posted
I know there are not many Ron Paul supporters out here in Hatrack. I know his guilt by association to truthers is very damning. However, with gas at $4, the dollar looking to be in trouble, and a possible attack on Iran, I thought I would share Congressman Paul's latest statement that he will introduce into the congressional record next week.
quote: I have, for the past 35 years, expressed my grave concern for the future of America. The course we have taken over the past century has threatened our liberties, security and prosperity. In spite of these long-held concerns, I have days—growing more frequent all the time—when I’m convinced the time is now upon us that some Big Events are about to occur. These fast-approaching events will not go unnoticed. They will affect all of us. They will not be limited to just some areas of our country. The world economy and political system will share in the chaos about to be unleashed.
Though the world has long suffered from the senselessness of wars that should have been avoided, my greatest fear is that the course on which we find ourselves will bring even greater conflict and economic suffering to the innocent people of the world—unless we quickly change our ways.
America, with her traditions of free markets and property rights, led the way toward great wealth and progress throughout the world as well as at home. Since we have lost our confidence in the principles of liberty, self reliance, hard work and frugality, and instead took on empire building, financed through inflation and debt, all this has changed. This is indeed frightening and an historic event.
The problem we face is not new in history. Authoritarianism has been around a long time. For centuries, inflation and debt have been used by tyrants to hold power, promote aggression, and provide “bread and circuses” for the people. The notion that a country can afford “guns and butter” with no significant penalty existed even before the 1960s when it became a popular slogan. It was then, though, we were told the Vietnam War and a massive expansion of the welfare state were not problems. The seventies proved that assumption wrong.
Today things are different from even ancient times or the 1970s. There is something to the argument that we are now a global economy. The world has more people and is more integrated due to modern technology, communications, and travel. If modern technology had been used to promote the ideas of liberty, free markets, sound money and trade, it would have ushered in a new golden age—a globalism we could accept.
Instead, the wealth and freedom we now enjoy are shrinking and rest upon a fragile philosophic infrastructure. It is not unlike the levies and bridges in our own country that our system of war and welfare has caused us to ignore.
I’m fearful that my concerns have been legitimate and may even be worse than I first thought. They are now at our doorstep. Time is short for making a course correction before this grand experiment in liberty goes into deep hibernation.
There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it’s been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers.
Being an unchallenged sole superpower was never accepted by us with a sense of humility and respect. Our arrogance and aggressiveness have been used to promote a world empire backed by the most powerful army of history. This type of globalist intervention creates problems for all citizens of the world and fails to contribute to the well-being of the world’s populations. Just think how our personal liberties have been trashed here at home in the last decade.
The financial crisis, still in its early stages, is apparent to everyone: gasoline prices over $4 a gallon; skyrocketing education and medical-care costs; the collapse of the housing bubble; the bursting of the NASDAQ bubble; stockmarkets plunging; unemployment rising;, massive underemployment; excessive government debt; and unmanageable personal debt. Little doubt exists as to whether we’ll get stagflation. The question that will soon be asked is: When will the stagflation become an inflationary depression?
There are various reasons that the world economy has been globalized and the problems we face are worldwide. We cannot understand what we’re facing without understanding fiat money and the long-developing dollar bubble.
There were several stages. From the inception of the Federal Reserve System in 1913 to 1933, the Central Bank established itself as the official dollar manager. By 1933, Americans could no longer own gold, thus removing restraint on the Federal Reserve to inflate for war and welfare.
By 1945, further restraints were removed by creating the Bretton-Woods Monetary System making the dollar the reserve currency of the world. This system lasted up until 1971. During the period between 1945 and 1971, some restraints on the Fed remained in place. Foreigners, but not Americans, could convert dollars to gold at $35 an ounce. Due to the excessive dollars being created, that system came to an end in 1971.
It’s the post Bretton-Woods system that was responsible for globalizing inflation and markets and for generating a gigantic worldwide dollar bubble. That bubble is now bursting, and we’re seeing what it’s like to suffer the consequences of the many previous economic errors.
Ironically in these past 35 years, we have benefited from this very flawed system. Because the world accepted dollars as if they were gold, we only had to counterfeit more dollars, spend them overseas (indirectly encouraging our jobs to go overseas as well) and enjoy unearned prosperity. Those who took our dollars and gave us goods and services were only too anxious to loan those dollars back to us. This allowed us to export our inflation and delay the consequences we now are starting to see.
