What are the potential impacts of public confidence on the economy's recovery?

[CAC1001]

Yes they say it was about $586B, and that's over a couple years.

Just curious, but why are you skeptical of their claimed size of their stimulus? For example, I can understand China perhaps overinflating their GDP numbers, but why their stimulus size?

Why? That is, why would spending drive demand more in a communist government / ~capitalist market country?

Well I am not saying it is guaranteed, but my thinking is that in a country like America, there are environmentalist groups, labor unions, various special interests, etc...that could get in the way of various infrastructure projects being built. They don't have these in China in the way we do in America, and because of the central government, infrastructure projects I would imagine can start being built far more quickly. If they tell the banks to lend, they lend, they tell state-owned corporations to take the loans, they take them, and so forth.

Of course I could be way wrong, I know Japan tried a ton of infrastructure spending, but didn't get much economic growth from it (although in Japan, their culture isn't very entrepreneurial from what I've read (failure is very looked down upon) and also their national debt level might be dragging their economy?).

 

[Galteeth]

It is in China's best interest for America to recover. They need us to buy all their stuff. The only reason their economy has been continuing to grow as of late is because they implemented a massive stimulus into their economy, and unlike in America, there is no problem with private property, environmentalists, plus a lot of their corporations are government-owned and run, and the banking system is government-run. So when they tell the banks to lend, they lend. And when they tell the businesses to take the loans, they do so.

Much of their economy right now is based on construction, and they have been continuing to build skyscrapers even though many of the current ones are vacant. The Chinese government can only continue to stimulate their economy for so long with this artificial demand. They need American demand to come back into play, and that requires a healthy American economy.

It might be in the interest of the Chinese government, but the eventual interest of the Chinese people is to decouple from America so they can see the things they produce remain theirs, and develop a first world style economy where there is more equality, less of an authoritarian upper class, and where industrial production isn't destroying their environment.

From the economic point of view of the Chinese people, it would be ideal if America had to start repaying their debt to China, and the consumer-ownership/producer-worker paradigm was reversed.

 

[CAC1001]

The Chinese may want to be able to consume the things they produce, but they also want to be able to export them as that means more money.

 

[mheslep]

Just curious, but why are you skeptical of their claimed size of their stimulus? For example, I can understand China perhaps overinflating their GDP numbers, but why their stimulus size?

I'd seen several sources indicating pressure was coming from the US in particular not just on China but to the rest of the world as well to also boost fiscal spending so that the US currency would not be the only one under pressure from deficit spending via printing money (among other reasons). Geitner and Bernanke made a lot of noise abroad in this regard. Germany in particular resisted. Therefore since there was external pressure for China to increase its stimulus, but internal resistance, then their stimulus numbers might be bogus.

Well I am not saying it is guaranteed, but my thinking is that in a country like America, there are environmentalist groups, labor unions, various special interests, etc...that could get in the way of various infrastructure projects being built. They don't have these in China in the way we do in America, and because of the central government, infrastructure projects I would imagine can start being built far more quickly.

Fare enough.

If they tell the banks to lend, they lend, they tell state-owned corporations to take the loans, they take them, and so forth.

Hmm, I doubt this goes very far, as someone has to take responsibility for the risk of default when they're told to 'lend'.

Of course I could be way wrong, I know Japan tried a ton of infrastructure spending, but didn't get much economic growth from it

Agreed, the lost decade and so on.

 

[CAC1001]

I'd seen several sources indicating pressure was coming from the US in particular not just on China but to the rest of the world as well to also boost fiscal spending so that the US currency would not be the only one under pressure from deficit spending via printing money (among other reasons). Geitner and Bernanke made a lot of noise abroad in this regard. Germany in particular resisted. Therefore since there was external pressure for China to increase its stimulus, but internal resistance, then their stimulus numbers might be bogus.

There was internal resistance in China on stimulus?

