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

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In summary, the economy is still at the brink. The president is trying to revive it by restoring confidence in the capital markets, but this is dangerously misguided. The government has been propping up the economy for years and this has had negative consequences. The economy will not recover until the government restructures its economy.
  • #351
turbo-1 said:
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.

This brings up a good point about the importance of choosing compensation strategies wisely. Pure stock option compensation seems good on the face (from the perspective of 30 years ago) in that it would force executives to focus on growth rather than simply holding on to power. Of course it does encourage that, but the wrong way: now a 50/50 chance of a large gain and ruination seems like a good strategy, since the downside is capped but the upside is not.

I'd like to see a thread on this topic. Holmstrom's (1982) theorem puts real limits on how well any compensation strategy can work, but there's enough room to find a workable method, perhaps. I'd love to see an analysis of how companies are handling the problem and what new problems this may lead to over time.
 
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  • #352
CRGreathouse said:
I'd like to see a thread on this topic. Holmstrom's (1982) theorem puts real limits on how well any compensation strategy can work, but there's enough room to find a workable method, perhaps. I'd love to see an analysis of how companies are handling the problem and what new problems this may lead to over time.
Perhaps you can formulate one and get it going. I watched my employer's business be destroyed by Wall-Street types who had no vision of things 50, 25, or even 5 years down the road. Their strategy was to get rich and move on, leaving workers and whole regions in financial straits.

The jerks were great black-mailers, too. They offered to "invest" in a new finishing line for an older paper mill a couple of towns over, if only the town would rebate their property taxes (a nice deal they called TIF). Tax-Increment-Financing sounded OK to many property-owners in the town because they thought it might save jobs, and the townspeople voted it in, over the objections of many of us in the company, including union members. Finishing equipment (calenders, sheeters, etc) are bolt-in "investments" and as soon as the mill's production got marginal, the company unplugged all that equipment, unbolted it, and shipped it out on flat-cars to be used elsewhere. Just like we said they would. The town's taxpayers paid a lot for that equipment and got nothing back for it.

I still have a vested retirement pension with that company - if it only survives long enough to pay out. During the Reagan years, pensions that were deemed to be "overfunded" were raided ruthlessly, so I doubt there will be anything above the bare minimum to pay benefits.
 
  • #353
WhoWee said:
LOL - I'm sure glad President Obama was successful with his "Wall Street Reform". These bonuses are CLEARLY Bush's fault. LOL
Strawman? The Financial Reform Bill (which was passed only a few months ago, and hasn't enacted anything significant as yet) was aimed at putting in safeguards for improving long term financial stability and providing stronger oversight, and to my knowledge, did not purport to do anything with bonuses. In fact, I can't imagine you'd have been pleased with a bill that did try to regulate bonuses - I probably wouldn't.
 
  • #354
Gokul43201 said:
Strawman? The Financial Reform Bill (which was passed only a few months ago, and hasn't enacted anything significant as yet) was aimed at putting in safeguards for improving long term financial stability and providing stronger oversight, and to my knowledge, did not purport to do anything with bonuses. In fact, I can't imagine you'd have been pleased with a bill that did try to regulate bonuses - I probably wouldn't.

I think Obama would disagree.
http://content.usatoday.com/communi...wall-street-regs-are-key-pillar-of-recovery/1

Have you heard any of his speeches this week?
 
  • #356
CRGreathouse said:
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.

I also advocate extreme, sweeping change. But I'm old enough to know that such things only come about through violent revolution, or, in our collective pipe dreams*.

*A pipe dream is a fantastic hope or plan that is generally regarded as being nearly impossible to achieve, originating in the 19th century as an allusion to the dreams experienced by smokers of opium pipes.

Seriously. I did not know the origin of that phrase until just now.
 
  • #357
The only legislation passed that limited bonuses was the original Bush stimulus that stipulated TARP recipients couldn't pay excessive bonuses to their executives. I think total compensation was capped at $500,000 until they repaid the funds.

I'm not sure how that actually worked since TARP funds almost universally ended up being used to purchase preferred stock rather than actual troubled assets, though. I guess they were subject to the stipulations until they repurchased the government-owned shares.
 