But it was never destined to last, and now we have to pay the piper. Our huge foreign debt must be paid or liquidated. Our entitlements are coming due just as the world has become more reluctant to hold dollars. The consequence of that decision is price inflation in this country—and that’s what we are witnessing today. Already price inflation overseas is even higher than here at home as a consequence of foreign central bank’s willingness to monetize our debt.
Printing dollars over long periods of time may not immediately push prices up–yet in time it always does. Now we’re seeing catch-up for past inflating of the monetary supply. As bad as it is today with $4 a gallon gasoline, this is just the beginning. It’s a gross distraction to hound away at “drill, drill, drill” as a solution to the dollar crisis and high gasoline prices. Its okay to let the market increase supplies and drill, but that issue is a gross distraction from the sins of deficits and Federal Reserve monetary shenanigans.
This bubble is different and bigger for another reason. The central banks of the world secretly collude to centrally plan the world economy. I’m convinced that agreements among central banks to “monetize” U.S. debt these past 15 years have existed, although secretly and out of the reach of any oversight of anyone—especially the U.S. Congress that doesn’t care, or just flat doesn’t understand. As this “gift” to us comes to an end, our problems worsen. The central banks and the various governments are very powerful, but eventually the markets overwhelm when the people who get stuck holding the bag (of bad dollars) catch on and spend the dollars into the economy with emotional zeal, thus igniting inflationary fever.
This time—since there are so many dollars and so many countries involved—the Fed has been able to “paper” over every approaching crisis for the past 15 years, especially with Alan Greenspan as Chairman of the Federal Reserve Board, which has allowed the bubble to become history’s greatest.
The mistakes made with excessive credit at artificially low rates are huge, and the market is demanding a correction. This involves excessive debt, misdirected investments, over-investments, and all the other problems caused by the government when spending the money they should never have had. Foreign militarism, welfare handouts and $80 trillion entitlement promises are all coming to an end. We don’t have the money or the wealth-creating capacity to catch up and care for all the needs that now exist because we rejected the market economy, sound money, self reliance and the principles of liberty.
Since the correction of all this misallocation of resources is necessary and must come, one can look for some good that may come as this “Big Event” unfolds.
There are two choices that people can make. The one choice that is unavailable to us is to limp along with the status quo and prop up the system with more debt, inflation and lies. That won’t happen.
One of the two choices, and the one chosen so often by government in the past is that of rejecting the principles of liberty and resorting to even bigger and more authoritarian government. Some argue that giving dictatorial powers to the President, just as we have allowed him to run the American empire, is what we should do. That’s the great danger, and in this post-911 atmosphere, too many Americans are seeking safety over freedom. We have already lost too many of our personal liberties already. Real fear of economic collapse could prompt central planners to act to such a degree that the New Deal of the 30’s might look like Jefferson’s Declaration of Independence.
The more the government is allowed to do in taking over and running the economy, the deeper the depression gets and the longer it lasts. That was the story of the 30ss and the early 40s, and the same mistakes are likely to be made again if we do not wake up.
But the good news is that it need not be so bad if we do the right thing. I saw “Something Big” happening in the past 18 months on the campaign trail. I was encouraged that we are capable of waking up and doing the right thing. I have literally met thousands of high school and college kids who are quite willing to accept the challenge and responsibility of a free society and reject the cradle-to-grave welfare that is promised them by so many do-good politicians.
If more hear the message of liberty, more will join in this effort. The failure of our foreign policy, welfare system, and monetary policies and virtually all government solutions are so readily apparent, it doesn’t take that much convincing. But the positive message of how freedom works and why it’s possible is what is urgently needed.
One of the best parts of accepting self reliance in a free society is that true personal satisfaction with one’s own life can be achieved. This doesn’t happen when the government assumes the role of guardian, parent or provider, because it eliminates a sense of pride. But the real problem is the government can’t provide the safety and economic security that it claims. The so-called good that government claims it can deliver is always achieved at the expense of someone else’s freedom. It’s a failed system and the young people know it.
Restoring a free society doesn’t eliminate the need to get our house in order and to pay for the extravagant spending. But the pain would not be long-lasting if we did the right things, and best of all the empire would have to end for financial reasons. Our wars would stop, the attack on civil liberties would cease, and prosperity would return. The choices are clear: it shouldn’t be difficult, but the big event now unfolding gives us a great opportunity to reverse the tide and resume the truly great American Revolution started in 1776. Opportunity knocks in spite of the urgency and the dangers we face.
Let’s make “Something Big is Happening” be the discovery that freedom works and is popular and the big economic and political event we’re witnessing is a blessing in disguise.
posted
I should point out that what I find interesting and disturbing in this statement is the alarmism.
