How is a global recession even possible? Where did all the money go?

[RodISHI]

This depends on each bank, it s called the money multiplier: The percentage of money that can be loaned.

A bank can say that it will loan 30% of its money on the bank to other individuals, corporations, ...

Normally laws of the government say that each bank has to have a certain amount of money available (not loaned out). But each times when the economy booms, certain members of the government want to lower that bar (more money loaned out). And that is when it becomes dangerous, the more money you loan out the more risk you take (because more money can "vanish" if all goes horribly wrong).

Yet the actual cash money did not really vanish did it?

No, it is like I said in the example of the first banker. 2 people own the same amount of cash. Imagine that the one who loaned the money uses it to buy a house that he will pay back to the bank, the money from the 2 people is used on the house and if the bank goes bankrupt then 1 guy owns a house (hasn't pay of the loan because the bank doesn't exist anymore) and the other guy is broke because the bank gave his money to the guy that bought the house.

The house is still there so the asset still exist that the money got loaned on. Your saying the bank is now out of the picture. One guy lost his cash (because the bank loaned it out) and the guy who got the loan gets the house because the bank is no more?

So the guy who bought the house got a free house basically. I have not seen it work exactly like that yet. I have heard a few stories that a few judges have not allowed the banks to foreclose on due to certain banks fraudulent practices.

Non existent/bankrupt banks are a mess to contend with. Combine that with the last ten years of running loose and unimpeded it is worse than even just a bankrupt bank. I believe that is one of the reasons the feds have not closed them down yet.

 

[Munin]

Yet the actual cash money did not really vanish did it?

No, it is like I said in the example of the first banker. 2 people own the same amount of cash. Imagine that the one who loaned the money uses it to buy a house that he will pay back to the bank, the money from the 2 people is used on the house and if the bank goes bankrupt then 1 guy owns a house (hasn't pay of the loan because the bank doesn't exist anymore) and the other guy is broke because the bank gave his money to the guy that bought the house.

The house is still there so the asset still exist that the money got loaned on. Your saying the bank is now out of the picture. One guy lost his cash (because the bank loaned it out) and the guy who got the loan gets the house because the bank is no more?

So the guy who bought the house got a free house basically. I have not seen it work exactly like that yet. I have heard a few stories that a few judges have not allowed the banks to foreclose on due to certain banks fraudulent practices.

Non existent/bankrupt banks are a mess to contend with. Combine that with the last ten years of running loose and unimpeded it is worse than even just a bankrupt bank. I believe that is one of the reasons the feds have not closed them down yet.

Yeah normally this is true, but it is probably very rare that happens that a guy gets a loan just before a bank goes bankrupt (it could also be that this loan is declared invalid by a judge, due to certain laws that possible could prohibit banks from loaning money before going bankrupt: but I m no expert on US laws, so I don't know that for sure).

But normally one guy has already payed a big part of the house, he then gets the rest of his house for free if the bank that he loaned the money to is bankrupt because you can't pay money to something that doesn't exist anymore.

Yeah, banks going bankrupt is actually very bad. It is one of the worst scenarios in an economy is if they are actually big banks. The shock that a collapse like Lehman Brothers created when it fell was from the US to Europe, Asia, Africa ... Just because local banks can buy "products" from other banks like LB in this case.

What is going on now is really a nightmare-scenario for a lot of people, they see amounts of their money crashing down to 0. And people who work at a bank are getting depressed because they know the scenario that can happen, less income for a bank = cutting jobs , people who lost their complete pensions come crying to them, ... . It is just horrible if you d knew all the details from what is going on right now or if you know what still could be happening in the future if it goes even more wrong (that is why the government intervention is so important, despite the pork that may be in those bills). I think you don't want to know what happens if more then 3 of the biggest banks in the world go bankrupt (if you know the results of one big bank going down), it won't be as good as a future as some republicans say it will be (they seem to have put their head in the ground or something). That is the reason why so many very important economists are so "scared".

 

[gonegolfin]

If so how many times can the bank do this?

This depends on each bank, it s called the money multiplier: The percentage of money that can be loaned.