  • #358
loseyourname said:
The only legislation passed that limited bonuses was the original Bush stimulus that stipulated TARP recipients couldn't pay excessive bonuses to their executives. I think total compensation was capped at $500,000 until they repaid the funds.

I'm not sure how that actually worked since TARP funds almost universally ended up being used to purchase preferred stock rather than actual troubled assets, though. I guess they were subject to the stipulations until they repurchased the government-owned shares.
Unfortunately, the money appears to have been used to buy back the companies' own stocks in many cases, locking in nice gains in value at the taxpayers' expense. When you have driven your company into the ditch, and can buy back your devalued stock at taxpayer expense, how can you lose? Geithner, Bernanke, and their ilk should be purged from our government, at the very least.
 
  • #359
President Obama didn't address bonuses in his sweeping reform of Wall Street?

On January 29, 2009, this was in the news:
"At a meeting with Treasury Secretary Timothy Geithner this afternoon, Mr. Obama was harshly critical of the bonuses.

When "they are asking for taxpayers to help sustain them, and when taxpayers find themselves in the difficult position that if they don't provide help, that the entire system could come down on top of our heads, that is the height of responsibility," the president said. "It is shameful."

"And part of what we're going to need is for the folks on Wall Street, who are asking for help, to show some restraint, and show some disciple, and show some sense of responsibility," he continued. "The American people understand that we've got a big hole that we've got to dig ourselves out of, but they don't like the idea that people are digging a bigger hole even as they're bing asked to fill it up."

The president promised further conversations with Wall Street "to underscore that they have to start acting in a more responsible fashion if we are to together get this economy rolling again."

"There will be time for them to make profits, and there will be time for them to get bonuses," Mr. Obama said. "Now's not that time. And that's a message I intend to send directly to them." "www.cbsnews.com/8301-503544_162-4762719-503544.htmlwww.nytimes.com/2009/01/30/business/30obama.html[/URL]
[url]www.washingtonpost.com/wp-dyn/content/article/2010/01/14/AR2010011404621.html[/url]
[PLAIN]www.businessweek.com/bwdaily/dnflash/content/jan2009/db20090129_707519.htm[/URL]
[PLAIN]www.huffingtonpost.com/2009/01/29/obama-18b-in-wall-street_n_162305.html[/URL]
[url]www.washingtonpost.com/wp-dyn/content/article/2009/10/18/AR2009101802542.html[/url]
[url]www.reuters.com/article/idUSTRE60A4CP20100111[/url]
msnbc.msn.com/id/28916936

I have to agree with Obama - it is shameful.
 
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  • #360
On the other hand, the Wall Street guys do try to help - when they can.

"Obama Top Fundraiser on Wall Street
Big Banks' Employees Gave Senator $479,000 in 1st Quarter

By Kristin Jensen and Christine Harper
Bloomberg News
Wednesday, April 18, 2007

Democratic presidential candidate Barack Obama ran ahead of New York Sen. Hillary Rodham Clinton (D) and former New York mayor Rudolph W. Giuliani (R) on their home turf in the first quarter, raising cash from the biggest investment banks on Wall Street.

The Illinois senator raised $479,209 from employees at the banks in the quarter, according to Federal Election Commission filings. Giuliani collected $473,442, and Clinton got $447,625. The figures are based on employers listed by the donors; in some cases, names are incomplete or missing."

www.washingtonpost.com/wp-dyn/content/article/2007/04/17/AR2007041701688.html
uk.reuters.com/article/idUKNOA53525520080605
www.washingtonexaminer.com/opinion/Obama-should-return-Wall-Street_s-money-91850159.html[/URL]

Business as usual?
 
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  • #361
WhoWee said:
President Obama didn't address bonuses in his sweeping reform of Wall Street?
I think the point above was to distinguish between the salary and bonus controls that came about from the TARP bailout period and law, and the financial reform law passed very recently which to my knowledge has no such control (and probably could not legally?).
 