 

[loseyourname]

Why? That is, why would spending drive demand more in a communist government / ~capitalist market country?

It's not that they're communists. It's that they're totalitarian. Look at how efficiently German stimulus spending in the 1930s boosted economic output. A democracy is by design inefficient in the way it spends money because it needs to appease voters and can't simply put the money to the most effective use. China has a pretty clear master plan of spending primarily on manufacturing and then keeping their currency at an artificially low percentage of the US dollar to drive export demand. Part of Bernanke's QE plan was essentially a similar gambit. Devalue the US dollar to make US goods cheaper abroad, increase demand for exports, and boost GDP. Part of the problem we'd been having was that the worldwide "flight to quality" boosted demand for the dollar and kept the prices of US goods undesirably high. China's been doing this same thing for forty years without resistance from an opposition party or an informed voting public.

In fact, currency devaluation would have been the obvious answer for Ireland and Greece, but they couldn't because their currency is issued by the ECB and not by their own central banks, so they had no choice but to face austerity and severe economic contraction.

 

[brainstorm]

China has a pretty clear master plan of spending primarily on manufacturing and then keeping their currency at an artificially low percentage of the US dollar to drive export demand. Part of Bernanke's QE plan was essentially a similar gambit. Devalue the US dollar to make US goods cheaper abroad, increase demand for exports, and boost GDP. Part of the problem we'd been having was that the worldwide "flight to quality" boosted demand for the dollar and kept the prices of US goods undesirably high. China's been doing this same thing for forty years without resistance from an opposition party or an informed voting public.

In fact, currency devaluation would have been the obvious answer for Ireland and Greece, but they couldn't because their currency is issued by the ECB and not by their own central banks, so they had no choice but to face austerity and severe economic contraction.

So what would happen if the US and Chinese governments would get in a competition for global demand by devaluating the currency more? Would global prices for most things become practically free in Euros? Or would the EU follow suit and devalue the Euro as well to keep up? If governments keep harmonizing the various global currencies, wouldn't they have to move to start regulating things like business costs and labor to stimulate productivity?

 

[mheslep]

It's not that they're communists. It's that they're totalitarian. Look at how efficiently German stimulus spending in the 1930s boosted economic output. A democracy is by design inefficient in the way it spends money because it needs to appease voters and can't simply put the money to the most effective use. China has a pretty clear master plan of spending primarily on manufacturing and then keeping their currency at an artificially low percentage of the US dollar to drive export demand.

You are asserting totalitarian systems are more efficient in this regard, based on the assertion that a dictator knows better what is 'effective' than does the populace engaged in the daily give and take of the market place. We see pop dilettantes like Thomas Friedman beating that drum for China nearly weekly. I accept almost none of it. And I would hope, given the history of similar claims about the Soviet Union, Warsaw Pact Europe, etc, also published with much relish in the NYT in their day, that such claims would receive more examination.

 

[mheslep]

Part of Bernanke's QE plan was essentially a similar gambit. Devalue the US dollar to make US goods cheaper abroad, increase demand for exports, and boost GDP.

That doesn't follow as primary cause, given US exports are http://ita.doc.gov/td/industry/otea/ttp/Top_Trade_Partners.pdf" of the US economy (~1$T).

 

[brainstorm]

That doesn't follow as primary cause, given US exports are http://ita.doc.gov/td/industry/otea/ttp/Top_Trade_Partners.pdf" of the US economy (~1$T).

Even if you count all the treasury bonds exported?

 

[Office_Shredder]

brainstorm, trashing the US dollar doesn't make people want to take debt in dollars

 

[mheslep]

Even if you count all the treasury bonds exported?

The discussion is about that which is counted as GDP. Debt is not.

 

[Galteeth]

The Chinese may want to be able to consume the things they produce, but they also want to be able to export them as that means more money.