Wikipedia does not quite have it right. What Wikipedia refers to as the money multiplier is actually the maximum value that the money multiplier can achieve given a certain level of reserves. This is different than the money multiplier which is actually a measure of the money supply relative to the monetary base (of which reserves are a component). This represents a current aggregate level of lending/investing in the banking system relative to the monetary base.

Additionally, reserves do not play the role they once did in determining the amount of lending that can be achieved by the banking system. Reserve ratios play a much less prominent role than they once did due to the Basil accords. And in actuality, the money multiplier never reaches anywhere close to the maximum level of lending given a specified amount of reserves. The textbooks refer to banks lending out 9x their reserves (under a 10% reserve ratio). In practice, this amount of leverage from the fractional reserve lending system is not achieved ... not even close.

Brian

 

[Kevin_Kennedy]

No, people need to save. It will cause a recession, as we're witnessing. However, the recession has to happen. It is the market's attempt to correct itself.

So... a trillion dollar stimulus package will only put off the recession that needs to happen in order for the economy to correct itself, right?

Thank you again for your kind attention to my inquiries, by the way.

All the stimulus is going to do is make the recession worse when it does finally hit.

 

[Munin]

If so how many times can the bank do this?

This depends on each bank, it s called the money multiplier: The percentage of money that can be loaned.

Wikipedia does not quite have it right. What Wikipedia refers to as the money multiplier is actually the maximum value that the money multiplier can achieve given a certain level of reserves. This is different than the money multiplier which is actually a measure of the money supply relative to the monetary base (of which reserves are a component). This represents a current aggregate level of lending/investing in the banking system relative to the monetary base.

Additionally, reserves do not play the role they once did in determining the amount of lending that can be achieved by the banking system. Reserve ratios play a much less prominent role than they once did due to the Basil accords. And in actuality, the money multiplier never reaches anywhere close to the maximum level of lending given a specified amount of reserves. The textbooks refer to banks lending out 9x their reserves (under a 10% reserve ratio). In practice, this amount of leverage from the fractional reserve lending system is not achieved ... not even close.

Brian

Yeah, your right it was the wrong reference. ( I ve edited it already ). It is a bit confusing, because you have the money multiplier for each single bank and you have one by the government institutions (who have the multiplier applied for all banks). I think this might be the right link: http://en.wikipedia.org/wiki/Fractional-reserve_banking

 

[RodISHI]

No, it is like I said in the example of the first banker. 2 people own the same amount of cash. Imagine that the one who loaned the money uses it to buy a house that he will pay back to the bank, the money from the 2 people is used on the house and if the bank goes bankrupt then 1 guy owns a house (hasn't pay of the loan because the bank doesn't exist anymore) and the other guy is broke because the bank gave his money to the guy that bought the house.

The house is still there so the asset still exist that the money got loaned on. Your saying the bank is now out of the picture. One guy lost his cash (because the bank loaned it out) and the guy who got the loan gets the house because the bank is no more?

So the guy who bought the house got a free house basically. I have not seen it work exactly like that yet. I have heard a few stories that a few judges have not allowed the banks to foreclose on due to certain banks fraudulent practices.

Non existent/bankrupt banks are a mess to contend with. Combine that with the last ten years of running loose and unimpeded it is worse than even just a bankrupt bank. I believe that is one of the reasons the feds have not closed them down yet.

Yeah normally this is true, but it is probably very rare that happens that a guy gets a loan just before a bank goes bankrupt (it could also be that this loan is declared invalid by a judge, due to certain laws that possible could prohibit banks from loaning money before going bankrupt: but I m no expert on US laws, so I don't know that for sure).

But normally one guy has already payed a big part of the house, he then gets the rest of his house for free if the bank that he loaned the money to is bankrupt because you can't pay money to something that doesn't exist anymore.

Yeah, banks going bankrupt is actually very bad. It is one of the worst scenarios in an economy is if they are actually big banks. The shock that a collapse like Lehman Brothers created when it fell was from the US to Europe, Asia, Africa ... Just because local banks can buy "products" from other banks like LB in this case.