  • #362
  • #363
GE Chief Slams U.S. on Energy
http://online.wsj.com/article/SB10001424052748703384204575509760331620520.html
General Electric Co. Chief Executive Jeff Immelt warned that the lack of a comprehensive U.S. energy policy and the "stupid" current structure of the industry are causing America to fall behind in new energy fields.

In sharply worded comments at an energy event in Washington, Mr. Immelt on Thursday praised China's approach to energy and criticized what he called a stalled effort to revamp U.S. energy policy. . . . .
One has to subscribe to read the article.

Well China has a huge trade surplus and they can buy US technology cheaply, and then develop their own versions. Meanwhile S. Korea is aggressive marketing their energy technology around the world, and other nations are up and coming.
 
  • #364
(in car using phone)
I just heard a report that a $.35/gal increase in gasoline is result of QE-2. The Dollar has less value...
 
  • #365
WhoWee said:
(in car using phone)
I just heard a report that a $.35/gal increase in gasoline is result of QE-2. The Dollar has less value...

You're posting to PF while you're driving?!

Wow! This could be your last post ever.
 
  • #366
WhoWee said:
(in car using phone)
I just heard a report that a $.35/gal increase in gasoline is result of QE-2.
Nah, not that much. Crude/bbl price is up at most $5 from last month, or 6%, and only 2-3% from August. So that's ~$0.15 against a base of $2.8/gal if you credit _all_ the crude increase to QE2.
 
  • #367
WhoWee said:
(in car using phone)
I just heard a report that a $.35/gal increase in gasoline is result of QE-2. The Dollar has less value...
Well it hasn't happened yet. I've seen a few cents price variation in the past month. QE2, or rather the magnitude of investment, was just announced.

I was trying to remember the term 'quantitative easing' a couple of weaks ago. All I can think is - the rollercoaster ride continues.

And Obama wants to double exports by 2015!? The US only needs to see a 15% increase over the previous year for the next 5 years.

We might be lucky to see 20% increase in 5 years.

Meanwhile - Obama Names Ford CEO Mulally, Disney CEO Iger to Export Council
http://www.businessweek.com/news/2010-07-07/obama-names-ford-ceo-mulally-disney-ceo-iger-to-export-council.html

And looking back 9 months ago - Can we sustain?
http://www.huffingtonpost.com/sen-ernest-frederick-hollings/can-we-sustain_b_449566.html

and for an interesting diversion -

Tracking A Toxic Asset
http://www.npr.org/templates/story/story.php?storyId=124578382

Toxie
http://www.thisamericanlife.org/radio-archives/episode/418/toxie

Inside Our Toxic Asset, Cont'd: A $200 Million Mortgage Scheme
http://www.npr.org/blogs/money/2010/07/23/128720556/atc-flipping
http://www.npr.org/templates/transcript/transcript.php?storyId=128720556
 
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  • #368
:rolleyes:I'm glad to see that President Obama is willing to consult with experts from around the world - on econimic matters.

http://www.indianexpress.com/news/you-are-doing-a-tougher-job-than-me-obama-to-alam/707877/

'

US President Barack Obama has lavished praise on the NGO 'Sammaan Foundation' founder Irfan Alam for his endeavour to create jobs for unskilled people by manufacturing rickshaws for livelihood and sustenance of unskilled people of Bihar.



"You are doing a tougher job than me by creating jobs for the unskilled people of your state and other parts of the country," he told reporters here quoting Obama's encouraging words to him in Mumbai yesterday.



Alam, who was part of a goup of industrialists who had met Obama, said that he had briefed the US President about his endeavour to help the rickshaw pullers to lead a dignified life by way of maximizing income, besides undertaking welfare measures for them.

'
 
  • #369
A rather interesting criticism of the handling of the financial crisis and bailout of the banks.