I have read most of Congressman Paul's speeches, books, debates, et cetera. He is very understated and speeks in terms of philosophy, policy, and long term affects. Action A leads to Result B.
This is the first time I have seen him talk in immediate consequential terms. He has studied our market for years. You may have deep disagreements with him, but you can't ignore that he is very consistent and measured in what he says.
This is the first time I see a dramatically different tone. Because of my respect for him, I am taking notice.
Posts: 2445 | Registered: Oct 2004
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posted
I recognize his point, but I'm not sure what he wants us to do about it. Right when people are facing higher costs we're supposed to spend less? The government needs more tax dollars so it should stop funding programs - essentially laying people off? There are fewer jobs so let's cut welfare?
The problem might be bad, but I feel the solution would be worse. I think we have to continue to carry the debt while we at least put some money back into our infastructure.
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posted
I agree with Paul that frugality, liberty, and self-reliance need to be resown into the American character.
We do need to stop consuming so much. Bush's idea of tax breaks in order to put that cash into retailers' pockets is, to me, deeply and seriously flawed.
If Americans choose to save, won't that take some money out of circulation and stave off inflation? I realize that a serious, nationwide effort to restrict spending will probably hurt some folks; maybe lots of folks. But I think it's a lot better than continuing to consume goods at an unsupportable level.
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quote: The problem might be bad, but I feel the solution would be worse.
What Ron Paul is saying is that our trajectory is unsustainable. We can either make difficult decisions as a society or let the crisis force even more painful decisions on us.
quote:I recognize his point, but I'm not sure what he wants us to do about it. Right when people are facing higher costs we're supposed to spend less? The government needs more tax dollars so it should stop funding programs - essentially laying people off? There are fewer jobs so let's cut welfare?
When reading Paul or discussing Paul, there is something to remember. He generally speaks about loooooong term goals--goals that take a major shift in society and government that could take a generation or more.
Most people focus on that and call him an unrealistic idealist. But his immediate solutions that would point us in the right direction are much more realistic and preserves the "welfare state."
Politically he recognizes you can't cut benefits. Morally he recognizes the cruelty of cutting benefits to people that have been trained to be dependent on the system. That is why, ironically, as one of the only congressmen who wants to get rid of Social Security out of the government hands, he is the ONLY congressman that has never voted to take money away from social security.
Back to his immediate goals. Paul is very much against our EMPIRE (bases in 130 countries).
He would like to keep the size of our military but bring our troops home, even from places like Korea. We would save billions of dollars from maintaining foreign garrisons. Also the money troops spent would be going back into our economy.
I won't got into his arguments why this is good for us and the other countries, but he makes a compelling case I can expound on later.
He would stop the war in Iraq (saving billions) and become very non-interventionist. I like what he says in Manifesto (his most recent book), "Really, is the difference between non-intervention and isolationism really that hard to understand?"
That would send a message to the world we are going to start managing our budgets better. He would also allow the use of gold as a competing currency so people don't have to save money in the dollar.
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posted
But most of his views are as unrealistic as they are ideal. There aren't too many people in the world who would say it's a perfect structure or it's the best way, but it may be the best way available/attainable. Saying that the best case scenario should happen does not make a great policy maker. It's taking the current situation and attempt to solve it within the realms of reality. I don't believe Ron Paul knows this or at the very least knows this but says otherwise to impress people who don't know better.
Posts: 247 | Registered: Jun 2008
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quote: If Americans choose to save, won't that take some money out of circulation and stave off inflation? I realize that a serious, nationwide effort to restrict spending will probably hurt some folks
The only way to really do that is to raise the interest rates significantly so that there is a financial motivation to save. That would also help restore faith in the dollar.
I wouldn't be surprised to see rates go between 11%-22% in the near future (within 2 years).
quote: But most of his views are as unrealistic as they are ideal.
Ending our overseas empire, trading more and stopping embargos on places like Cuba, and taking away the tax barriers that would allow people to save in gold certificates is unrealistic?
If that is the case we really are boned as a country. Again, his philosophy is extreme, but his immediate proposed actions could be life saving. Sometimes it takes a strong wind to budge a big ship a little amount.
quote:Saying that the best case scenario should happen does not make a great policy maker. It's taking the current situation and attempt to solve it within the realms of reality.
