CRA Did Not Cause Financial Crisis - Fed

[Paulie]

What is occurring is called a "liquidity trap."

Liquidity trap - Wikipedia, the free encyclopedia

I was pleased to see the "Austrian Critique" section conspicuously present at the link.

 

[editec]

What is occurring is called a "liquidity trap."

Liquidity trap - Wikipedia, the free encyclopedia

Nice link, Toro.

I found this VERY INTERESTING

Milton Friedman suggested that a monetary authority can escape a liquidity trap by bypassing financial intermediaries to give money directly to consumers or businesses. This is referred to as a money gift or as helicopter money. The term helicopter money is meant to portray the image of a central banker dropping money on people from a helicopter. Political considerations make it difficult for a monetary authority to grant the money gift, because individuals and firms not receiving free money will exert political pressure. The monetary authority must act covertly to give gift money to specific individuals or firms without appearing to give money away.

I find the above interesting given that Milton Friendman is better known as this:

Originally a Keynesian supporter of the New Deal and advocate of high taxes, in the 1950s his reinterpretation of the Keynesian consumption function challenged the basic Keynesian model. In the 1960s he promoted an alternative macroeconomic policy called monetarism. He theorized there existed a "natural rate of unemployment" and he argued the central government could not micromanage the economy because people would realize what the government was doing and shift their behavior to neutralize the impact of policies. He rejected the Phillips Curve and accurately predicted that Keynesian policies would cause "stagflation" (high inflation and low growth). He argued that a steady expansion of the money supply was the only wise policy, and warned against efforts by the treasury or central bank to do otherwise.

Funny how he seems to have changed his tune now that the Banking Mafia has broken cpitalism, isn't it?

Guess we're all Kynesians now.
http://en.wikipedia.org/wiki/Milton_Friedman

 

[Paulie]

Guess we're all Kynesians now.

Psh, speak for yourself brotha.

 

[Ravi]

What is occurring is called a "liquidity trap."

Liquidity trap - Wikipedia, the free encyclopedia

Okay. This stuff is a bit hard to grasp. So apparently most of the time the Fed can affect the economy...but not when there is no confidence.

 

[Paulie]

Okay. This stuff is a bit hard to grasp. So apparently most of the time the Fed can affect the economy...but not when there is no confidence.

They always can, but to what extent and how quick, are the variables.

 

[Toro]

Okay. This stuff is a bit hard to grasp. So apparently most of the time the Fed can affect the economy...but not when there is no confidence.

Basically. The economy is about trust. When trust goes away, economic activity decreases.

When there is excess capacity, you have deflation. Cutting interest rates really cannot help the economy until the excess capacity goes away.

 

[gonegolfin]

Basically. The economy is about trust. When trust goes away, economic activity decreases.

When there is excess capacity, you have deflation. Cutting interest rates really cannot help the economy until the excess capacity goes away.

Indeed. Conventional monetary policy ceases to work in a liquidity trap because when interest rates are zero or near zero, cash and treasury debt are perfect substitutes for one another. Thus, liquidity injections implemented by Central Bank purchases of treasuries do not have the normal intended effect. They simply pile up as bank reserves and in vaults. This is exactly what happened to Japan in the lost decade.

Brian

 

[Toro]

Indeed. Conventional monetary policy ceases to work in a liquidity trap because when interest rates are zero or near zero, cash and treasury debt are perfect substitutes for one another. Thus, liquidity injections implemented by Central Bank purchases of treasuries do not have the normal intended effect. They simply pile up as bank reserves and in vaults. This is exactly what happened to Japan in the lost decade.

Brian

And this is why I think all the gimmicks to help housing will fail. Unless the excess inventory goes away, prices will continue to fall. Perhaps not as much if the gimmicks weren't there, but they will fall nonetheless.

I'm hoping to get a condo on the beach for 60% less than the peak a few years ago!

 

[Zoomie1980]

Basically. The economy is about trust. When trust goes away, economic activity decreases.

When there is excess capacity, you have deflation. Cutting interest rates really cannot help the economy until the excess capacity goes away.

Just another facet of consumer confidence and market psychology. Until lenders FEEL confident enough, no amount of central bank or treasury machinations is going to have any effect. It still appears we have pretty much found the bottom and in some cases moving beyond the bottom (aka the stock market saw it's bottom several weeks ago, and we are seeing at least some lending picking up) of this cycle. Don't see things getting a lot better anytime soon, but I doubt they will get any worse.

Lots of pent up demand, lots of pent up money just waiting for the dam to break. All the fed has done is pretty much guarantee we are going to have another asset bubble somewhere, very quickly yet again....

 

[editec]

Just another facet of consumer confidence and market psychology. Until lenders FEEL confident enough, no amount of central bank or treasury machinations is going to have any effect.

I think you are 100% correct there.

Now given that you understand that, Zoom, how can you say that the banks were forced to lend money to people who were unworthy of getting those loans?

Or am I wrong, and that was never your position on that question?