What is going on now is really a nightmare-scenario for a lot of people, they see amounts of their money crashing down to 0. And people who work at a bank are getting depressed because they know the scenario that can happen, less income for a bank = cutting jobs , people who lost their complete pensions come crying to them, ... . It is just horrible if you d knew all the details from what is going on right now or if you know what still could be happening in the future if it goes even more wrong (that is why the government intervention is so important, despite the pork that may be in those bills). I think you don't want to know what happens if more then 3 of the biggest banks in the world go bankrupt (if you know the results of one big bank going down), it won't be as good as a future as some republicans say it will be (they seem to have put their head in the ground or something). That is the reason why so many very important economists are so "scared".

Okay I am going to pick one thing here on your post that I believe makes a hugh difference. I highlighted it.

Are you saying actual cash money, stocks/investments?

I think there is a hugh difference between an actual cash deposit and assets that have inflated or grown.

If I own my house free and clear and I purchased it for a dollar ten years ago but now it is worth a hundred dollars without considering any improvements went into the house. I cannot actually say I lost a thing other than maintenance and property taxes if the house returns to a previous value of the one dollar I paid for it. The only bad thing I really see in that is I am now taxed at a value of one hundred dollars on something I paid one dollar for.

Now if I had put my one dollar into the bank and it fully disappeared into thin air in ten years time. I'd would probably be pretty miffed about it. (not the case I spend it all)


I can see why these outrageous paychecks at the banking/credit level need to be stopped until it can all be sorted out. That is if they do actually try to get a line on the mess. In the interim we probably need some actual working projects throughout the nation that will get things moving. That does not mena they should just throw money at it either. It needs to be very well planned out to insure it gets evenly distributed.

IMO,

There should be no "despite the Pork". If they are too lame to account for where money goes that they designate in a bill, it should not be in the package.

If they have some pet project to merely line someones pocket, it should not be in the package.

 

[Munin]

The house is still there so the asset still exist that the money got loaned on. Your saying the bank is now out of the picture. One guy lost his cash (because the bank loaned it out) and the guy who got the loan gets the house because the bank is no more?

So the guy who bought the house got a free house basically. I have not seen it work exactly like that yet. I have heard a few stories that a few judges have not allowed the banks to foreclose on due to certain banks fraudulent practices.

Non existent/bankrupt banks are a mess to contend with. Combine that with the last ten years of running loose and unimpeded it is worse than even just a bankrupt bank. I believe that is one of the reasons the feds have not closed them down yet.

Yeah normally this is true, but it is probably very rare that happens that a guy gets a loan just before a bank goes bankrupt (it could also be that this loan is declared invalid by a judge, due to certain laws that possible could prohibit banks from loaning money before going bankrupt: but I m no expert on US laws, so I don't know that for sure).

But normally one guy has already payed a big part of the house, he then gets the rest of his house for free if the bank that he loaned the money to is bankrupt because you can't pay money to something that doesn't exist anymore.

Yeah, banks going bankrupt is actually very bad. It is one of the worst scenarios in an economy is if they are actually big banks. The shock that a collapse like Lehman Brothers created when it fell was from the US to Europe, Asia, Africa ... Just because local banks can buy "products" from other banks like LB in this case.

What is going on now is really a nightmare-scenario for a lot of people, they see amounts of their money crashing down to 0. And people who work at a bank are getting depressed because they know the scenario that can happen, less income for a bank = cutting jobs , people who lost their complete pensions come crying to them, ... . It is just horrible if you d knew all the details from what is going on right now or if you know what still could be happening in the future if it goes even more wrong (that is why the government intervention is so important, despite the pork that may be in those bills). I think you don't want to know what happens if more then 3 of the biggest banks in the world go bankrupt (if you know the results of one big bank going down), it won't be as good as a future as some republicans say it will be (they seem to have put their head in the ground or something). That is the reason why so many very important economists are so "scared".

Okay I am going to pick one thing here on your post that I believe makes a hugh difference. I highlighted it.

