More demand is not the whole answer

[DSGE]

so a money center bank that goes bust from selling MBS is the same as a retired school teacher who goes bust from saving in that bank??

Don't understand moral hazard, huh? The retired school teacher imposes good practices on the bank by taking their deposits elsewhere if they believe the bank is taking too much risk or if their solvency is in question.

Insuring depositors incentivizes banks to engage in risky behaviour, resulting in more likelihood of it going bust, because depositors don't care if they do; they're insured either way.

I suppose you think it was okay to bail out the banks since it's not fair that other people in the economy should suffer the shocks from cascading bank failures if they didn't directly engage in risk taking?

 

[EdwardBaiamonte]

Right, just like how expanding the money supply to correct the 1929 stock bubble would have merely distorted the economy further?

why correct a stock bubble when money is really not destroyed unless you want to encourage further speculation??

It is however destroyed when 1/3 of the banks close as happened in 1929-31

 

[EdwardBaiamonte]

so a money center bank that goes bust from selling MBS is the same as a retired school teacher who goes bust from saving in that bank

Don't understand moral hazard, huh? The retired school teacher imposes good practices on the bank by taking their deposits elsewhere if they believe the bank is taking too much risk or if their solvency is in question.

except the retired school teacher has been led to believe the liberal nanny state had her back, and that the liberal nanny state required meaningful accounting standards so meaningful information was available on risk. Morover bailiong out the retired school teacher is the perfect way to make her whole again and restore the status quo. It is far better than bailing out, distorting, and bubbling up the whole economy.


]

 

[EdwardBaiamonte]

I suppose you think it was okay to bail out the banks since it's not fair that other people in the economy should suffer the shocks from cascading bank failures if they didn't directly engage in risk taking?

Don't forget, many banks went bust and some are on the verge like BoA, Merryl Lynch, Citi bank so it was more of a averge citizen bailout than a bank bailout that prevented a certain depression, especially when you note that the banks paid the money back, except for Fanny Freddie of course. In the future we should break up the banks and establish meaningful accounting standards so banks and people can go bust.

 

[DSGE]

I suppose you think it was okay to bail out the banks since it's not fair that other people in the economy should suffer the shocks from cascading bank failures if they didn't directly engage in risk taking?

Don't forget, many banks went bust and some are on the verge like BoA, Merryl Lynch, Citi bank so it was more of a averge citizen bailout than a bank bailout that prevented a certain depression, especially when you note that the banks paid the money back, except for Fanny Freddie of course. In the future we should break up the banks and establish meaningful accounting standards so banks and people can go bust.

Is that so? We should have more government involvement in banking, regulating accounting standards and deciding how they should be broken up following bankruptcy? How perfectly liberal.

 

[DSGE]

so a money center bank that goes bust from selling MBS is the same as a retired school teacher who goes bust from saving in that bank

Don't understand moral hazard, huh? The retired school teacher imposes good practices on the bank by taking their deposits elsewhere if they believe the bank is taking too much risk or if their solvency is in question.

except the retired school teacher has been led to believe the liberal nanny state had her back, and that the liberal nanny state required meaningful accounting standards so meaningful information was available on risk. Morover bailiong out the retired school teacher is the perfect way to make her whole again and restore the status quo. It is far better than bailing out, distorting, and bubbling up the whole economy.


]

Get the liberal nanny state completely out of banking. In a competitive free market banks are incentivized to release meaningful information on risk so as to attract depositors. Bailing out a retired school teacher is the perfect way to tell them that they don't need to be careful where they deposit their money; they'll give it to the bank which offers the highest interest rate due to taking the most risks; they don't care if the bank fails due to that risk because the taxpayer is insuring their deposit.

 

[DSGE]

Right, just like how expanding the money supply to correct the 1929 stock bubble would have merely distorted the economy further?

why correct a stock bubble when money is really not destroyed unless you want to encourage further speculation??

It is however destroyed when 1/3 of the banks close as happened in 1929-31

I don't think you're fully grasping the parallel here.