Anyone who has really studied his positions and policies understands he PRECISELY wants to take the current situation and attempt to solve it within the realms of possibility. His policy goals are to change from within using short and long term baby steps so that a crisis doesn't force a drastic change on us.
quote: Expectations that the European Central Bank will raise interest rates later Thursday could further weaken the U.S. dollar and drive oil prices even higher, as investors turn to commodities as a hedge against a falling greenback, traders said.
quote: Speaking Thursday in Madrid, Saudi Arabia's oil minister, Ali Naimi, left the door open for increased output, but said the kingdom's oil customers were satisfied and that no production growth was planned for now.
quote:Gasoline supplies unexpectedly grew by a considerable amount, and demand continued to slide
quote:Ending our overseas empire, trading more and stopping embargos on places like Cuba, and taking away the tax barriers that would allow people to save in gold certificates is unrealistic?
It could be done, all of it. But it is optimistic to the point of foolishnes to believe that a good many of those things can be done in an immediate fashion without severe consequences. Governments aren't complete imbiciles (I know, I chuckled at that too). If things could be done so easily and have such overwhelming positive effects they would be done. There have reasons we have bases around the world and embargos. Some we know about, some we can't truly appreciate, and some we just don't agree with. But to believe that our boy Ron is the magic wand and that he alone knows the best course is pretentious. He needs to set goals people can believe in, and because he hasn't is probably the reason he's no longer in the running, if he was ever in the race to begin with.
Posts: 247 | Registered: Jun 2008
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posted
Paul makes some good points about the free markets and the downside of big government, but he also mixes in what appears to be some paranoia. The economy is having some trouble right now, but I don't think you could classify it as anything all that different from other similar periods over the past 100 years. Is there any reason to conclude it is the end of the economic world as we know it? Paul also throws some conspiracy talk about the Fed in there, which doesn't really seem to have much justification.
Something big is happening, but it isn't happening as a single event. It has been happening continuously for hundreds of years, and continues to move along its course, sometimes with bumps and hiccups. And although government entities, such as the Fed, can influence it for better or for worse to some degree, I don't see much reason to doubt that most of the hiccups our economy faces are natural. And if the government is causing $4 gas, it is probably more the departments of Defense and Transportation to blame than the Federal Reserve.
Posts: 8120 | Registered: Jul 2000
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posted
It looks like Paul's prediction based on his experience with financial institutions may prove out to be right--just like he was about the Iraq war.
quote: As home prices continue to decline and loan defaults mount, U.S. regulators are bracing for dozens of American banks to fail over the next year.
But after a large mortgage lender in California collapsed late Friday, Wall Street analysts began posing two crucial questions: Just how many banks might falter? And, more urgently, which one could be next?
quote:But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say.
quote: In a country that holds itself up as a citadel of free enterprise, Washington has morphed from being the lender of last resort into effectively the only resort for home loans for millions of Americans engaged in the largest transactions of their lives.
quote:"If you're a socialist, you should be happy," said Michael Lind, a fellow at the New America Foundation, a research institute in Washington. "But you should really wonder whether you want people's ability to pay for housing and college dependent on the motives of people in Washington."
Why is this happening? Much of the private money that once surged into the mortgage industry has fled in a panicked horde, leaving most of the responsibility for financing American homes to the government-sponsored Fannie and Freddie.
Government subsidies, bailouts, and artificially low interest rates are anti capitalism. These bailouts are just encouraging more bad debt. I believe Paul when he says the longer we try to put off the liquidation of mal investment that is sure to come, the more painful the consequences will be.
And we give the federal government more and more power.
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posted
Definitely some sense to what Paul says. I think primarily what we need is a) an increased conservationism, with an attendant ramping down of consumerism, and b) genuinely viable alternative energy, especially in the transport sector.
The former is a societal change, a changing of ways of thinking. It would be difficult to bring about, but there are signs we're starting to head in that direction.
The latter is dependent on the development of technology, and frankly, worries me more.
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This is based on extracting a detail report for 1934-2008 for United States and other areas and running a quick pivot table in Excel. It does not include failures since May 2008, nor does it differentiate between types of failures.
Posts: 26071 | Registered: Oct 2003
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posted
Most of the failing banks are the smaller idiot banks who lent money to people they shouldn't have. Paul is and always has been off his rocker. There is a reason he is universally detested in congress and has not done anything of worth.
Posts: 571 | Registered: Mar 2001
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posted
He is universally detested by a congress that has approval ratings in the teens. Big whoop.
Ron Paul has consistently voted against bills that infringe on human liberties and for that he has my respect.
