economy was wrecked by risky trading of mortgage-backed securities that resulted in a housing bubble that burst when investors misread the risks.
----
And thank goodness we have our own currency, and a Fed that can intervene to prevent disaster.

2 clear points:

1. Our economy was wrecked because the Fed fixed interest rates too low for too long creating a housing bubble.

2. That led to the risk behavior by the banking industry. The largest players knew the Fed will bail them out. So the Fed bailed out themselves basically, since the largest banks are the cartel that makes up the Fed. So they went hog wild, because they could, got bailed out and passed the losses and depression onto us, the taxpayers.

I think this tells us everything we need to know. These clowns who caused the problem, do not know how to fix it.



I probably wont get an answer, but I'll ask anyway: John, don't you find in suspicious that these Treasury Secretaries are straight from Goldman Sachs? And that's just one example.

[parsonsj]

Tony,

We probably agree a lot about the underlying mechanism of the housing bubble, but you can't put all of the bubble at the feet of interest rates that were too low, along with the moral hazard of too big to fail. You have to also acknowledge two other contributing factors:
1. The repeal of the Glass-Steagall act, and
2. The complete lack of regulation of credit-default swaps.

Neither of those significant contributing factors had anything to do with the Fed.

Yes, Wall Street caused our housing bubble, with the Fed supplying some of the cash. But better / more regulation of Wall Street is essential to keep it from happening again. You'd think they'd be a bit humbled after their performance leading up to 2008-2009, but they are fighting Dodd-Frank with everything they've got.

You need to read Krugman in context:

Originally Posted by Krugman, 2 August 2002

SYNOPSIS: Our economy is in trouble

If the story of the current U.S. economy were made into a movie, it would look something like "55 Days at Peking." A ragtag group of ordinary people — America's consumers — is besieged by a rampaging horde, the forces of recession. To everyone's surprise, they have held their ground.

But they can't hold out forever. Will the rescue force — resurgent business investment — get there in time?

The screenplay for that kind of movie always ratchets up the tension. The besieged citadel fends off assault after assault, but again and again rescue is delayed. And so it has played out in practice. Consumers kept spending as the Internet bubble collapsed; they kept spending despite terrorist attacks. Taking advantage of low interest rates, they refinanced their houses and took the proceeds to the shopping malls.

But predictions of an imminent recovery in business investment keep turning out to be premature. Most businesses are in no hurry to go on another spending spree. And those that might have started to invest again have been deterred by sliding stock prices, widening bond spreads and revelations about corporate scandal.

Will the rescuers arrive in the nick of time? Not necessarily. This movie may not be "55 Days at Peking" after all. It may be "A Bridge Too Far."

A few months ago the vast majority of business economists mocked concerns about a "double dip," a second leg to the downturn. But there were a few dogged iconoclasts out there, most notably Stephen Roach at Morgan Stanley. As I've repeatedly said in this column, the arguments of the double-dippers made a lot of sense. And their story now looks more plausible than ever.

The basic point is that the recession of 2001 wasn't a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Judging by Mr. Greenspan's remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman's crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

On the surface, the sharp drop in the economy's growth, from 5 percent in the first quarter to 1 percent in the second, is disheartening. Under the surface, it's quite a lot worse. Even in the first quarter, investment and consumer spending were sluggish; most of the growth came as businesses stopped running down their inventories. In the second quarter, inventories were the whole story: final demand actually fell. And lately straws in the wind that often give advance warning of changes in official statistics, like mall traffic, have been blowing the wrong way.

Despite the bad news, most commentators, like Mr. Greenspan, remain optimistic. Should you be reassured?

Bear in mind that business forecasters are under enormous pressure to be cheerleaders: "I must confess to being amazed at the venom my double dip call still elicits," Mr. Roach wrote yesterday at cbsmarketwatch.com. We should never forget that Wall Street basically represents the sell side.

Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.

But wishful thinking aside, I just don't understand the grounds for optimism. Who, exactly, is about to start spending a lot more? At this point it's a lot easier to tell a story about how the recovery will stall than about how it will speed up. And while I like movies with happy endings as much as the next guy, a movie isn't realistic unless the story line makes sense.

[Tony_SS]

Originally Posted by parsonsj

Tony,

We probably agree a lot about the underlying mechanism of the housing bubble, but you can't put all of the bubble at the feet of interest rates that were too low, along with the moral hazard of too big to fail. You have to also acknowledge two other contributing factors:
1. The repeal of the Glass-Steagall act, and
2. The complete lack of regulation of credit-default swaps.

Neither of those significant contributing factors had anything to do with the Fed.

Yes, Wall Street caused our housing bubble, with the Fed supplying some of the cash. But better / more regulation of Wall Street is essential to keep it from happening again. You'd think they'd be a bit humbled after their performance leading up to 2008-2009, but they are fighting Dodd-Frank with everything they've got.

You need to read Krugman in context:

John I agree with your 1st point. No doubt that was a factor. The repeal opened the doors for abuse. But to your 2nd point, the SEC was supposed to regulate Bernie Madoff. The fact is they failed and/or covered for him in that regard. So we just can not rely on 'regulations' alone.

However, the fact still remains. The Fed is the great facilitator. Without them fixing the rates too low for too long, the sharks would have nothing to feed on. So, yes, the Fed gave Wall St the fuel to start that fire. And Wall St did have the cover too, making the Fed a huge moral hazard. These banks took risks and as an insider cartel members, they put their competition out of business and their losses on to the US govt/taxpayers.

We are talking about a private banking institution, who by law can create dollars out of thin air. All with NO oversight, rules or regulation. So would you agree that the regulation needs to be on the Fed?

To avoid this again, interest rates need to be a result of the free market, not fixed by a handful of special interests at the top of the pyramid.

And the whole Krugman article does not change much for me. Those are still his words and ideals.

[parsonsj]

Somebody overheard us:

http://money.cnn.com/2012/07/25/news....htm?hpt=hp_t3

Interesting stuff.