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

[WhoWee]

The next 10 Bubbles?
http://finance.yahoo.com/tech-ticker/article/325783/Ten-Bubbles-in-the-Making?tickers=^gspc,^dji,xlf

 

[OmCheeto]

Roubini was right about 2008, but he also had been a doomsayer for a long time before that - 5-10 years of dire predictions if I recall. I don't say that he was merely a broken clock - right sooner or later, but neither would I grant him any clairvoyance.

Ummmm... If I'd been aware of the market before last December, I'd have probably made the same prediction for those 10 years.

DJIA

But this is all in hindsight.

There must have been some logic somewhere, in someones mind, that those growth level numbers were, um, logical.

 

[mheslep]

Ummmm... If I'd been aware of the market before last December, I'd have probably made the same prediction for those 10 years.

DJIA

But this is all in hindsight.

There must have been some logic somewhere, in someones mind, that those growth level numbers were, um, logical.

Most of those gains in the DJIA were justifiable. Sure, knock of a few percent of bubble off the top of DJ for some make believe financial stocks if you like, but aside from those there were real earnings to back up those prices and now based on those same earnings the DJ is coming back. It was the housing prices that had the bubble, and accordingly the housing prices are not going to bounce back - to anywhere near the degree the DJ has.

http://mysite.verizon.net/vzeqrguz/housingbubble/united_states.png

 

[Office_Shredder]

Cheeto, it's called exponential growth. For example, if you saw the stock market changing like this:

Would you bail because it spiked up, and you expect it to crash? Well, actually it was only growing exponentially, which is what you expect the stock market to do. Looking at the graph, it looks pretty close to exponential growth, so while yes, in fact, most people thought it was probably going to drop a bit, the rate and magnitude of the drop was beyond prediction just by looking at your picture

 

[russ_watters]

Ummmm... If I'd been aware of the market before last December, I'd have probably made the same prediction for those 10 years.

DJIA

But this is all in hindsight.

There must have been some logic somewhere, in someones mind, that those growth level numbers were, um, logical.

The only time those dire predictions really made much sense in the last 10 years was the first two years, before the burst of the internet bubble in 2000. Since then, the stock market has, if anything, been undervalued most of the time. As you can see from the graph, today it isn't any higher than it was 10 years ago! This despite the fact that the lifetime non-inflation adjusted average is 12% a year. Ie, if 8000 was normal in 2002, it should be at 17,000 today.

Most of those gains in the DJIA were justifiable. Sure, knock of a few percent of bubble off the top of DJ for some make believe financial stocks if you like, but aside from those there were real earnings to back up those prices and now based on those same earnings the DJ is coming back. It was the housing prices that had the bubble, and accordingly the housing prices are not going to bounce back - to anywhere near the degree the DJ has.

Stocks had a bubble too, it just burst 8 years ago.

 

[mheslep]

...Stocks had a bubble too, it just burst 8 years ago.

Yep, and then recovered to previous highs a year three year later. Housing prices will make no such rebound.

 

[russ_watters]

Yep, and then recovered to previous highs a year three year later. Housing prices will make no such rebound.

On what do you base that prediction?

[edit] The premise of the prediction is at best highly misleading anyway (and not a complete sentence...). By the graph, it was more than 6 years before stocks recovered past their 2000 high and they are back below the 2000 high again. So in order for the recovery of housing prices to be equivalent, it would need to take about 10 years.

 

[Astronuc]

Remember the dislaimer that financial companies use when they hype some investment that will earn you money: Prior performance is not guarantee or predictor of future performance.

 

[mheslep]

On what do you base that prediction?

[edit] The premise of the prediction is at best highly misleading anyway (and not a complete sentence...). By the graph, it was more than 6 years before stocks recovered past their 2000 high and they are back below the 2000 high again. So in order for the recovery of housing prices to be equivalent, it would need to take about 10 years.

