Anyone That Understands Economics?

Discussion in 'Economy' started by Annie, Jan 25, 2009.

  1. Annie
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    Annie Diamond Member

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    I just ran across this which links to this. I think it's disturbing, but for the life of me I'm uncertain what it portends. Help?
     
  2. Toro
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    Toro Diamond Member

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    The Fed is jamming reserves into the banking system to unfreeze credit. Credit spreads - the difference between the cost of borrowing for the US government and the cost of borrowing for everyone else - were at either multi-decade or all-time highs, even higher than the Depression in some markets.

    Right now, it tells you that the Fed is deathly worried about deflation and a repeat of the Great Depression. What is portends is inflation. Inflation is not a problem now because credit has contracted and the expansion of Fed credit is merely replacing credit destroyed in the private sector. However, as things get better and private credit creation resumes, that graph is going to have to fall substantially. Otherwise, the economy will experience significant inflation. What probably happens is that the Fed allows excess monetary balances to exist well after it becomes apparent the economy is recovering, then at some point, you will see significantly higher interest rates. If you have a mortgage, refinancing it now is probably a good idea.
     
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  3. Annie
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    Annie Diamond Member

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    Great timing for the answer. I just saw this, seems related?

    The Right Coast: Who will bail out the Fed? Tom Smith


     
  4. editec
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    editec Mr. Forgot-it-All

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    Let us consider for a moment what our economy has gone through in the last year, shall we?

    We experienced a massive decline in the stock market valuation.

    How many trillions of dollars in perceived wealth ceased to exist as a result of these declines?

    Well if you can believe the following then something in the neighborhood of $17 TRILLION in percieved worth simple ceased to exist. (probably more since Sept 2008, too)

    source

    Now I realize that the valuation of the stock marekt is NOT considered part of the money supply, but it is, in the minds of the players, wealth nevertheless, and wealth that they LOST in the last 12 months.

    And what happened to the VALUE in Real estate? Again, not part of the money supply, but percieved wealth to those who own it, nevertheless.

    Again how many TRILLIONS of dollars worth of percieved wealth did Americans lose recently?

    Ten Trillion? Twenty Trillion? Fifty Trillion?

    Seriously I do not know. Some huge amount though, certainly.

    But what we DO know is that with these combined loses Americans FEEL poorer, and so the economy grinds to a halt.


    So when Obama tells us he's going to put a couple TRILLION into the economy to get it going again, all I think is...NOT ENOUGH....not nearly enough.

    You're worried about inflation when the private sector start lending again?

    Well I have a solution for that, but nobody's going to do it because that would take away the private banks right to loan people money those banks don't have, wouldn't it?

    Certainly we can't take away their right to make money on money they don't really have to begin with, can we?

    Banks are special...and so they deserve that special treatment because you can all see how well they've done with that special previlege in the past, right?

    These idiot banks only break capitalism every once in a while, after all, so let's all just give them trillions more so they can do it AGAIN.


    If we want to FIX this system we have to CHANGE this system.

    Otherwise these economic meltdowns will just keep on happening when banks forget that there is a limit to the amount of money they DON'T HAVE that they can lend to us AT FAR TOO HIGH INTEREST.
     
  5. Paulie
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    Paulie Platinum Member

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    Kath, read this thread OP: http://www.usmessageboard.com/economy/68057-current-analysis-of-bank-reserves-money-supply-money-velocity-and-monetization.html

    Brian (gonegolfin) comes here periodically and breaks down the Federal Reserve's market activity, and what it means, or COULD mean, for the currency. It is about as detailed as it can get, although it may require SOME understanding of terminology.

    Your original article seems a bit off. I'm not quite sure it can be said that this is unprecedented money supply expansion. As it stands right now, there hasn't been that much "new" money created, as liquidity injections are often "sterilized" by counter measures such as the Fed selling Treasuries from its portfolio, which neutralizes the inflationary action of "creating money".

    If you want to get down the root of things, read his threads. They're about as informative as they come.
     
  6. Paulie
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    Paulie Platinum Member

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    Shoot, I'd say ANY credit you can qualify for and AFFORD right now with a low interest rate, is worth getting if it's for something you really NEED.

    In a time of inflation, debt can be good Kath, because when the money is flowing like wine you can pay off debt just the same with inflated dollars. You lock in a low rate, and eat away at the interest while Dollars are abundant.
     
  7. editec
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    editec Mr. Forgot-it-All

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    Perceptive, Paul.

    I borrowed enough money to buy a nice downtown Boston Condo to go to school.

    I paid it back, with interest, but the purchasing power of the dollars I paid back amounted to about enough to buy a decent car.

    Inflation can be the debtors friend assuming his debts are to be repaid at a fixed rate.

    So...if you believe that rampant inflation is in our futures?

    Then going into a fixed interest debt might actually be a good idea IF you are doing something truly productive with that money.
     
  8. Valerie
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    Valerie Gold Member

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    Paul, I really enjoy your posts and I agree with you regarding Brian "gongolfin" and his economic insights. I am not an expert, but I have years of experience and have done very well for myself, starting off with less than nothing and taking calculated risks to get to where I am today. I absorb information from everywhere and anywhere and I appreciate and recognize when someone knows what they're talking about.

    One thing that really strikes me right now is that we are in an unprecedented combination of circumstances and I believe that even the most brilliant experts aren't sure what is going to happen next.

    One thing I continually fall back on for comfort, is in the study of Fibonacci numbers, the patterns of nature that ALWAYS emerge in all of nature including human nature, which applies to the markets. The idea being that for things to naturally progress, they also have to naturally regress as well, as a part of the growth process. When you study these ideas in relation to the the markets you begin to see the patterns emerge.

    Advanced Fibonacci Applications
     
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  9. Paulie
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    Paulie Platinum Member

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    Don't misconstrue, though. I should clarify to mention that you should ONLY take a loan right now if you are well established financially to be able to pay it back without a problem, and even make more than the minimum payment. If you're not going to use the inflation to eat away at the interest, and you aren't financially secure enough not to potentially default, then you have no business going into debt any further. You can always use the coming inflation (it's definitely coming, it's inevitable at this point) to pay down your existing debt as well. As long as you have a job through a recession, you can benefit from inflation AND deflation if you act accordingly.

    A home mortgage re-fi is certainly recommended though. Rates are already historically low, might as well take advantage.
     
  10. Paulie
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    Paulie Platinum Member

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    Thanks Val, I'll check that out. And thanks for the kind words.
     

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