Are you saying actual cash money, stocks/investments?

I think there is a hugh difference between an actual cash deposit and assets that have inflated or grown.

If I own my house free and clear and I purchased it for a dollar ten years ago but now it is worth a hundred dollars without considering any improvements went into the house. I cannot actually say I lost a thing other than maintenance and property taxes if the house returns to a previous value of the one dollar I paid for it. The only bad thing I really see in that is I am now taxed at a value of one hundred dollars on something I paid one dollar for.

Now if I had put my one dollar into the bank and it fully disappeared into thin air in ten years time. I'd would probably be pretty miffed about it. (not the case I spend it all)


I can see why these outrageous paychecks at the banking/credit level need to be stopped until it can all be sorted out. That is if they do actually try to get a line on the mess. In the interim we probably need some actual working projects throughout the nation that will get things moving. That does not mena they should just throw money at it either. It needs to be very well planned out to insure it gets evenly distributed.

IMO,

There should be no "despite the Pork". If they are too lame to account for where money goes that they designate in a bill, it should not be in the package.

If they have some pet project to merely line someones pocket, it should not be in the package.

Mostly I was talking about stocks, there are a big number of people that depend on stocks for their savings. And company owners who had a lot of money (all invested in their company), but now due to the crisis they have to go bankrupt because they can't afford to keep the business open (costs are too high). You might think that all company owners are rich, but the fact is that once they go bankrupt they can lose everything because they have to pay everyone out. This way they can go from a million dollars to 0 or even below that (there are a number of them who commit suicide because of this).

True their is still a huge difference between cash and deposits, that is at least if the situation stabilizes. This still is only a recession, but it will probably be helped by the stimulus bill.

Property will maintain its value on the long term. It is the currency that might go lower during bad times.


About the stimulus bill, it is probably unavoidable that their will be pork in it due to the definition given to the word "pork" ( "This allows delivery of federal funds to the local district or state" Pork barrel - Wikipedia, the free encyclopedia ).A lot of money is spend through local governments, it is very difficult to make the difference between a between a good project and "pork" as it is described by some. Every state will have its benefits, some will have had more because it is probably impossible to perfectly divide the money among all states (because all projects can variate significantly in costs). If one state will be benefited more then another then it will no doubt be called "pork" by the ones who got less and wanted more.

 

[RodISHI]

Yeah normally this is true, but it is probably very rare that happens that a guy gets a loan just before a bank goes bankrupt (it could also be that this loan is declared invalid by a judge, due to certain laws that possible could prohibit banks from loaning money before going bankrupt: but I m no expert on US laws, so I don't know that for sure).

But normally one guy has already payed a big part of the house, he then gets the rest of his house for free if the bank that he loaned the money to is bankrupt because you can't pay money to something that doesn't exist anymore.

Yeah, banks going bankrupt is actually very bad. It is one of the worst scenarios in an economy is if they are actually big banks. The shock that a collapse like Lehman Brothers created when it fell was from the US to Europe, Asia, Africa ... Just because local banks can buy "products" from other banks like LB in this case.

What is going on now is really a nightmare-scenario for a lot of people, they see amounts of their money crashing down to 0. And people who work at a bank are getting depressed because they know the scenario that can happen, less income for a bank = cutting jobs , people who lost their complete pensions come crying to them, ... . It is just horrible if you d knew all the details from what is going on right now or if you know what still could be happening in the future if it goes even more wrong (that is why the government intervention is so important, despite the pork that may be in those bills). I think you don't want to know what happens if more then 3 of the biggest banks in the world go bankrupt (if you know the results of one big bank going down), it won't be as good as a future as some republicans say it will be (they seem to have put their head in the ground or something). That is the reason why so many very important economists are so "scared".

Okay I am going to pick one thing here on your post that I believe makes a hugh difference. I highlighted it.

Are you saying actual cash money, stocks/investments?

I think there is a hugh difference between an actual cash deposit and assets that have inflated or grown.