Obama's Biggest Mistake: Selling Out to the Bankers
http://www.alternet.org/economy/148770/obama's_biggest_mistake:_selling_out_to_the_bankers/
. . . .
But one cannot defend the actions of Team Obama on taking office. Law, policy and politics all pointed in one direction: turn the systemically dangerous banks over to Sheila Bair and the Federal Deposit Insurance Corporation. Insure the depositors, replace the management, fire the lobbyists, audit the books, prosecute the frauds, and restructure and downsize the institutions. The financial system would have been cleaned up. And the big bankers would have been beaten as a political force.
. . . .
Galbraith writes for mainstream and 'liberal' publications and is the son of economist John Kenneth Galbraith.

http://utip.gov.utexas.edu/JG/default.html
 
  • #370
Restructuing and downsizing the financial institutions would probably have resulted in a debacle like the healthcare bill (i.e. being long and drawn out) I think, because the financial institutions would have fought it massively. The American people probably would have supported it though.

A big question would be how to keep the financial institutions large enough to support American businesses (so they don't end up going to foreign institutions), but small enough so as not to threaten the entire system. I don't know if that would be possible though.
 
  • #371
CAC1001 said:
Restructuing and downsizing the financial institutions would probably have resulted in a debacle like the healthcare bill (i.e. being long and drawn out) I think, because the financial institutions would have fought it massively. The American people probably would have supported it though.

A big question would be how to keep the financial institutions large enough to support American businesses (so they don't end up going to foreign institutions), but small enough so as not to threaten the entire system. I don't know if that would be possible though.

The derivatives problem still lingers and most people don't have a clue as to the problem nature or extent. IMO, the politicians are just as clueless.
http://www.cnbc.com/id/39847898/New_Derivatives_Trading_Rules_Issued_by_Regulators
"The U.S. Commodity Futures Trading Commission on Tuesday unveiled six more new rules as it works to take oversight of the $615 trillion over-the-counter derivatives market mandated in the recently enacted Wall Street reform bill.

The agency is working on rules in 30 topic areas, and some analysts estimate it will eventually propose as many as 80 detailed regulations. "

They are planning to impose "80 detailed regulations" on "the $615 trillion over-the-counter derivatives market" - a moving target at best.

Here's a peak behind the curtain of companies dealing with the problem.
http://online.wsj.com/article/BT-CO-20101109-721140.html
"The company has been struggling for some time. Ambac's insurance of mortgage-backed securities, which soured with the housing market, battered the company alongside much of the bond-insurance industry. Ambac had already been warning investors about the possibility of a bankruptcy filing, though it tried unsuccessfully to negotiate a prepackaged bankruptcy plan with a group of its senior debtholders. The company has indicated the creditors are still open to further negotiations. "

http://www.marketwatch.com/story/mbia-reports-quarterly-loss-of-213-mln-2010-11-09
"MBIA Inc. reported another quarterly loss late Tuesday as the bond insurer paid claims on mortgage-backed securities it guaranteed during the housing boom. "

The real problem is that the $615 trillion derivatives problem deos not exist in a vacuum and it dwarfs the world's (individual) economies.
http://www.businessinsider.com/quantitative-easing-cant-stop-deflation-2010-11

"Excessive debt and speculative bubbles cannot be "fixed" with additional doses of debt and speculation. The Capitalist reality is this: if the Fed truly wanted to fix the U.S. economy rather than protect its over-extended, debt-ridden Financial System, then it would force the liquidation of trillions in bad debt and force a "marked to market" valuation on every balance sheet, household and corporate alike.

Instead, we have the "don't ask, don't tell" method of calculating asset values.

Anyone who believes a meager one or two trillion dollars in pump-priming can overcome $15-$20 trillion in overpriced assets and $10 trillion in uncollectible debt may well be disappointed.

The Fed's tinny little QE "bazooka" will be rolled over by the M-1 tanks of deleveraging and the recognition of $15-$20 trillion in losses."

This problem dates back to the savings and loan collapse in the 1980's - or should we label it a man made disaster compliments of a clueless Congress?
 
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  • #372
Quantiative easing - Fed's $600 billion plan is 'risky business'
http://marketplace.publicradio.org/display/web/2010/11/09/pm-feds-600-billion-plan-is-risky-business/

"There are already signs showing that the $600 billion infusion the Fed made isn't going where they want to. Sarah Gardner looks at potential consequences of the Fed's move."