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posted
Especially since we were near the end of a business cycle. "Everyone, the economy is going to get worse! Just like it has periodically around the world every now and then for over a hundred years!"
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posted
It would be interesting to see that bank-failure table weighted by capital, or some similar measure of size. Presumably Fannie Mae being in trouble is a bit more serious than the First Bank of Podunk, Texas being in trouble because their one remaining customer finally had the heart attack.
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posted
Here are those charts by total amount of deposits at failing banks, in thousands of dollars (adjusted to 2008 $s using the CPI, which isn't perfect but helps compare apples to apples):
posted
I get it that he might be wrong about the business cycle. In Paul's world the business cycle is caused by government market intervention that encourages mal investment which ultimately gets liquidated.
He could be wrong there.
However, whether his lens he sees the world with is off, he is right so often in his predictions and assessments of the world that I don't see a politician with a superior grasp on reality. I like his value system and focus. He truly is about limited government, personal freedom, balanced budgets, and openness in government. I also believe his is not motivated by money or power, but a core belief system.
He has been consistent and keeps getting re-elected. He has been spot-on on many issues. The fact that he is disdained by a congress that has a low approval rating of 9% does not bother me.
The fact that many people think he is a loon doesn't bother me. He is spot-on with issues that matter to me. I believe he has the integrity and intellect of a statesman, so I think he will be proven right when he says:
quote: There are reasons to believe this coming crisis is different and bigger than the world has ever experienced. Instead of using globalism in a positive fashion, it’s been used to globalize all of the mistakes of the politicians, bureaucrats and central bankers.
Note: He sees a coming crisis, not a current crisis. We are entering the crisis; we haven't arrived.
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lem: in 1993 did he predict the soaring markets of the late 90s, or was he still predicting yet more recession? As far as I'm aware, he has constantly been predicting doom and gloom for the economy; since the economy moves in cycles, he's right quite often, especially with generous interpretation . . . but only in the same way someone who predicts the Republicans will win every Presidential election is right: uselessly.
As for it being different and bigger than the world has ever experienced, we should be able to give a pretty good accounting of that in one to three years (depending on a number of factors). Of course, I suspect he'll already have begun talking about how we barely dodged the bullet that time, but that the next one will really be the big one.
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Blayne Bradley
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posted
Why keep beating on Ron Paul for his economic forcasts when there is plenty of bad foreign policy promises to beat him with?
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Does anyone else get the feeling that Paul's followers are due for a Great Disappointment?
And besides sowing chaos worldwide, what's the benefit of withdrawing from all of our foreign bases? Not that that we shouldn't withdraw from some, even a lot... but ALL?
Posts: 6316 | Registered: Jun 2003
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quote:Originally posted by Tresopax: Paul makes some good points about the free markets and the downside of big government, but he also mixes in what appears to be some paranoia. The economy is having some trouble right now, but I don't think you could classify it as anything all that different from other similar periods over the past 100 years. Is there any reason to conclude it is the end of the economic world as we know it? Paul also throws some conspiracy talk about the Fed in there, which doesn't really seem to have much justification.
Something big is happening, but it isn't happening as a single event. It has been happening continuously for hundreds of years, and continues to move along its course, sometimes with bumps and hiccups. And although government entities, such as the Fed, can influence it for better or for worse to some degree, I don't see much reason to doubt that most of the hiccups our economy faces are natural. And if the government is causing $4 gas, it is probably more the departments of Defense and Transportation to blame than the Federal Reserve.
1. Similar to other periods in the last 100 years: Yes, 1929. Very similar.
2. The Fed is a government entity? No. (there are hundreds of other websites that make the same point, if you don't like that one.)
3. How is the DOT to blame for gas prices? The 18-cent federal tax? My theory is inflation+speculation because of hedging against the dollar. 70% of oil trades are on the futures market. The Fed opens new discount windows to investment banks (Bear Stearns crisis) and now to Fannie and Freddie.. It will directly cause inflation.
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As far as the question of business cycles, I think the theory is that Fed intervention causes a series of booms and busts, and this is the pattern we see.
What worries me about a fiat currency in this form is that for every person who is able to pay back their loan from the Fed (principal+interest), they make it impossible for others to pay their loans back from the available money supply. The Fed loans out the principal, and then requires more money than exists to return to it. It necessitates continued expansion of the money supply. Everybody fights to screw over others in order to pay back their loans. We could build a currency that doesn't have this absurd weakness.
