Hey Toro

[Dr Grump]

So how do we fix it? What will it take?

 

[Baruch Menachem]

In today's dow crash and burn thread he was saying that the bubble still wasn't all the way unwound.


I'm guessing he is an efficient markets guy, and part of the problem we have is that so many of the assets we have are still way over valued. Until prices fall to a level that is reasonable, we still have a long way to go.


Then we will see the gold and silver bubble pop too.

If you look at PE ratios and underlying asset valuations, from 2006 to 2009 was tulip time on wall street. Since the value of the assets have only declined, and the earnings component of the P/E rations have taken such a hit, we are still in for a long hard slog till they get back to normal.

 

[Dr Grump]

What does it mean over the next couple of years? Huge job loses? No money?

I put my hand up - when it comes to finances I haven't a clue....I understand the way Toro, WtW and yourself explain it though...

 

[elvis]

he was saying the other day the spending cuts will contract the economy.

 

[Baruch Menachem]

The man himself is east coast and seems to get up early and not post this late. YOu might bump the thread sometime tomorrow so he will see it.

 

[editec]

he was saying the other day the spending cuts will contract the economy.

Unless some other huge consumer comes along to buy stuff and put people to work (presumably those that will lose their jobs thanks to these spending cuts) and put that missing dough spending back into circulation
how could massive government cuts not contract the economy?

Wall Street isn't buying the story that these cuts are going to revitalize the demand side of the picture, that's for damned sure.

And, if as we're informed, this budget battle has really driven up the cost of borrowing for the government, then the cost of borrowing for everybody else is also BOUND to rise, thus further depressing demand side, too.

PLUS increasing cost of borrowing will depress wall street activity, too since investors often BUY on margin.

I feel very much the same way about cutting spending, right now, as I do about increasing taxes.

Both ideas are mistakes because the problem still is that the DEMAND side is out of kilter with the SUPPLY side.

We are not only not doing the right thing we are doing exact the wrong things if we hope to get this economy moving.

The RICH do NOT live in an economic vacum.

Already cash rich Producers STILL NEED consumers WITH MONEY TO SPEND

 

[uscitizen]

So how do we fix it? What will it take?

Lotsa duct tape and bailing wire.

Ohh you mean the stock market?

Why fix something that is not broke? it is working as it is supposed to.

 

[Toro]

So how do we fix it? What will it take?

Gee, I don't know. I wish I did.

The problem as I see it is that we aren't allowing markets to clear. IMHO, the government has backstopped markets for the past two decades, which has created massive imbalances in the global economy. Bigger problems has lead to bigger interventions, which has lead to even bigger problems. At some point, it must end. If we had taken our medicine a decade ago, I don't think we'd be in this mess today. But the government is running out of bullets, so the end may be thrust upon us.

The Asset-Driven Economy and the Market - Toro's Running of the Bulls Market Blog

 

[KissMy]

So how do we fix it? What will it take?

- Tell Europe to pull their head out of their ass & backstop any huge drop with additional QEIII. Weaker dollar helps exports & slows imports.

- Drill Baby Drill Here & Now would create energy jobs now. This will lower fuel prices which would help the rest of the economy & create more jobs. It will also prevent QEIII from pushing up oil price.

- Tax the new lower priced Oil to subsidize sensible domestic renewable energy. This will create jobs now. As future energy cost climb these current domestic renewable energy investments will become cheap. Taxing oil would not bring the end user cost up to where it was before the Drill Baby program lowered it.

- Upgrade the power grid with some of this oil tax. This will create jobs now & allow for more renewable energy expansion.

- Eliminate, not forgive the student loan & grant programs. This will save US a $Trillion. We currently have a $Trillion worth of student loan debt. This has turned into a welfare program. People are living on student loans that they will not pay back.

- Provide free education online using a small fraction of the student loan savings. We can use the Prometric test certification model to allow students to take test to determine their education level after they study from the free online education. The USG only needs a few professors or contract with a university to create the online education content. It would only need to fund this one virtual university that creates online content that Americans could watch & learn from on their own time at their own pace around their jobs. The savings would be enormous & per citizen education levels would rise.

Look at all the tech companies that were started with college drop-outs. These people only need to access the high tech classes they need to create their product. Innovation would speed up. After their company grows they would study management. Learn as you go or as you need online. No need to waste away at a university during your productive years. Parents can keep housing their own kids instead of dumping them onto the government loan funded university system.

- Get high speed network to every household that has students in it online using a small fraction of the student loan savings. This will create jobs now.

- Reinstate Glass-Stegal type protections and regulate derivatives. This would instill market confidence thus increasing investment.

- 1 year employer tax cut for each unemployed person they hire. This would be paid for with the money we save on unemployment, food-stamps & welfare.

- Cut small business regulations.

- Cut the levels of Medicare, Medicaid funding. Then move the recently passed health-care benefits forewords so people would start getting their benefits now when it is needed the most by unemployed, not 4 years from now. This would move spending foreword instead of kicking in years from now after we start to recover. Taxing now for health-care to spend later is deflationary. That is the opposite of what is needed at this time.

 

[Toro]

Ultimately, we have too much supply. This won't get better until the excessive housing supply is eliminated, which should be by 2013. We also have to wipe out some debt. And we have to have the Fed stop always bailing out markets. If the stock market crashes, let it crash.

 

[iamwhatiseem]

So how do we fix it? What will it take?

Gee, I don't know. I wish I did.

The problem as I see it is that we aren't allowing markets to clear. IMHO, the government has backstopped markets for the past two decades, which has created massive imbalances in the global economy. Bigger problems has lead to bigger interventions, which has lead to even bigger problems. At some point, it must end. If we had taken our medicine a decade ago, I don't think we'd be in this mess today. But the government is running out of bullets, so the end may be thrust upon us.

The Asset-Driven Economy and the Market - Toro's Running of the Bulls Market Blog

Perfectly said, and of course what many of us have been saying for nearly 20 years.
An example of what Toro is saying - and one everyone can see...is you take college tuition.
College tuition for generations went up and down with inflation or somewhat over inflation. Enter the federal government and their desire to gove taxpayer money away "for a good cause" - and they created a false demand.
Today there are FAAAAAARRRR too many students in college that simply do not belong there - but are there because they not only get it paid for, but get free rent money and living expenses to boot! What a deal!
So this free cash falling from the sky to colleges overnight caused tuition's to rise feverishly. Now we are at double-inflation, triple inflation. And for those of us who DON'T qualify for free taxpayer cash - we get to pay enormous tuition that truly test the question - "is it worth the money".

Just another example of why government needs to stop picking winners and losers and stick to military and law enforcement.

 

[Paulie]

Ultimately, we have too much supply. This won't get better until the excessive housing supply is eliminated, which should be by 2013. We also have to wipe out some debt. And we have to have the Fed stop always bailing out markets. If the stock market crashes, let it crash.

Seriously. The DOW is down 1200 off its high and people are already talking about what the Fed should do to stop it. WTF?