1929: Stock bubble, banking collapse, velocity falls, Depression.

2008: Housing bubble, banking collapse, velocity falls, depression.

We all know that the Great Depression was the result of tight money, not of a stock bubble. Same goes for this depression. You're focusing on the housing crisis as if it were important, the same way they focused on the stock market crash when really it was the Fed's tight monetary policy.

 

[EdwardBaiamonte]

I suppose you think it was okay to bail out the banks since it's not fair that other people in the economy should suffer the shocks from cascading bank failures if they didn't directly engage in risk taking?

Don't forget, many banks went bust and some are on the verge like BoA, Merryl Lynch, Citi bank so it was more of a averge citizen bailout than a bank bailout that prevented a certain depression, especially when you note that the banks paid the money back, except for Fanny Freddie of course. In the future we should break up the banks and establish meaningful accounting standards so banks and people can go bust.

Is that so? We should have more government involvement in banking, regulating accounting standards and deciding how they should be broken up following bankruptcy?
How perfectly liberal.

yes most conservatives think anti-trust, measures, for example are fine to promote capitalist competition.

no one has a thing to say about accounting standards but they were at the heart of the crisis even after Sarbanes Oxley. I don't see anyway the free market is going to create meaningful accounting standards that promote capitalist competition so it is a perfect role for government.

 

[EdwardBaiamonte]

Right, just like how expanding the money supply to correct the 1929 stock bubble would have merely distorted the economy further?

why correct a stock bubble when money is really not destroyed unless you want to encourage further speculation??

It is however destroyed when 1/3 of the banks close as happened in 1929-31

I don't think you're fully grasping the parallel here.

1929: Stock bubble, banking collapse, velocity falls, Depression.

2008: Housing bubble, banking collapse, velocity falls, depression.

We all know that the Great Depression was the result of tight money, not of a stock bubble. Same goes for this depression. You're focusing on the housing crisis as if it were important, the same way they focused on the stock market crash when really it was the Fed's tight monetary policy.

what? Friedman always said bank collapse was key, not stock bust

 

[DSGE]

Don't forget, many banks went bust and some are on the verge like BoA, Merryl Lynch, Citi bank so it was more of a averge citizen bailout than a bank bailout that prevented a certain depression, especially when you note that the banks paid the money back, except for Fanny Freddie of course. In the future we should break up the banks and establish meaningful accounting standards so banks and people can go bust.

Is that so? We should have more government involvement in banking, regulating accounting standards and deciding how they should be broken up following bankruptcy?
How perfectly liberal.

yes most conservatives think anti-trust, measures, for example are fine to promote capitalist competition.

no one has a thing to say about accounting standards but they were at the heart of the crisis even after Sarbanes Oxley. I don't see anyway the free market is going to create meaningful accounting standards that promote capitalist competition so it is a perfect role for government.

You don't see any way? What have we been talking about. With no deposit insurance banks will be forced to reveal that information in order to attract depositors. With deposit insurance, depositors don't care whether banks are being risky or not; so there's no pressure on banks to release such information. Poor accounting standard are a result of government intervention, and you think the solution is more?! You're a closet liberal, Edward.

 

[DSGE]

why correct a stock bubble when money is really not destroyed unless you want to encourage further speculation??

It is however destroyed when 1/3 of the banks close as happened in 1929-31

I don't think you're fully grasping the parallel here.

1929: Stock bubble, banking collapse, velocity falls, Depression.

2008: Housing bubble, banking collapse, velocity falls, depression.

We all know that the Great Depression was the result of tight money, not of a stock bubble. Same goes for this depression. You're focusing on the housing crisis as if it were important, the same way they focused on the stock market crash when really it was the Fed's tight monetary policy.

what? Friedman always said bank collapse was key, not stock bust

Hahaha. So stupid.

First, Friedman said the money supply collapse was the key; Bernanke said the bank collapse was the key in his Essays on the Great Depression.