Posts: 1592 | Registered: Jan 2001
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posted
That website is a hoot. Yes, banks that are part of the federal reserve system are private. Coincidentally, the banks that are part of the federal reserve system are not the federal reserve. It is roughly analogous to arguing that since almost all the people who pay taxes are private citizens, the IRS is a private organization.
Federal reserve banks are those that have reporting duties to the federal reserve in exchange for access to the various loan facilities the federal reserve makes available (among other things).
The Federal Reserve (not the Federal Reserve System or the banks that are part of it) is a government organization whose directors are appointed by the US Congress and can be dismissed by the US Congress.
The hundreds of websites that say the federal reserve is not part of the gov't are all still wrong. The federal reserve board (well, and one other group of people that is involved in certain decisions) are the ones who control the actions of the fed we are talking about: deciding what rates to target in open market operations, setting certain other rates, et cetera. These people are gov't appointees serving at the pleasure of the gov't. The board they are part of is part of the gov't. The idea that the Federal Reserve is a private organization is a perverse bit of misinformation.
You're misinterpreting the open market operations. They affect the money supply (at least in the short term) by indirectly altering interest rates, and the change in the interest rates results in a change in the money supply. It isn't the money used to purchase (or the money received when selling) bonds directly that is the increase or reduction of money, it is an effect of the interest rate change. The actual expenditures/receipts by the fed in conducting the open market operations are miniscule in comparison to the change in the money supply.
And why do you think the current period is very similar to 1929?
edit: the federal reserve board makes decisions independently of Congress, but so do numerous parts of the federal gov't. They are specifically empowered to do so both so Congress does not have to and so they are somewhat separate from politics. Congress could change that whenever they wanted to; they passed the laws that create the institution (it is not incorporated under any law for incorporating private corporations) and all acts it makes are under the authority of Congress.
quote:Originally posted by Dagonee: 2) Fannie Mae is not a bank, so it would not be on this list even if it failed.
As I understand it, FM is a lender, so it has mortgages but not deposits. Is there a similar list showing the mortgages of failing banks, to which we can compare FM's possible failure?
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posted
Not really. There's no direct way to compare them. Fannie Mae is partly an insurer, partly a finance company that bundles and securitizes individual mortgages.
Edit: together with Freddie Mac, they own or guarantee half of the 12 trillion dollar U.S. mortgage market.
Posts: 26071 | Registered: Oct 2003
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posted
It's a big number, but I wish I could think of a good way to compare it with these numbers for 1980-89, when the S&Ls collapsed and the FMs were set up to replace them.
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posted
The FMs were set up well before the 80s. They were given some additional responsibilities after the S&L collapse, but I don't know if I would go so far as they were equipped to replace them.
The GSEs have long been a known disaster waiting to happen. Just to pick something particularly hard to justify even during times of smooth sailing, their reduced reporting responsibilities are unconscionable.
Posts: 15770 | Registered: Dec 2001
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posted
The Fannie Mae has existed since the 30s, and in its current form since at least the 60s. Freddie Mac was formed in the 60s.
The thing is, even if Fannie Mae "collapses," the vast majority of those mortgages will still be paid on time. So I don't know what $6 trillion actually means in this context.
Posts: 26071 | Registered: Oct 2003
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posted
I don't think anyone does, at this point. There is no formal guarantee of any kind that the gov't will bail them out in some fashion, but that a bailout will happen has been treated as a fact by those dealing with them, and Congress probably couldn't get away without doing something anyways.
Also, keep in mind that the issue is less whether the vast majority of the mortgages get paid on time, but whether enough mortgages get paid on each security in time to prevent principal repayment clauses that cause cascading failures, and securities are often organized in ways that make that less likely. Especially as the FMs decided about five years ago to start buying up subprime like crazy.
Assuming a failure, best case scenario is probably their assets get divided up and sold at fire sales to various other financial institutions, in exchange for some guarantees by the security holders to give some time before they insist on receiving their principal (or possibly even resetting that trigger). Heck, the organizations probably remain in existence in a reduced capacity.
Worst case is that the gov't decides to assume the loss of the securities between earlier prices and prices marked to market (basically zero). The federal debt goes from 9 trillion dollars to 15 trillion dollars or so overnight. This isn't likely, luckily. Congress might be stupid, but they aren't that stupid. I think. It would also put the gov't in the mortgage business again (directly), creating a huge new group of civil servants.
Now, failure is far from certain. Even with their subprime purchases, they've been more circumspect than many. One blog I read supports a way that might let the FMs remain solvent by freeing up some cash they have stashed in equity.