Steve Platt of Archer Financial Services mentions "all that extra cash could flow outside the U.S. or into commodities like gold or silver."

Platt: Silver prices have added a couple bucks. The sugar market has also added a couple dollars and coffee prices have moved from just under $2 to around $2.15 in a matter of a couple days.

Gold and oil prices have increased as well, but that's over the concern of inflation as well as speculation related to the large amount of money released at one time.
 
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  • #373
Astronuc said:
Quantiative easing - Fed's $600 billion plan is 'risky business'
http://marketplace.publicradio.org/display/web/2010/11/09/pm-feds-600-billion-plan-is-risky-business/

"There are already signs showing that the $600 billion infusion the Fed made isn't going where they want to. Sarah Gardner looks at potential consequences of the Fed's move."

Steve Platt of Archer Financial Services mentions "all that extra cash could flow outside the U.S. or into commodities like gold or silver."

Platt: Silver prices have added a couple bucks. The sugar market has also added a couple dollars and coffee prices have moved from just under $2 to around $2.15 in a matter of a couple days.

Gold and oil prices have increased as well, but that's over the concern of inflation as well as speculation related to the large amount of money released at one time.

Quantitative Easing has been a focus of advertising campaigns for gold - for over a year.
http://www.runtogold.com/2009/04/global-quantitative-easing/
 
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  • #374
James Galbraith's opinions don't interest me.
 
  • #375
mheslep said:
Nah, not that much. Crude/bbl price is up at most $5 from last month, or 6%, and only 2-3% from August. So that's ~$0.15 against a base of $2.8/gal if you credit _all_ the crude increase to QE2.

I guess you were right? Only now has an additional variable has been introduced?
http://news.smh.com.au/breaking-new...-rise-as-inventories-fall-20101111-17o3t.html

"Oil prices hit a new two-year high on Wednesday, after the US government reported crude and petrol stockpiles declined last week.

The Energy Department said on Wednesday commercial crude oil inventories fell by 3.3 million barrels to 364.9 million barrels for the week ending November 5."

I didn't expect this - the last I heard there were loaded tankers sitting offshore waiting to unload?

Apparently, QE is still a concern.
"Oil prices have climbed steadily in recent weeks because the dollar has weakened against other currencies, largely because of the Federal Reserve's decision to pour billions of dollars into a bond-buying program to stimulate the US economy.

Since oil is priced in dollars, a weaker dollar makes it more of a bargain for buyers using euros or other currencies. Energy traders expect this to happen, so they buy oil when the dollar falls, boosting the effect."
 
  • #376
I'm surprised there aren't more welfare cuts proposed.
http://www.aolnews.com/politics/article/federal-debt-panel-wades-into-obama-gop-fight/19711283

"Among their recommendations, the commission co-chairs would:

Try to make Social Security more solvent by reducing annual cost-of-living increases for many recipients; raise the regular retirement age to 68 years by 2050 from the current 66, and to 69 by 2075; and make benefits more progressive to help Americans in lower-earning tax brackets. But changes would only benefit the Social Security program, not broader budget deficits.
A gradual 15-percent a gallon increase in the federal gasoline tax from the current 18.4 cents.
Reform cost-of-living increases for early civilian and military retirees.
Reduce Congressional and White House budgets by 15 percent; freeze federal salaries, bonuses, and other compensation at non-Defense agencies for three years; cut the federal workforce by 10 percent; and slow the growth of foreign aid.
Eliminate all congressional earmarks.
Eliminate funding for commercial spaceflight.
Sell excess federal property.
Consolidate the tax code into three individual rates and one corporate rate; eliminate the alternative minimum tax and some expense-write-off programs; increase the federal gas tax and some other user fees.
Reduce farm subsidies by $3 billion per year by reducing direct payments and other subsidies.
Make scores of other changes, including an end to payments to states and tribes for abandoned mines; an extension of the Federal Communications Commission's authority to auction radio spectrum licenses; a requirement that the Tennessee Valley Authority impose transmission surcharge on electricity sales.
"

It looks like we might just have an adult conversation and debate.
 