Yes, and in the short term they want to increase their exports. But it would be naive of us to assume this is what will occur indefinitely. Besides money, what the Chinese have gotten from the US is technology and the know how of how to industrialize and grow their economy. But eventually, if the US can not provide something tangible to China (especially considering the US money is ultimately being fueled by loans from China) it will not be in the economic interest of the Chinese people to continue the current export pattern. Imagine we have an island. A man fishes, a man hunts, a man grows vegetables. I say, well, I am eating their vegetables, eating their fish, and eating their game, so I am giving them all something to do!

 

[Galteeth]

That doesn't follow as primary cause, given US exports are http://ita.doc.gov/td/industry/otea/ttp/Top_Trade_Partners.pdf" of the US economy (~1$T).

That might have been part of it, but I think a lot of it was just keep fueling the bubble.

 

[Galteeth]

It's not that they're communists. It's that they're totalitarian. Look at how efficiently German stimulus spending in the 1930s boosted economic output. A democracy is by design inefficient in the way it spends money because it needs to appease voters and can't simply put the money to the most effective use. China has a pretty clear master plan of spending primarily on manufacturing and then keeping their currency at an artificially low percentage of the US dollar to drive export demand. Part of Bernanke's QE plan was essentially a similar gambit. Devalue the US dollar to make US goods cheaper abroad, increase demand for exports, and boost GDP. Part of the problem we'd been having was that the worldwide "flight to quality" boosted demand for the dollar and kept the prices of US goods undesirably high. China's been doing this same thing for forty years without resistance from an opposition party or an informed voting public.

In fact, currency devaluation would have been the obvious answer for Ireland and Greece, but they couldn't because their currency is issued by the ECB and not by their own central banks, so they had no choice but to face austerity and severe economic contraction.

It has only been relatively recently that China has grown economically, and it was a result of liberalization of their economy. The centralized five year plans were economic disasters.

A lot of the growth has been from western corporations contracting out to take advantage of the cheaper labor. It is questionable whether China could have grown without this partnership.

 

[CAC1001]

Yes, and in the short term they want to increase their exports. But it would be naive of us to assume this is what will occur indefinitely. Besides money, what the Chinese have gotten from the US is technology and the know how of how to industrialize and grow their economy. But eventually, if the US can not provide something tangible to China (especially considering the US money is ultimately being fueled by loans from China) it will not be in the economic interest of the Chinese people to continue the current export pattern. Imagine we have an island. A man fishes, a man hunts, a man grows vegetables. I say, well, I am eating their vegetables, eating their fish, and eating their game, so I am giving them all something to do!

I think the U.S. will have plenty to offer China, considering how much we produce. No country can do everything.

 

[loseyourname]

You are asserting totalitarian systems are more efficient in this regard, based on the assertion that a dictator knows better what is 'effective' than does the populace engaged in the daily give and take of the market place.

No I'm not. I'm not saying anything at all about the allocation of private capital. Leave that to the markets. I'm just talking about the effectiveness of government stimulus spending. There's hardly any question that granting government funds to build an airport where there is high demand for airport travel is an optimally effective use of funds appropriated for building airports. In China, that's what would happen. In the U.S., funds would be split between the senators with the best connections at getting pork money funneled into their states whether or not there was any demand for what was being built.

 

[mheslep]

No I'm not. I'm not saying anything at all about the allocation of private capital. Leave that to the markets. I'm just talking about the effectiveness of government stimulus spending. There's hardly any question that granting government funds to build an airport where there is high demand for airport travel is an optimally effective use of funds appropriated for building airports. In China, that's what would happen.

That would happen in China based on what theory? Why wouldn't the airport be located on, say, the whim of the Prime Minister's nephew, with objectors to the nepotism thrown into prison on a similar whim and to hell what with what's most effective for the country?