Posts: 15770 | Registered: Dec 2001
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quote:Originally posted by Scott R: I agree with Paul that frugality, liberty, and self-reliance need to be resown into the American character.
We do need to stop consuming so much. Bush's idea of tax breaks in order to put that cash into retailers' pockets is, to me, deeply and seriously flawed.
This hits particularly close to home for me, because I recently experienced the deep philosophical shift that has occurred in this country through experience with my extended family.
Staying at their house in Fresno, which is a very poorly planned and miserable city in Central California, I was shocked, in a way I never have been before, at their consumerism. Maybe it was living out of a backpack for the last year that allowed me to see what a consumer driven lifestyle actually gets you, but it was gross. Whether it was the kids bickering endlessly over their PSPs, their DS's, their Wii, their videos, their endless summer camps, the summer camps they wanted to go to, or their parents finding, in their own way, the material things they wanted to fight over or obsess over, I was fed up in about an hour. Virtually every conversation and point of discussion revolved around possessions, ownership, shopping, and comparing.
Fresno is a nexus of runaway spending and a total lack of perspective, but I bet it isn't the only one. It's kind of the place in California where people get to live the cheapest and make the most money... and so the blackhole into which they toss their money is an endless procession of water heaters, pools, huge cars, vacations, TV's, and other trappings.
Posts: 9912 | Registered: Nov 2005
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posted
Well, I'll certainly be paying attention, and I'll look into it some more. The fed and our monetary policy is a little bit complicated. Be back later...
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In the first link, he does a remarkable job of not mentioning similarities between 1929 and 2008, just asserting they exist. He also latches onto lack of tax payment, despite gov't tax revenues having essentially nothing to do with the depression. He also is extremely blithe in dismissing the many ways in which the 20's were not a triumph of capitalism.
In the second, considering that many of the regulatory efforts by Congress (edit: and the n00bs in the Federal Reserve of the time) are fingered with extending the great depression, I'm not sure how the removal of one particular one of those regulations is exactly a deep similarity.
I mean, we had plenty of recessions triggered by financial institution over-speculation since then. Our economy doesn't work if banks can't purchase some sort of assets. And almost every time, the class of assets triggering the downturn is one where the gov't has made special exceptions to reporting requirements. Clearly the solution is to ban trading in that asset . . . instead of just creating clear, uniform reporting requirements that prevent institutions from shuffling problems off their balance sheets as easily (note: this does not mean Sarbanes-Oxley).
The third is the best, but that isn't saying much. I'm pretty certain we can find similar 'stimulus packages' at numerous points in time . . . and the stimulus package quoted isn't even very similar to the one that was passed, as acknowledged. In fact, some aspects of the stimulus package were virtually certainly contributing factors to the continued decline of the markets, whereas the stimulus package now appears to have been relatively orthogonal to the markets.
Posts: 15770 | Registered: Dec 2001
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One question about the Fed: Bonds are sold, but are they the only way the Federal Reserve banks generates funds to lend out? If so, how does the money supply increase? How does a $50 trillion derivatives market explode to $512 trillion in just a few years? (when our GDP is minuscule in comparison). Where does all that money come from? Did bonds cover the ~$140 billion of the stimulus package? Do bonds cover the government deficit, the Iraq war?
Posts: 1592 | Registered: Jan 2001
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quote:Originally posted by rivka: Wait a sec, Orincoro. What the heck's wrong with having a water heater?
This doesn't actually address your point, but it reminded me of the water heaters I saw in Japan that were actually connected to the showers/baths. They were run on natural gas, and heat up just as much water as you needed to use. It seemed a lot more efficient than what we use here in the States.
Posts: 2907 | Registered: Nov 2005
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Oh, the Fed can use printed money in order to purchase bonds if it doesn't have enough from selling bonds. In fact, that churn is one of the ways new bills enter the system. Usually it is just done electronically, though, and the amounts are only printed if a bank feels it has need of them.
To understand how the money supply increases, you will first need to understand what the money supply is. The narrowest definition is just the physical currency. When we're talking about expanding or contracting the money supply, this is pretty much not what we're talking about. This money supply doesn't change very much.
Other definitions include various quantities computed based on what is in banks. This is larger because of fractional reserve lending: banks keep some of their money, and loan other of the money out; that doesn't mean they hand over the currency, though, just instruments that stand for the currency. Since money lent out can be deposited again, and then lent out again, this creates a multiplicative effect (not infinite; the sum converges quickly). So, the total amount of deposits is much greater than the total amount of currency.