Second, if Friedman thought the bank collapse was key, why are you talking about the housing collapse! If the stock bubble didn't matter for the Depression why on earth would the housing bubble matter for this one? The Great Depression was tight money (everybody agrees); this depression is tight money.

 

[EdwardBaiamonte]

With no deposit insurance banks will be forced to reveal that information in order to attract depositors.

BS, no one on left or right believes that and everyone on left and right intends to continue deposit insurance

With deposit insurance, depositors don't care whether banks are being risky or not; so there's no pressure on banks to release such information.

you still get huge bank lines when word is out that bank is going under, but its silly subject so you have 0 support. Only government can create common accounting standards just like only they can create a common currency.

Poor accounting standard are a result of government intervention, and you think the solution is more?! You're a closet liberal, Edward.

good standards must be common to all banks so customers can compare just like dollar must be common to all states so customers can compare. Catching on now????

 

[EdwardBaiamonte]

First, Friedman said the money supply collapse was the key; Bernanke said the bank collapse was the key in his Essays on the Great Depression.

all agree and??????

Second, if Friedman thought the bank collapse was key, why are you talking about the housing collapse!

in '29 he thought the bank collapse was key!!! I'm talking about the current housing crisis because we all know that is where the problem started and still in large part resides.

If the stock bubble didn't matter for the Depression why on earth would the housing bubble matter for this one?

10,000 houses a day in forclousure that then take years to move. Imagine if it took GM years to sell a car!!

The Great Depression was tight money (everybody agrees); this depression is tight money.

so both cases are identical and we must flood the entire economy with money to create velocity to conform to your simplistic HS business economics course!!.

 

[Rshermr]

First, Friedman said the money supply collapse was the key; Bernanke said the bank collapse was the key in his Essays on the Great Depression.

all agree and??????

Second, if Friedman thought the bank collapse was key, why are you talking about the housing collapse!

in '29 he thought the bank collapse was key!!! I'm talking about the current housing crisis because we all know that is where the problem started and still in large part resides.

If the stock bubble didn't matter for the Depression why on earth would the housing bubble matter for this one?

10,000 houses a day in forclousure that then take years to move. Imagine if it took GM years to sell a car!!

The Great Depression was tight money (everybody agrees); this depression is tight money.

so both cases are identical and we must flood the entire economy with money to create velocity to conform to your simplistic HS business economics course!!.

Ed,
You say there are 10,000 foreclosures per day??? I caught you in this lie earlier. You are overstating by a factor of 3+. Try to at least be in the ballpark. The foreclosures for the current year are projected at about 1Million or a bit less. My numbers are from U.S. Foreclosure Trends and Foreclosure Market Statistics | RealtyTrac. What planet did yours come from??

 

[EdwardBaiamonte]

First, Friedman said the money supply collapse was the key; Bernanke said the bank collapse was the key in his Essays on the Great Depression.

all agree and??????



in '29 he thought the bank collapse was key!!! I'm talking about the current housing crisis because we all know that is where the problem started and still in large part resides.




10,000 houses a day in forclousure that then take years to move. Imagine if it took GM years to sell a car!!

The Great Depression was tight money (everybody agrees); this depression is tight money.

so both cases are identical and we must flood the entire economy with money to create velocity to conform to your simplistic HS business economics course!!.

Ed,
You say there are 10,000 foreclosures per day??? I caught you in this lie earlier. You are overstating by a factor of 3+. Try to at least be in the ballpark. The foreclosures for the current year are projected at about 1Million or a bit less. My numbers are from U.S. Foreclosure Trends and Foreclosure Market Statistics | RealtyTrac. What planet did yours come from??

who said anything about the current year??? yes my number is old but from Chris Dodd directly; nevertheless the point is that if GM faced the same problem you would see an obvious need to correct the situation, not flood the entire economy with money and pray that somehow solved an entirely unrelated problem.

 

[Rshermr]

all agree and??????



in '29 he thought the bank collapse was key!!! I'm talking about the current housing crisis because we all know that is where the problem started and still in large part resides.