  • #377
In a related story

http://news.yahoo.com/s/ap/20101111/ap_on_bi_ge/obama_asia

"The commission's bipartisan co-chairmen proposed politically painful cuts in Social Security benefits, deep reductions in federal spending and higher taxes for millions of Americans to stem a flood of red ink that they said threatens the nation's future. The proposals drew swift condemnation, including House Speaker Nancy Pelosi's conclusion that the ideas were "simply unacceptable."

"If people are in fact concerned about spending, debt, deficits and the future of our country then they're going to need to be armed with information about the kinds of choices that will be involved and we can't just engaged in political rhetoric," Obama said.

The president is on the third stop of a four-country visit to Asia seeking greater access to the region's markets for American goods, something he hopes will help spur job creation at home.

The visit to Seoul included the trade talks Thursday with South Korean President Lee Myung-bak and a meeting Friday of the Group of 20 economic powers. And Obama held individual private meetings with Chinese President Hu Jintao and German Chancellor Angela Merkel, two leaders whose governments have been among the critics of a recent decision by the U.S. Federal Reserve to buy $600 billion in bonds in hopes of invigorating the economy by freeing up more credit.

China and Germany fear the U.S. is engineering a weaker dollar to boost trade, a charge the U.S. has been making against China.

Treasury Secretary Timothy Geithner on Thursday denied the United States was deliberately pursuing a weak dollar policy.

"We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy," Geithner said on CNBC.

The White House said the currency exchange issue dominated Obama and Hu's 80-minute meeting Thursday.
Lael Brainard, Treasury Undersecretary for International Affairs, said Obama raised the topic, and noted the importance of China adhering to economic fundamentals in setting their currency rate. Hu expressed a strong commitment to moving forward on a flexible rate, Brainard said.

"
 
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  • #378
WhoWee said:
I'm surprised there aren't more welfare cuts proposed.
http://www.aolnews.com/politics/article/federal-debt-panel-wades-into-obama-gop-fight/19711283

"Among their recommendations, the commission co-chairs would:

Try to make Social Security more solvent by reducing annual cost-of-living increases for many recipients; raise the regular retirement age to 68 years by 2050 from the current 66, and to 69 by 2075; and make benefits more progressive to help Americans in lower-earning tax brackets. But changes would only benefit the Social Security program, not broader budget deficits.
A gradual 15-percent a gallon increase in the federal gasoline tax from the current 18.4 cents.
Reform cost-of-living increases for early civilian and military retirees.
Reduce Congressional and White House budgets by 15 percent; freeze federal salaries, bonuses, and other compensation at non-Defense agencies for three years; cut the federal workforce by 10 percent; and slow the growth of foreign aid.
Eliminate all congressional earmarks.
Eliminate funding for commercial spaceflight.
Sell excess federal property.
Consolidate the tax code into three individual rates and one corporate rate; eliminate the alternative minimum tax and some expense-write-off programs; increase the federal gas tax and some other user fees.
Reduce farm subsidies by $3 billion per year by reducing direct payments and other subsidies.
Make scores of other changes, including an end to payments to states and tribes for abandoned mines; an extension of the Federal Communications Commission's authority to auction radio spectrum licenses; a requirement that the Tennessee Valley Authority impose transmission surcharge on electricity sales.
"

It looks like we might just have an adult conversation and debate.

I heard parts of the discussion this morning. It's time to bite the bullet!

Panel Seeks Social Security Cuts and Tax Increases
http://www.nytimes.com/2010/11/11/us/politics/11fiscal.html

It is clear that the founding fathers intended for the government not to favor commercially one group over another vis-a-vis Article I, Section 9 of the US Constitution:

"No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another; . . . "
Ref: http://www.archives.gov/exhibits/charters/constitution_transcript.html
 
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  • #379
Astronuc said:
I heard parts of the discussion this morning. It's time to bite the bullet!

Panel Seeks Social Security Cuts and Tax Increases
http://www.nytimes.com/2010/11/11/us/politics/11fiscal.html

]
Seems to me that title by the NYT is reckless, unless it can show there are net tax increases, and I don't know that the net increases. Certainly the plan has huge tax decreases - drastic rate decreases, along with some increases.
 