Open market operations are a way of effectively changing what fraction a bank is using to do fractional reserve banking. For instance, if the fed buys bonds, paying cash, that increases reserves. This means the federal funds rate (at which banks loan money to each other) decreases, decreasing the multiplier effect, and increasing the money supply. If the fed sells bonds, that has the reverse effect. Most open market operations are temporary -- for instance, a purchase is made one day, then reversed the other. Since the rate has changed slightly in the meantime, there is still a net effect.
The derivatives market is easy to explain: that's the theoretical value of all the assets, but most derivatives (particularly futures and debt swaps) are hedged or reciprocal (possibly at some remove). That is, in every outcome, they result in a large number of payments that basically cancel each other out, leaving only a certain amount on top that is actually exchanged. The money doesn't come from anywhere, because things cancel each other out. There's no need to realize it.
I'm not sure what you mean by bonds 'covering' the stimulus package, the war, or the deficit. Bonds owned by the banks or the fed have basically nothing to do with the federal budget. Those just result in accounting of the receipts versus expenditures of the federal gov't, and if the expenditures are larger, the gov't must take on debt in some form, usually by selling bonds. Those bonds have comparatively little effect on the money supply, though (in the short term; the long term is more debatable).
Re: the depression, many regulations made it much harder to be a bank. For instance, the previously mentioned particular regulation yanked one entire class of investment out from under the banks. The harder it is to be a bank (and the more people notice it), the less people will invest in banks. The less people invest in banks (or other institutions), the more the money supply contracts catastrophically. That's overly simplistic, and I can go into detail on some particular regulation and policies if you're interested.
Also, the fed pursued an extremely expansionary monetary policy in the decade before the crash. In addition, the gov't was undertaking policies to attempt to 'rescue' the economy of the UK and do some other things in Europe -- the necessary policies also greatly imbalancing exchange rates (note: a very different animal from the trade deficit, which is largely an accounting artifact). These were a large mistake, overheating the economy. China is making a similar mistake at the moment. While we haven't been perfect, we're far more aware of the necessity of letting things float. For instance, this decline in the dollar is a compensatory effect, unpleasant as it is. It will almost certainly ameliorate any recession a great deal (which is why I found the 'but the dollar was strong then' at the end of the first article very amusing).
Posts: 15770 | Registered: Dec 2001
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As someone with quite a bit of money in Norwegian kroner, I can only View all this anti-consumerism stuff With Concern. Buy our oil, lazy American peons! You know you don't want to walk to the grocery store. Buy foreign stuff, double the the effective rate of interest on my bank accounts!
posted
I know KoM was making a joke but I wonder where the stereotype of the "lazy American" developed. Americans work the longest hours of any industrialized nation.
EDIT: That's not necessarily good and doesn't imply higher productivity.
Posts: 1327 | Registered: Aug 2007
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Are you sure about that? According to this chart and its source, Americans work less than at least six countries including Korea and Japan (which I would have thought would be pretty obvious candidates).
Granted, this is still more than the average, which is nothing to sneeze at, but far from the longest.
Posts: 7593 | Registered: Sep 2006
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We don't work the most. We do, however, have one of the highest productivities. Depending on measure, we're frequently ranked number one, and almost always in the top three to five.
Posts: 15770 | Registered: Dec 2001
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quote:Originally posted by Threads: I know KoM was making a joke but I wonder where the stereotype of the "lazy American" developed. Americans work the longest hours of any industrialized nation.
That's true (modulo what Mucus posted), but it's not very visible. (This is just my personal take on things, you understand.) What is visible, though, to a random visitor, is the way you people drive everywhere. (Less visible is the way many of your cities are laid out so that they force this behaviour.) An anecdote: I generally park quite far out in the parking lot, so as to avoid the hassle of parking among a lot of other cars, when this is possible. My wife used to object, on the grounds that it was 20 meters' extra walking. She has come around to my point of view, but it shows an ingrained habit of thought about how to minimise walking. Likewise the habit of diriving or bussing children to school; where I grew up, you could get a (free, good for two trips a day) bus card from the county if, and only if, your school was more than 6 kilometres as the crow flies from your home. Less than that, and you were expected to walk or bike. (I happen to know this because our house was right on the border and I had to argue for my card.) Now this is partly because Norway tends to go for more and smaller schools, so not many people actually need to walk or bike (or more likely, pay for the bus) six kilometres; but still, try that in the US!
I should note, these weren't school buses, they were the regular commercial ones - there aren't any school buses, because the children are expected to walk or bike. Same difference in attitudes.
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