 

[WhoWee]

I'm not sure this is a good sign.
http://articles.latimes.com/keyword/stock-market/recent/2

"BUSINESS
Wall Street's main focus will be on Fed, not corporate earnings
October 11, 2010 | By Reuters
Not even earnings reports from big names such as Google Inc. and General Electric Co. this week will be able to pull Wall Street's focus away from the possibility of more cheap cash flowing in from the Federal Reserve. Normally when the likes of JPMorgan Chase & Co. or Intel Corp. ? which are also reporting this week ? tell investors how much they earned in the previous quarter, the stock market hangs on every word. But after Friday's surprisingly anemic payrolls report, the increased likelihood the Fed will buy more assets like Treasury bonds to stimulate the economy has investors ignoring the usual benchmarks.
"

 

[Astronuc]

Partly as a result, some economists now predict that it could take years or even a decade for the American economy to regain the levels of employment and vigor achieved before the 2008 crisis. The growing political pressure for cuts in federal spending — along with plunging consumer confidence and companies that seem more intent on cutting costs and hoarding cash than investing in new growth — have led economists to talk of the United States’ entering a grim new era of austerity.

That is very close to what befell Japan two decades ago, . . .

U.S. Hears Echo of Japan’s Woes
http://www.nytimes.com/2010/10/30/world/asia/30japan.htm

The question is - cut what?

Then there's the Attack of the Zombie bonds - or Toxic Assets, Part II
http://marketplace.publicradio.org/display/web/2010/10/29/pm-zombie-bonds-attack/

So the economy grew at a roaring pace of 2% in the 3rd quarter, but I have to wonder how much the aggregate debt grew. 8%? 10%? or more?

http://www.nytimes.com/2010/10/30/business/economy/30econ.html
FYI - http://marketplace.publicradio.org/display/web/2010/10/29/pm-factors-behind-gdp-growth/

http://www.census.gov/indicator/www/ustrade.html
http://www.nytimes.com/2010/10/15/business/economy/15econ.html

http://www.federalbudget.com/

Federal Debt As Pct GDP
http://www.usgovernmentspending.com/federal_deficit_chart.html


On a cheery note for some -

The Wall Street Journal recently estimated that Wall Street bonuses in 2010 will total $144 billion, in a year that has been less than stellar for most banks.

http://opinionator.blogs.nytimes.com/2010/10/28/on-wall-street-all-reward-no-risk/

 

[WhoWee]

On a cheery note for some - http://opinionator.blogs.nytimes.com/2010/10/28/on-wall-street-all-reward-no-risk/

LOL - I'm sure glad President Obama was successful with his "Wall Street Reform". These bonuses are CLEARLY Bush's fault. LOL

 

[Astronuc]

LOL - I'm sure glad President Obama was successful with his "Wall Street Reform". These bonuses are CLEARLY Bush's fault. LOL

Reform? I just seems like business as usual.

 

[turbo]

Reform? I just seems like business as usual.

JUST like usual. Put Wall Street insiders in charge and let them loose.

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash. It's time they raised interest rates so that people who save and invest can get a fair return on our money. Keeping interest rates low does not create jobs - it encourages speculation. Higher interest rates would do more to establish discipline in our markets than a whole book-full of (unenforced, probably) regulations.

 

[CAC1001]

On Obama's Wall Street reform, keep in mind that a lot of the regulations to the reform have not even been written yet. That is one of the complaints from Republicans. That the bill was passed, and when the regulations start getting written, it is going to bring in armies of lobbyists from the big financial institutions, who will want the regulations written to benefit them.

On Japan, one thing I remember reading is that Japan lacks the entrepreneurship America does, which could partially explain their stalled economy. In Japan, failure is very looked down upon. Japanese businessmen who have lost their job have been known to go out each morning and pretend to go off to work because they are so ashamed. Some also have been known to kill themselves with the really big screwups. It's the influence of that old Samurai culture or something. If American culture was like Japan, quite a few of our Wall Street guys might have committed suicide.