If I own my house free and clear and I purchased it for a dollar ten years ago but now it is worth a hundred dollars without considering any improvements went into the house. I cannot actually say I lost a thing other than maintenance and property taxes if the house returns to a previous value of the one dollar I paid for it. The only bad thing I really see in that is I am now taxed at a value of one hundred dollars on something I paid one dollar for.

Now if I had put my one dollar into the bank and it fully disappeared into thin air in ten years time. I'd would probably be pretty miffed about it. (not the case I spend it all)


I can see why these outrageous paychecks at the banking/credit level need to be stopped until it can all be sorted out. That is if they do actually try to get a line on the mess. In the interim we probably need some actual working projects throughout the nation that will get things moving. That does not mena they should just throw money at it either. It needs to be very well planned out to insure it gets evenly distributed.

IMO,

There should be no "despite the Pork". If they are too lame to account for where money goes that they designate in a bill, it should not be in the package.

If they have some pet project to merely line someones pocket, it should not be in the package.

Mostly I was talking about stocks, there are a big number of people that depend on stocks for their savings. And company owners who had a lot of money (all invested in their company), but now due to the crisis they have to go bankrupt because they can't afford to keep the business open (costs are too high). You might think that all company owners are rich, but the fact is that once they go bankrupt they can loose everything because they have to pay everyone out. This way they can go from a million dollars to 0 or even below that (there are a number of them who commit suicide because of this).

True their is still a huge difference between cash and deposits, that is at least if the situation stabilizes. This still is only a recession, but it will probably be helped by the stimulus bill.

Property will maintain its value on the long term. It is the currency that might go lower during bad times.


About the stimulus bill, it is probably unavoidable that their will be pork in it due to the definition given to the word "pork" ( "This allows delivery of federal funds to the local district or state" Pork barrel - Wikipedia, the free encyclopedia ).A lot of money is spend through local governments, it is very difficult to make the difference between a between a good project and "pork" as it is described by some. Every state will have its benefits, some will have had more because it is probably impossible to perfectly divide the money among all states (because all projects can variate significantly in costs). If one state will be benefited more then another then it will no doubt be called "pork" by the ones who got less and wanted more.

I owned my own company (bb1 it went to a 2 when my bookeeper missed a payment on supplies for a month).

We never ran on credit. I had one small line of credit (five grand) to cover a large new contract that I could not cover the full wages for the first month and a half until I got the first check.

If they had not been running on credit they would have been less vunerable. If they could not afford the cost of business what were they doing in business?

The only thing I see that would have killed most small businesses in this last year so fast was the cost of fuel rising so rapidly unless of course they ran on credit and their bank cut them off.

Who is it that caused the fuel to skyrocket? I read it was bankers in control of mutual funds? If that is the case did they slit their own throats? Or is it that they sold those toxic loans prior to hitting the "let's inflate the oil trail"?

When I got out of that business I was tired of not being able to give my employees what they deserved. My basic insurance had gone from 1.2% to over 12% in less than 9 years with no losses.

 

[Munin]

Okay I am going to pick one thing here on your post that I believe makes a hugh difference. I highlighted it.

Are you saying actual cash money, stocks/investments?

I think there is a hugh difference between an actual cash deposit and assets that have inflated or grown.

If I own my house free and clear and I purchased it for a dollar ten years ago but now it is worth a hundred dollars without considering any improvements went into the house. I cannot actually say I lost a thing other than maintenance and property taxes if the house returns to a previous value of the one dollar I paid for it. The only bad thing I really see in that is I am now taxed at a value of one hundred dollars on something I paid one dollar for.

Now if I had put my one dollar into the bank and it fully disappeared into thin air in ten years time. I'd would probably be pretty miffed about it. (not the case I spend it all)


I can see why these outrageous paychecks at the banking/credit level need to be stopped until it can all be sorted out. That is if they do actually try to get a line on the mess. In the interim we probably need some actual working projects throughout the nation that will get things moving. That does not mena they should just throw money at it either. It needs to be very well planned out to insure it gets evenly distributed.

IMO,

There should be no "despite the Pork". If they are too lame to account for where money goes that they designate in a bill, it should not be in the package.