It still appears we have pretty much found the bottom and in some cases moving beyond the bottom (aka the stock market saw it's bottom several weeks ago, and we are seeing at least some lending picking up) of this cycle. Don't see things getting a lot better anytime soon, but I doubt they will get any worse.

WALL STREET might not get worse, but I can assure you that we haven't seen the bottom on MAIN STREET, yet.

AS millions of us lose our jobs, the pain of this DEPRESSION has bearly begun to impact us.

You'll see.

Lots of pent up demand, lots of pent up money just waiting for the dam to break. All the fed has done is pretty much guarantee we are going to have another asset bubble somewhere, very quickly yet again....

People need to work. I'm not sure even the ddelusional wankers who invest in Wall STREET are likely to forget that anytime soon.

When the employment picture gets better, the economy will begin recovering.

 

[Toro]

More debunking of this CRA nonsense

Community Reinvestment Act Makes Bankers Stupid, According to AEI Research « The Baseline Scenario

 

[Paulie]

All the fed has done is pretty much guarantee we are going to have another asset bubble somewhere, very quickly yet again....

So according to you, the Fed has gone from having "zero effect" on the economy, to its actions guaranteeing an asset bubble.

Some of us have been trying to tell you that's one of their main problems, while you stuck your fingers in your ears and refused to admit it.

Now all the sudden you're willing to entertain it?

 

[Ravi]

More debunking of this CRA nonsense

Community Reinvestment Act Makes Bankers Stupid, According to AEI Research « The Baseline Scenario

that some people will never give up in their fight to prove that the real source of society’s ills is government attempts to help poor people

That's the philosophy that mostly drives the Republican party these days.

 

[Paulie]

that some people will never give up in their fight to prove that the real source of society’s ills is government attempts to help poor people

That's the philosophy that mostly drives the Republican party these days.

Uh Rav, this past year, the government hasn't done a whole lot to help poor people through this crisis. Maybe you haven't been paying attention, but the government pretty much took care of the rich this year.

They've probably shelled out more for the rich in one year than they have for the poor in the last couple years.

 

[editec]

They've probably shelled out more for the rich in one year than they have for the poor in the last couple years.

Let's get real, shall we?

The government of the rich for the rich and by the rich shells out more to the superwealthy in the form of cozy contracts and tax bennies in any one year than they have given to the poor in the last fifty years.

 

[Neubarth]

I wouldn't trust anything that the Fed says. Period.

I read everything with a bit is scepticism. Fact remains that the impetus for the economic collapse was the rapid rise in the cost of oil. That started inflation in all products that needed transportation to get to market, especially food items. (Transportation from the farm through several different stages of processing to central warehouses to store distributions centers and on to the stores.) The sudden rise in those food prices destabilized the economy and started a reduction in spending AND that resulted in layoffs that started the ball rolling. Considering that over half of the money that changes hands in America on a daily basis is done in the service sector, there was a rapid fall off in requests for services that absolutely did not need to be paid for. (Granma came home from Shady Hills Rest Home and moved into the back bedroom. After five elderly patients left Shady Hills, one staff member was laid off......)

The economy started contracting, and homes started getting foreclose on. It did not happen overnight, but it did happen starting two years ago and gradually got worse.

 

[Missourian]

What is the fancy economic jargon for "things are just too dang expensive"?

IMO that is the biggest problem. Prices of products from pop to Pontiacs is outrageous. $40,000 for a pickup truck...$4 for a gallon of milk...$300,000 for an average three bedroom home.

Something has to give.

 

[editec]

What is the fancy economic jargon for "things are just too dang expensive"?

IMO that is the biggest problem. Prices of products from pop to Pontiacs is outrageous. $40,000 for a pickup truck...$4 for a gallon of milk...$300,000 for an average three bedroom home.

Something has to give.

None of which would have been a problem if workers salaries had been keeping up with inflation, of course.

But they were not..and have not since 1969.

 

[Missourian]

None of which would have been a problem if workers salaries had been keeping up with inflation, of course.

But they were not..and have not since 1969.

Or vice-versa. Shouldn't the prices of products have their basis in what the consumer can afford?

The prices have divorced themselves from inflation. That's what happened to housing prices.

Now the auto makers are wondering why consumers are buy 40% less than they have been. It's because the consumer cannot afford a $30,000 car.

How many people, by percentage of the population, do you think could afford to purchase a vehicle with cash?

Now, how many average consumers, if you gave them $30,000 in cash would plop it all down on a new car?

The point being, if they had the loot in their hot little hand, they would never consider spending that kind of green on a new car.

That's a problem.

 

[Ravi]

Uh Rav, this past year, the government hasn't done a whole lot to help poor people through this crisis. Maybe you haven't been paying attention, but the government pretty much took care of the rich this year.

They've probably shelled out more for the rich in one year than they have for the poor in the last couple years.

Uh, Pauli? DUH! Read my post again. The poor are the boogeymen to the Republicans. Have been for as long as I remember. Hence the large group of Republicans that pretend that CRAs are the cause of the current economic trouble.