  • #380
Pessimism pervades as G20 leaders show sharp split
http://news.yahoo.com/s/ap/20101111/ap_on_bi_ge/as_economic_summits

Failure in Seoul could have severe consequences. The risk is that countries would try to keep their currencies artificially low to give their exporters a competitive edge in global markets. That could lead to a destructive trade war. Countries might throw up barriers to imports — a repeat of policies that worsened the Great Depression.
or in the current situation push the US economy back into recession (assuming we've climbed out of the hole we were in).


Meanwhile - US Airways announces adding 500 attendants and pilots. Hopefully a good sign.
 
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  • #383
Then again - Bank of America Edges Closer to Tipping Point
http://www.bloomberg.com/news/2010-11-04/bank-of-america-edges-closer-to-tipping-point-commentary-by-jonathan-weil.html
By Jonathan Weil - Nov 3, 2010

. . . Its stock has fallen 41 percent since April 15. Mortgage-bond investors are demanding untold billions of dollars in refunds. The foreclosure fiasco is metastasizing. A member of the Troubled Asset Relief Program’s oversight panel, AFL-CIO attorney Damon Silvers, openly worried at a hearing last week about the risk that Bank of America might need another bailout.

. . . .
 
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  • #384
Some light Sunday reading...
http://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/
 
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  • #385
WhoWee said:
Some light Sunday reading...
http://www.microfinancegateway.org/p/site/m/template.rc/1.26.9183/

Compare two approaches to increasing economic inclusion for people with low income:

1) provide them with microfinancial services that allow them to spend money within the current economic infrastructure. This gives people immediate access to spending money and provides fiscal stimulus for existing businesses, which prevents them from having to reduce their profit margins by lowering prices to cater to dwindling demand as the budgets of their customer base continues to shrink.

2) Provide low-income individuals with only emergency capital. This maintains pressure on existing businesses to reduce costs and lower prices to increase dwindling sales. Government anti-trust regulation could be used to increase competition among existing businesses to speed up price adjustments. As prices decrease, costs and salaries are reduced putting further pressure on businesses to lower prices to make sales. As overall price levels drop, low-income individuals require less access to credit because their limited income stretches further.

The problem with option #2 is that it is difficult to predict and/or control how consumer behavior would respond to sustained economic deflation and budget cuts. If businesses and consumers react by intesifying class divisions, the brunt of the cuts would be shifted to the poor while the shrinking middle-class would maintain its relatively high standard of living by relying on protected salary-levels, fixed-rate contracts, etc.

The problem with option #1 is that the current economy tends to reward the middle-class during periods of economic growth. Increased purchasing power for the middle-class is likely to cause price increases as businesses attempt to expand their revenues in the lucrative consumer-spending markets. I cannot guarantee that the middle-class can't expand without causing inflation, but it seems likely imo.

My impression is that many middle-class people have a good heart and would like to see class differences decrease or vanish. My impression is that they are only willing to support prosperity-gap reductions when it doesn't involve reducing their own purchasing power. Ideally it would be possible to allow everyone on Earth to consume at the level of the global middle-class but I'm not sure this level of consumption is sustainable as it is, let alone if it were to expand. So, imo, the only real option for reducing poverty is to improve resource-distribution by promoting lower levels of resource-consumption for middle-class consumers.

The risk of promoting conservation at the consumption level is that a cultural backlash emerges where middle-class consumers become annoyed at not being able to consume at levels they previously enjoyed. As a result, they become disgruntled and no longer feel a sense of social responsibility. I.e. they develop a "help myself and ignore class differences" mentality; or they develop ideologies that legitimate class differences in terms of merit.

So the question is whether to cater to middle-class entitlement culture by financing more low-income spending, which will fiscally stimulate revenues and incomes for middle-class professionals; OR whether to attempt to reduce the gap between middle-class and poor by promoting better distribution of existing resources. Or are there other options I'm not seeing?
 
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