I admit the 'year or three' comment was flippant. There are multiple factors pulling on the DJ performance that complicate it, that we don't see impacting housing prices: 911, the dot.com era, etc, that make it harder to pick a high. Daily? Two year average? Five?

The reasons, in my opinion, that housing will not recover in the manner of the DJIA:
1. Extrapolation of long term past trends. Absent this recession, I'd say the market should be ~11-12000 now, after looking backward 30 years. Likewise I'd say housing prices have now stabilized just where they should be. That's a swag, cropping off some stock swings both positive and negative that I believe were due to 'irrational exuberance'. Feel free to disagree.

2. Stocks at the end of the day always have underlying earnings. So while in the short term stocks can be subject to the vagaries of speculation, soon or later the market must return to reality and trade on the basis of how much money the underlying company makes. The 90s and the dot com era illustrate both effects. Computing and the internet enabled large, real advances in productivity in the 90's, so a good deal of the stock price increases were justified. Dotcom nothings went along for a speculation ride, but eventually reality caught that bubble. Housing on the other hand is mainly a commodity. It has no 'earnings'. This implies two things. First, fast increases in its price
can only be due to speculation, i.e., they're always bubbles and must collapse. Second, as a commodity we will always need, neither can housing prices go to zero, i.e., go 'bankrupt' like Lehman Brothers. In other words, 'they aren't making any more land'

 

[OmCheeto]

Cheeto, it's called exponential growth. For example, if you saw the stock market changing like this:

Would you bail because it spiked up, and you expect it to crash? Well, actually it was only growing exponentially, which is what you expect the stock market to do. Looking at the graph, it looks pretty close to exponential growth, so while yes, in fact, most people thought it was probably going to drop a bit, the rate and magnitude of the drop was beyond prediction just by looking at your picture

In hindsight, yes. I'd've bailed long before it hit the peak.

And yes, I've heard of exponential growth. I've also heard of the difference between speed, acceleration, http://en.wikipedia.org/wiki/Jerk_%28physics%29" .

In the first 30 years of my life, the DJIA and other market indicators grew between 1.5 and 5.0 percenthttp://www.measuringworth.com/DJIA_SP_NASDAQ/result.php" . Following closely what I assume to be a normal 3 to 4 percent inflation rate.

The market jumping 10 to 20 percent a year, for no comparative reason, for a decade, strikes me, as, um, irrational exuberance?

 

[Greg Bernhardt]

The DXY is sooooo depressing.

 

[russ_watters]

In the first 30 years of my life, the DJIA and other market indicators grew between 1.5 and 5.0 percenthttp://www.measuringworth.com/DJIA_SP_NASDAQ/result.php" . Following closely what I assume to be a normal 3 to 4 percent inflation rate.

Note that that's 5.0% after inflation. 10.3% before inflation (the dow), so that means that growth was lower and inflation higher than average during that time.

The market jumping 10 to 20 percent a year, for no comparative reason, for a decade, strikes me, as, um, irrational exuberance?

Well we're typically looking at absolute point values (not inflation adjusted), so multiple years of 10% growth are perfectly average. And since the market is cyclical, 15% or even a lot more is perfectly normal in good times. The "irrational exuberance" of the mid-90's included years in excess of 30% growth.

You're mixing before and after inflation numbers.

 

[WhoWee]

Note that that's 5.0% after inflation. 10.3% before inflation (the dow), so that means that growth was lower and inflation higher than average during that time. Well we're typically looking at absolute point values (not inflation adjusted), so multiple years of 10% growth are perfectly average. And since the market is cyclical, 15% or even a lot more is perfectly normal in good times. The "irrational exuberance" of the mid-90's included years in excess of 30% growth.

Now consider the effect of hyper-inflation.

This interview has been largely overlooked - since May.
http://online.wsj.com/article/SB124303024230548323.html
"In a speech at the Kennedy School of Government in February, he wrung his hands about "the very deep hole [our political leaders] have dug in incurring unfunded liabilities of retirement and health-care obligations" that "we at the Dallas Fed believe total over $99 trillion." In March, he is believed to have vociferously objected in closed-door FOMC meetings to the proposal to buy U.S. Treasury bonds."