This averseness to risk has the effect of discouraging business startups in Japan. In America, by contrast, the image of the successful entrepreneur oftentimes is the guy who failed three or four times before finally succeeding. America is a lot more tolerant of risk. As such, I don't know if our economy will suffer the same fate as the Japanese.

JUST like usual. Put Wall Street insiders in charge and let them loose.

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash. It's time they raised interest rates so that people who save and invest can get a fair return on our money. Keeping interest rates low does not create jobs - it encourages speculation. Higher interest rates would do more to establish discipline in our markets than a whole book-full of (unenforced, probably) regulations.

Raising interest rates during a bad economy can wreak havoc on the economy though. Also Congress wouldn't like it, and I doubt the Obama administration would give it any support either because it could mess up the economy further right as the 2012 season is starting up.

 

[brainstorm]

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash. It's time they raised interest rates so that people who save and invest can get a fair return on our money. Keeping interest rates low does not create jobs - it encourages speculation. Higher interest rates would do more to establish discipline in our markets than a whole book-full of (unenforced, probably) regulations.

Do you think it might also have the effect of making labor markets more competitive by securely anchoring people in debt so that they have to do anything their employers want to keep their jobs and take any job they can get, even if they don't want it?

edit: I should clarify that I meant by seducing people into taking on a lot of debt by offering relatively low payments.

 

[WhoWee]

Do you think it might also have the effect of making labor markets more competitive by securely anchoring people in debt so that they have to do anything their employers want to keep their jobs and take any job they can get, even if they don't want it?

edit: I should clarify that I meant by seducing people into taking on a lot of debt by offering relatively low payments.

I think FAR too many people are now comfortable taking Government subsidies.

 

[brainstorm]

I think FAR too many people are now comfortable taking Government subsidies.

Well, just wait until you see what they do when they come the realization that the subsidies are not only not free, but that they're not going to be any better off because the government was the financial intermediary and the money was "subsidies" instead of "loans." Sure, it stimulates spending to tell people money is a gift that they won't have to pay back.

But what do they think happens to the money after they spend it? It goes into people's pockets who are going to use it to get as much work out of them as they possibly can. This basically means that spending now sets you up for a subsequent period of economic exploitation, but as usual, many people only look at the present or the short-term and ignore the future and the long-term.

 

[mheslep]

U.S. Hears Echo of Japan’s Woes
http://www.nytimes.com/2010/10/30/world/asia/30japan.htm

]

Thanks for that one. This deserves a thread of its own.

Mr. Kato led a government advisory committee that concluded that the economy, which was then finally starting to rebound from the collapse of its 1980s land and stock bubbles, was healthy enough to raise the national consumption tax to 5 percent from 3 percent.

Aimed at reducing deficits, the tax increase instead quickly snuffed out the fragile recovery, pushing Japan to the brink of a financial meltdown and thrusting the nation deeper into the economic morass from which it has yet to emerge even today

Think Pelosi and Co will ever admit as follows?

“Our sins are large,” Mr. Kato, now president of Kaetsu University in Tokyo, said ruefully. “I hope the rest of the world can learn from this mistake.”

 

[OmCheeto]

JUST like usual. Put Wall Street insiders in charge and let them loose.

The Fed does everything it can to keep money dirt-cheap for speculators, so they can gamble with our cash.

I feel the same way. But I don't know how the Feds can keep the money away from the speculators, without keeping it away from us.

So I joined a local tax activist group yesterday.

The leader of the group supports http://www.govtrack.us/congress/bill.xpd?bill=h111-4191&tab=summary".

Amends the Internal Revenue Code to impose an excise tax on certain securities transactions, including transactions in stocks, futures, swaps, credit default swaps, and options. etc. etc. etc.

I think it's a partial solution to what you are referring to.

Being that I am now a stock market investor, I've been following what goes on lately, and it is very interesting to say the least. Personally, I think technology has jumped way ahead of regulation, and the above bill is a start. It will of course attract a lot of opposition from wall street, and already has. It would mean a more stable market, which is not what a lot of them want. Some of them even make a living investing in the instability. How ridiculous is that?