If they have some pet project to merely line someones pocket, it should not be in the package.

Mostly I was talking about stocks, there are a big number of people that depend on stocks for their savings. And company owners who had a lot of money (all invested in their company), but now due to the crisis they have to go bankrupt because they can't afford to keep the business open (costs are too high). You might think that all company owners are rich, but the fact is that once they go bankrupt they can loose everything because they have to pay everyone out. This way they can go from a million dollars to 0 or even below that (there are a number of them who commit suicide because of this).

True their is still a huge difference between cash and deposits, that is at least if the situation stabilizes. This still is only a recession, but it will probably be helped by the stimulus bill.

Property will maintain its value on the long term. It is the currency that might go lower during bad times.


About the stimulus bill, it is probably unavoidable that their will be pork in it due to the definition given to the word "pork" ( "This allows delivery of federal funds to the local district or state" Pork barrel - Wikipedia, the free encyclopedia ).A lot of money is spend through local governments, it is very difficult to make the difference between a between a good project and "pork" as it is described by some. Every state will have its benefits, some will have had more because it is probably impossible to perfectly divide the money among all states (because all projects can variate significantly in costs). If one state will be benefited more then another then it will no doubt be called "pork" by the ones who got less and wanted more.

I owned my own company (bb1 it went to a 2 when my bookeeper missed a payment on supplies for a month).

We never ran on credit. I had one small line of credit (five grand) to cover a large new contract that I could not cover the full wages for the first month and a half until I got the first check.

If they had not been running on credit they would have been less vunerable. If they could not afford the cost of business what were they doing in business?

The only thing I see that would have killed most small businesses in this last year so fast was the cost of fuel rising so rapidly unless of course they ran on credit and their bank cut them off.

Who is it that caused the fuel to skyrocket? I read it was bankers in control of mutual funds? If that is the case did they slit their own throats? Or is it that they sold those toxic loans prior to hitting the "let's inflate the oil trail"?

When I got out of that business I was tired of not being able to give my employees what they deserved. My basic insurance had gone from 1.2% to over 12% in less than 9 years with no losses.

I guess it also depends on the business you re in, my grandfather had a business where he more relied on credits (because his products are more expensive) to make payments and other stuff and other businesses with more employees then him were much more vulnerable to a crisis (as he found out during the last huge crisis). He had luck with his bank that his credits were good and that he could rely on them (good contacts within the bank).

But I think more businesses back then with lots of people employed really felt it the most, every man/woman employed is a fixed cost that you have to pay. I really understand your point, it is hard to find give someone the "right" pay because your business can not have too high fixed costs.

Or businesses that just bought a new company, they re in a very weak position when they run out of credit.

 

[editec]

Many people, businesses, governments, and even banks have run out of money. If there is a finite amount of money in the world, where did it all go?



Thank you for any assistance you can provide in answering this lingering question.

Money didn't disappear.

What disappeared were unrealized capital gains...in housing and stocks.

For example, assume that I could have sold my home for $180,000 two or three years ago, and now I realize I'd be lucky to sell it for $125,000.

Now, no money is actually gone, but my unrealized wealth (locked into the value of my home) appears to have diminished.

Add to all the people who have seen their net worth decline due to real estate and their 401Ks declining in value, and you have a very discouraged consuming class.

Make sense?

 

[editec]

I never figured it that away Auditor yet I am not a bank.

I have heard that they can loan up to ten times the amount of actual cash they have on the books. I am sure there are variables in hoiw that exactly works.

If they loaned on a house and foreclosed they can't add that back into the books until it is sold.

Perhaps someone here can give the accurate reflection on how that works.

Some banks were loaning, according to something I read few months ago, as much as 40 times their cap rate.

Gee I wish I could loan out 40 times as much cash as I have on hand.

I'd be rich in no time.

 

[RodISHI]

I never figured it that away Auditor yet I am not a bank.

I have heard that they can loan up to ten times the amount of actual cash they have on the books. I am sure there are variables in hoiw that exactly works.

If they loaned on a house and foreclosed they can't add that back into the books until it is sold.