 

[OmCheeto]

The DXY is sooooo depressing.

Um. I've yet to invest in the DXY. (never heard of it before this morning)

I've always thought it silly to value currency. But the D might be down enough to put a few billion dollars down on and make a few hundred million on the upswing... Bwah. Ahahahahahaha!

...


Ok, in reality, I'll make about 27 cents from what I can invest from my budget,

 

[mheslep]

Now consider the effect of hyper-inflation.

That article does not mention or even allude to hyper inflation. Perhaps you could be more specific.

 

[mheslep]

Cato's 2009 http://www.cato.org/pubs/efw/" (exhibit 1.2) is out. Interestingly Chile moved up to #5, ahead of the US. The US moved up from #8 last year.

2009

Hong Kong 1, Singapore 2, New Zealand 3, Switzerland 4, Chile 5, United States 6, Ireland 7, Canada 8, Australia 9, United Kingdom 9, Estonia 11, Denmark 12​

2008

Hong Kong 1, Singapore 2, New Zealand 3, Switzerland 4, United Kingdom 5, Chile 6, Canada 7, United States 8, Australia 8, Ireland 10, Estonia 11, Iceland 12, Denmark 13, Finland 14, Austria 15​

Comparisons are based on:
1 Size of Government
2 Legal System & Property Rights
3 Sound Money
4 Freedom to Trade Internationally
5 Regulation

US vs #1 Hong Kong
Score 0-10, (ranking) in each category
Hong Kong 9.3 (2) 8.2 (15) 9.5 (18) 9.6 (1) 8.3 (4)
United States 7.2 (41) 7.6 (22) 9.7 (4) 7.6 (28) 8.1 (7)

The US is particularly low in size of government. The indicators keeping the US anywhere near the top 10 are soundness of money and regulation.

 

[WhoWee]

That article does not mention or even allude to hyper inflation. Perhaps you could be more specific.

We have nearly doubled the money supply - inflation will follow.

http://www.shadowstats.com/alternate_data

The article makes reference to Argentina.
http://home.uchicago.edu/~gbecker/Businessweek/BW/2002/02_11_2002.pdf

 

[WhoWee]

This is a better look.
http://www.chartingstocks.net/2009/03/chart-of-the-us-money-supply-1917-2009/

 

[mheslep]

We have nearly doubled the money supply - inflation will follow.

http://www.shadowstats.com/alternate_data

The article makes reference to Argentina.
http://home.uchicago.edu/~gbecker/Businessweek/BW/2002/02_11_2002.pdf

Yes I know about the increase in the money supply, and the threat from inflation. You added the prefix hyper, which is a very different thing. It usually means inflation measured monthly, even daily, as opposed to annually. I know hyper inflation happened in Weimar Germany and Latin America. I don't know that it will happen in the US.

 

[WhoWee]

Yes I know about the increase in the money supply, and the threat from inflation. You added the prefix hyper, which is a very different thing. It usually means inflation measured monthly, even daily, as opposed to annually. I know hyper inflation happened in Weimar Germany and Latin America. I don't know that it will happen in the US.

I don't think it will happen in the US either. However, we know there are limits to the type of behavior that leads to such conditions - the real question is what are those limits?

 

[OmCheeto]

We have nearly doubled the money supply - inflation will follow.

http://www.shadowstats.com/alternate_data

The article makes reference to Argentina.
http://home.uchicago.edu/~gbecker/Businessweek/BW/2002/02_11_2002.pdf

Um. Shadowstats.com?

M3 is no longer published or revealed to the public by the US central bank. However it is estimated by the website Shadow Government Statistics.

 

[WhoWee]

Um. Shadowstats.com?