What do you think? Can 100 partial solutions solve the whole problem?

 

[CRGreathouse]

Can 100 partial solutions solve the whole problem?

I'm more inclined to think that the 100 would interact in unforeseen ways, making them at least as likely to cause great harm as to solve the problem.

 

[edward]

I feel the same way. But I don't know how the Feds can keep the money away from the speculators, without keeping it away from us.

So I joined a local tax activist group yesterday.

The leader of the group supports http://www.govtrack.us/congress/bill.xpd?bill=h111-4191&tab=summary".


I think it's a partial solution to what you are referring to.

Being that I am now a stock market investor, I've been following what goes on lately, and it is very interesting to say the least. Personally, I think technology has jumped way ahead of regulation, and the above bill is a start. It will of course attract a lot of opposition from wall street, and already has. It would mean a more stable market, which is not what a lot of them want. Some of them even make a living investing in the instability. How ridiculous is that?

What do you think? Can 100 partial solutions solve the whole problem?

Technology has definitely jumped ahead of regulation. Most of the top investment bank executives don't understand the new technology, except that it makes money.

This is worth 48 minutes of your time if you haven't seen it. It was actually produced by Dutch PBS.

QUANTS; THE ALCHEMISTS OF WALL STREET

http://www.republicmedia.tv/?p=1750


EDIT: Don't be discouraged by the over simplification at first. It really gets involved in a few minutes.

 

[Astronuc]

Interesting comment about "taking risk with money should be compensated, but taking risk with other peoples' money should not be compensated".

"Banking has lost touch with its purpose. It's become dangerous"

Increase in rate of financial crises since 1990. It sounds like someone needs to develop a stability analysis for financial systems.

The quant software is tool - it can be used for good, or it can be misused.

 

[OmCheeto]

I'm more inclined to think that the 100 would interact in unforeseen ways, making them at least as likely to cause great harm as to solve the problem.

That is about the most defeatist thing I've ever read.

I would agree that trying to fix things that are not broken will almost always result in the things being broken. But not fixing something that is broken, well, try that the next time the brake line in your car springs a leak.

[insert cute CRASH! metaphor here]

 

[turbo]

Being that I am now a stock market investor, I've been following what goes on lately, and it is very interesting to say the least. Personally, I think technology has jumped way ahead of regulation, and the above bill is a start. It will of course attract a lot of opposition from wall street, and already has. It would mean a more stable market, which is not what a lot of them want. Some of them even make a living investing in the instability. How ridiculous is that?

High-frequency electronic traders create instability and leverage it into profit with trades that might last only a second or less. I think that taxing such trades would be a good idea. High-frequency trades are not made based on perceptions of the value (current or future) of the commodities being invested in - just the price. It's enough to make one long for the short-sighted quarterly-profit-based trading models, which I detest.

I watched my fomer employer (a large paper company) slide from being a value-based enterprise that built market share and assets gradually and steadily, to being obsessed with short-term profit goals and short-term advantages over its competitors. That is stupid in the extreme. When you have a company that relies on its land holdings, and long-term management of the timber resources, you don't turn it over to bean-counters who know nothing about the business. The transformation began about 30 years ago and was complete soon after. I'm glad I never took "advantage" of the employee stock-ownership option.

Want to ruin your company? Turn it over to dilettants and reward them with cheap stock options, bonuses, or preferred stock whenever the company makes quarterly profit goals or experiences increases in stock prices. That's a game they will quickly turn to their advantage, to the detriment of the company and the holders of common shares.

 

[CRGreathouse]

That is about the most defeatist thing I've ever read.

Heh.

I advocate extreme, sweeping change. This would no doubt come with its fair share of problems which would need to be worked out. I don't think it's particularly defeatist to say that a 'death by a thousand cuts' series of changes would be every bit as risky.