Perhaps someone here can give the accurate reflection on how that works.

Some banks were loaning, according to something I read few months ago, as much as 40 times their cap rate.

Gee I wish I could loan out 40 times as much cash as I have on hand.

I'd be rich in no time.

It took a bit to remember who told me that. It was my daughter-in-law. She was a bank president.

I can believe they did that up to forty times. Looking at the whole past five years and considering it all. It looks like Buffet new what was coming down.

I'd put a bet in there to say that some banks got to feeling fairly cocky about their returns from guaranteed loans too. They floated an extremely leaky boat for a short period of time catching every fish they could along they way and the boat finally collapsed under the weight. Some of them sure got a heck of a paycheck in the interim on a lot of peoples dime.

 

[editec]

Some of them sure got a heck of a paycheck in the interim on a lot of peoples dime.

Hang the bastards.

Damned right, I'm serious about that.

 

[Dark Starscream]

No, people need to save. It will cause a recession, as we're witnessing. However, the recession has to happen. It is the market's attempt to correct itself.

Something else I don't understand about this answer: Are you saying that the natural state of economy is in recession-like state? If we all paid off all of our debts (which would dramatically deflate our economy), is that the natural state that we should be striving for here?

If that's the case, then maybe we should be hoping for a gradual population increase with a proportional debt increase over time in order to steadily boost the economy. Just a thought.

 

[Kevin_Kennedy]

No, people need to save. It will cause a recession, as we're witnessing. However, the recession has to happen. It is the market's attempt to correct itself.

Something else I don't understand about this answer: Are you saying that the natural state of economy is in recession-like state? If we all paid off all of our debts (which would dramatically deflate our economy), is that the natural state that we should be striving for here?

If that's the case, then maybe we should be hoping for a gradual population increase with a proportional debt increase over time in order to steadily boost the economy. Just a thought.

No, it's not the natural state in the sense that we should always be in a recession. A recession is a natural part of the market, however. A recession occurs as part of the business cycle, otherwise known as the boom-bust cycle. During the boom-period everything seems to be going great. The problem is that there's a misallocation of resources that inevitably leads to the bust-period, which is the recession.

The business cycle is brought on by the Federal Reserve tampering with the interest rates, which causes businesses to do things they probably wouldn't do if the free market was setting the interest rates naturally. Thus, the misallocation of resources.

 

[Care4all]

No, people need to save. It will cause a recession, as we're witnessing. However, the recession has to happen. It is the market's attempt to correct itself.

Something else I don't understand about this answer: Are you saying that the natural state of economy is in recession-like state? If we all paid off all of our debts (which would dramatically deflate our economy), is that the natural state that we should be striving for here?

If that's the case, then maybe we should be hoping for a gradual population increase with a proportional debt increase over time in order to steadily boost the economy. Just a thought.

No, it's not the natural state in the sense that we should always be in a recession. A recession is a natural part of the market, however. A recession occurs as part of the business cycle, otherwise known as the boom-bust cycle. During the boom-period everything seems to be going great. The problem is that there's a misallocation of resources that inevitably leads to the bust-period, which is the recession.

The business cycle is brought on by the Federal Reserve tampering with the interest rates, which causes businesses to do things they probably wouldn't do if the free market was setting the interest rates naturally. Thus, the misallocation of resources.

how can "setting" something be "natural"?

Care

 

[editec]

No, people need to save. It will cause a recession, as we're witnessing. However, the recession has to happen. It is the market's attempt to correct itself.

Something else I don't understand about this answer: Are you saying that the natural state of economy is in recession-like state? If we all paid off all of our debts (which would dramatically deflate our economy), is that the natural state that we should be striving for here?

If that's the case, then maybe we should be hoping for a gradual population increase with a proportional debt increase over time in order to steadily boost the economy. Just a thought.

No, it's not the natural state in the sense that we should always be in a recession. A recession is a natural part of the market, however. A recession occurs as part of the business cycle, otherwise known as the boom-bust cycle. During the boom-period everything seems to be going great. The problem is that there's a misallocation of resources that inevitably leads to the bust-period, which is the recession.