10,000 houses a day in forclousure that then take years to move. Imagine if it took GM years to sell a car!!



so both cases are identical and we must flood the entire economy with money to create velocity to conform to your simplistic HS business economics course!!.

Ed,
You say there are 10,000 foreclosures per day??? I caught you in this lie earlier. You are overstating by a factor of 3+. Try to at least be in the ballpark. The foreclosures for the current year are projected at about 1Million or a bit less. My numbers are from U.S. Foreclosure Trends and Foreclosure Market Statistics | RealtyTrac. What planet did yours come from??

who said anything about the current year??? yes my number is old but from Chris Dodd directly; nevertheless the point is that if GM faced the same problem you would see an obvious need to correct the situation, not flood the entire economy with money and pray that somehow solved an entirely unrelated problem.

No sure what your point is. Stimulus is done by putting $ in specific places. Job creation, such as infrastructure projects. Unemployment insurance to place $ where those $ will be spent. All such projects create demand.

 

[Wiseacre]

Ed,
You say there are 10,000 foreclosures per day??? I caught you in this lie earlier. You are overstating by a factor of 3+. Try to at least be in the ballpark. The foreclosures for the current year are projected at about 1Million or a bit less. My numbers are from U.S. Foreclosure Trends and Foreclosure Market Statistics | RealtyTrac. What planet did yours come from??

who said anything about the current year??? yes my number is old but from Chris Dodd directly; nevertheless the point is that if GM faced the same problem you would see an obvious need to correct the situation, not flood the entire economy with money and pray that somehow solved an entirely unrelated problem.

No sure what your point is. Stimulus is done by putting $ in specific places. Job creation, such as infrastructure projects. Unemployment insurance to place $ where those $ will be spent. All such projects create demand.

You sure? Obama has spent 14-15 trillion dollars in his 1st term, where's the demand? Debt is higher by more than 5 trillion and counting on his watch, where's the demand? UE is still over 8% and the labor participation rate is lower than it's been in what, 60 fucking years, where's the demand? How long and how much does it take for God's sake? We've been paying UE for well over 2 years, where's the fucking demand? All we heard 3 and a half years ago was shovel-ready jobs and we'll fix the infrastructure? Jesus fucking Christ, how come the infrastructure isn't fixed? Obama thought it was a big joke, laughed like hell; well I don't think it was so fuckin' funny, and now he clamors all the time for another 450 billion. You tell me, why should I believe he'll do any better with more money?

You'll say it's better than it was in Jan 2009? Big fuckin' deal, are you going to claim this was the best we could do for all that money? IMHO, anybody who says that is an ideological fool. I swear to God, it's unbelievable. Tax the rich, tax the rich, that's all you clowns say. Do you really think you can draw in anywhere near what you need to cover all the spending you want to do? So you raise the marginal rate up to 39.6%, like it was under Clinton. You know what you get? About 75 Billion in revenue, and that's questionable. How much do you guys think you can get out of 75 billion a year?

 

[Middleoftheroad]

who said anything about the current year??? yes my number is old but from Chris Dodd directly; nevertheless the point is that if GM faced the same problem you would see an obvious need to correct the situation, not flood the entire economy with money and pray that somehow solved an entirely unrelated problem.

No sure what your point is. Stimulus is done by putting $ in specific places. Job creation, such as infrastructure projects. Unemployment insurance to place $ where those $ will be spent. All such projects create demand.

You sure? Obama has spent 14-15 trillion dollars in his 1st term, where's the demand? Debt is higher by more than 5 trillion and counting on his watch, where's the demand? UE is still over 8% and the labor participation rate is lower than it's been in what, 60 fucking years, where's the demand? How long and how much does it take for God's sake? We've been paying UE for well over 2 years, where's the fucking demand? All we heard 3 and a half years ago was shovel-ready jobs and we'll fix the infrastructure? Jesus fucking Christ, how come the infrastructure isn't fixed? Obama thought it was a big joke, laughed like hell; well I don't think it was so fuckin' funny, and now he clamors all the time for another 450 billion. You tell me, why should I believe he'll do any better with more money?