The business cycle is brought on by the Federal Reserve tampering with the interest rates, which causes businesses to do things they probably wouldn't do if the free market was setting the interest rates naturally. Thus, the misallocation of resources.

Yeah? Ya' think?

Then why did our economy have boom-bust cycles BEFORE we even had a Federal reserve?

How for example does one explain the Panic of 1898 if there was no FED.

You still don't get it do you, Kevin.

You and I and the whole gang of astrologers masquarading as scholars of economic theory are GUESSING what drives our economy to act in the ways it does.

If we actually KNEW what was going on, don't you think we'd all know a depression was coming?

If the economy were as easy to understand as some of us think it is, there would be NO STOCK MARKET, because markets depend on players betting in opposite directions to exist.

It's nearly impossible even after the fact, to trace the conditions which brought us to the point we are at now.

But certainly not ONE economist can accurately predict what tomorrow will bring. Of course if you get enough of them all reading the entrails of the market at least SOME of them are bound to be right, but please by all means show me ONE ECONOMIST who was consistently right about things.

You cannot. Just as you cannot show me a single mutual fund who is always on the mark, or a single broker who doesn't lose money, either.



If one could always get it right, sooner or later everyone could.

And if everyone can read the writing on the wall, then their actions would change conditions enough that they'd be wrong.

We are jumping off a cliff every day economically. Doesn't matter what we do we cannot KNOW that it will help, and we cannot KNOW that it will hurt either.

All we can know if the immediate effects of what we do, but as we move out in time from those actions, the future becomes increasingly unpredicable.

 

[Kevin_Kennedy]

Something else I don't understand about this answer: Are you saying that the natural state of economy is in recession-like state? If we all paid off all of our debts (which would dramatically deflate our economy), is that the natural state that we should be striving for here?

If that's the case, then maybe we should be hoping for a gradual population increase with a proportional debt increase over time in order to steadily boost the economy. Just a thought.

No, it's not the natural state in the sense that we should always be in a recession. A recession is a natural part of the market, however. A recession occurs as part of the business cycle, otherwise known as the boom-bust cycle. During the boom-period everything seems to be going great. The problem is that there's a misallocation of resources that inevitably leads to the bust-period, which is the recession.

The business cycle is brought on by the Federal Reserve tampering with the interest rates, which causes businesses to do things they probably wouldn't do if the free market was setting the interest rates naturally. Thus, the misallocation of resources.

how can "setting" something be "natural"?

Care

Well the market is everybody that makes any transaction. So if people start saving then the market would be dictating that interest rates go down, and if people start mass consuming then interest rates go up. A business makes important decisions based on where the interest rates are at. If the Fed comes in and artificially lowers interest rates then businesses get the wrong signal and malinvestment begins.

 

[editec]

No, it's not the natural state in the sense that we should always be in a recession. A recession is a natural part of the market, however. A recession occurs as part of the business cycle, otherwise known as the boom-bust cycle. During the boom-period everything seems to be going great. The problem is that there's a misallocation of resources that inevitably leads to the bust-period, which is the recession.

The business cycle is brought on by the Federal Reserve tampering with the interest rates, which causes businesses to do things they probably wouldn't do if the free market was setting the interest rates naturally. Thus, the misallocation of resources.

how can "setting" something be "natural"?

Care

Well the market is everybody that makes any transaction. So if people start saving then the market would be dictating that interest rates go down, and if people start mass consuming then interest rates go up. A business makes important decisions based on where the interest rates are at. If the Fed comes in and artificially lowers interest rates then businesses get the wrong signal and malinvestment begins.

You are making the argument that we can know, if such and such is done, then certain players will react thusly (in the immediate term) and I quite agree with that.

Where you and I disagree is what effect changing any single variable in a system as chaotic as an economy will have on the economy itself over the longer haul.

If one puches me in the nose one might be able to predict that my nose will bleed, but based on that changing variable, will one be able to predict what my life will be like next month?

I think not.

And yes, I defintiely do think the above analogy applies to the economy.