Its about overall debt, public and private. I'm not sure if the total actualy number has been falling, but total as a percentage of the economy has been falling off a cliff. Ideally you would like to see businesses investing and people spending, but they aren't, at least not yet. Although on the bright side, personal debt has finally got below that dreaded 85% mark that most consider suitable for a healthy economy, so we hopefully should soon see consumers spending increase, although I'm not really holding my breath.

You'll say it's better than it was in Jan 2009? Big fuckin' deal, are you going to claim this was the best we could do for all that money? IMHO, anybody who says that is an ideological fool. I swear to God, it's unbelievable. Tax the rich, tax the rich, that's all you clowns say. Do you really think you can draw in anywhere near what you need to cover all the spending you want to do? So you raise the marginal rate up to 39.6%, like it was under Clinton. You know what you get? About 75 Billion in revenue, and that's questionable. How much do you guys think you can get out of 75 billion a year?

Your right of course, you can't get there just by taxing the rich. Personally I'm for ending the bush era tax cuts in total, including on the middle and lower class. The other 800B or so needs to come from spending cuts and the economic growth.

 

[Wiseacre]

We need serious structural reforms to just about everything. We should be able to do a lot better than what we're doing now and for less money. I don't think now is the time for any tax hikes, or for allowing the Bush cuts to expire on anybody. Fine for later if and when the economy picks up, but not now or in 2013.

 

[Norman]

Is increasing demand enough? The lefties around here will tell you that all we gotta do is give more money to the lower income people, they'll spend it, demand goes up, and our problems are over. Sounds simple. Too simple. It ain't that easy, and this why:

My first issue is with the idea that the extra money will all get spent; I think that is a fallacious argument, especially at a time like this when people are scared of losing their job or their home. I'd venture a guess that most people have had financial problems themselves or know someone who has, be it a friend, neighbor, or family member. Some of the money will get spent, say for school supplies in a couple months, or for Christmas maybe, but some of it will be socked away for emergency use should things go from bad to worse. IOW, you ain't going to get the boost you think you are.

Then there's the question of how money are we talking about and how many people are going to receive it. Are we talking a one-time good deal stimulus, or a longer term program of redistribution of wealth? The last stimulus did give us a bounce, but it hasn't lasted. Sure, we're better off than we were in January 2009, but is that anything to brag about? The benefits we were told about then did not materialize, why should we believe the next one will do any better? Some talk of the stimulus we got as a result of WWII as a success story; but do you realize how much gov't spending went up during those 5 years from 1940 - 1945? $10 billion in 1940 to $107 billion in 1945, that's a tenfold increase. Our current spending is about $3.5 billion, anybody here wanna argue for a $35 billion dollar budget in 5 years time?

Okay, say instead of a stimulus you do a permanent redistribution of wealth, with a sunset of 10 years like the Bush Tax Cuts. Raising the top marginal rate back to the 40% it was under Clinton gets you $70-80 billion in more revenue, I don't think that's gonna go very far spread around the bottom 70 or so million people on the south side of the income ladder. You going to borrow the rest? How much money will that be, and how do you intend to pay the interest payments when interest rates go back up eventually? They will you know, the historical average is around 5%, can you imagine how much we'd have to pay out just to service all that debt?

Increased demand is obviously necessary; but that money has to come from somewhere. Seems like the solution to every problem for the lib/dems is to take more money from the rich guys. But they won't accept the idea that there are consequences for that, those who can will leave and those who can't will stop using that money to invest in startups or expanding businesses. If the reward isn't worth the risk, they won't do it; instead more money will go into tax shelters or offshore. Look at what's happening today in the PIIGS countries; they're taking their money out of the local banks and moving to London or somewhere else, and they're doing it in droves. You don't have to like it, but that's the way it is.

I don't think the problem of USA is a lack of demand. Trade deficit tells otherwise. In fact the whole system is very, very pro demand with it's massive government deficits and 0% interest rates. And that is a huge long term problem that has just hit you.