From the WSJ.

http://online.wsj.com/article/SB124458888993599879.html

"Get Ready for Inflation and Higher Interest Rates
The unprecedented expansion of the money supply could make the '70s look benign.

By ARTHUR B. LAFFER

Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be "wasted." Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now.

Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That's more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers' expense, acquired enormous stakes in the banking, auto, mortgage, health-care and insurance industries.

With the crisis, the ill-conceived government reactions, and the ensuing economic downturn, the unfunded liabilities of federal programs -- such as Social Security, civil-service and military pensions, the Pension Benefit Guarantee Corporation, Medicare and Medicaid -- are over the $100 trillion mark. With U.S. GDP and federal tax receipts at about $14 trillion and $2.4 trillion respectively, such a debt all but guarantees higher interest rates, massive tax increases, and partial default on government promises.

But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.

About eight months ago, starting in early September 2008, the Bernanke Fed did an abrupt about-face and radically increased the monetary base -- which is comprised of currency in circulation, member bank reserves held at the Fed, and vault cash -- by a little less than $1 trillion. The Fed controls the monetary base 100% and does so by purchasing and selling assets in the open market. By such a radical move, the Fed signaled a 180-degree shift in its focus from an anti-inflation position to an anti-deflation position.
[Our Exploding Money Supply]

The percentage increase in the monetary base is the largest increase in the past 50 years by a factor of 10 (see chart nearby). It is so far outside the realm of our prior experiential base that historical comparisons are rendered difficult if not meaningless. The currency-in-circulation component of the monetary base -- which prior to the expansion had comprised 95% of the monetary base -- has risen by a little less than 10%, while bank reserves have increased almost 20-fold. Now the currency-in-circulation component of the monetary base is a smidgen less than 50% of the monetary base. Yikes!

Bank reserves are crucially important because they are the foundation upon which banks are able to expand their liabilities and thereby increase the quantity of money.

Banks are required to hold a certain fraction of their liabilities -- demand deposits and other checkable deposits -- in reserves held at the Fed or in vault cash. Prior to the huge increase in bank reserves, banks had been constrained from expanding loans by their reserve positions. They weren't able to inject liquidity into the economy, which had been so desperately needed in response to the liquidity crisis that began in 2007 and continued into 2008. But since last September, all of that has changed. Banks now have huge amounts of excess reserves, enabling them to make lots of net new loans.

The way a bank or the banking system makes new loans is conceptually pretty simple. Banks find an entity that they believe to be credit-worthy that also wants a loan, and in exchange for the new company's IOU (i.e., loan) the bank opens up a checking account for the customer. For the bank's sake, the hope is that the interest paid by the borrower more than makes up for the cost and risk of the loan. The recently ballyhooed "stress tests" on banks are nothing more than checking how well a bank can weather differing levels of default risk.

What's important for the overall economy, however, is how fast these loans are made and how rapidly the quantity of money increases. For our purposes, money is the sum total of all currency in circulation, bank demand deposits, other checkable deposits, and travelers checks (economists call this M1). When reserve constraints on banks are removed, it does take the banks time to make new loans. But given sufficient time, they will make enough new loans until they are once again reserve constrained. The expansion of money, given an increase in the monetary base, is inevitable, and will ultimately result in higher inflation and interest rates. In shorter time frames, the expansion of money can also result in higher stock prices, a weaker currency, and increases in commodity prices such as oil and gold.

At present, banks are doing just what we would expect them to do. They are making new loans and increasing overall bank liabilities (i.e., money). The 12-month growth rate of M1 is now in the 15% range, and close to its highest level in the past half century.

With an increased trust in the overall banking system, the panic demand for money has begun to and should continue to recede. The dramatic drop in output and employment in the U.S. economy will also reduce the demand for money. Reduced demand for money combined with rapid growth in money is a surefire recipe for inflation and higher interest rates. The higher interest rates themselves will also further reduce the demand for money, thereby exacerbating inflationary pressures. It's a catch-22.

It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.

Now the Fed can, and I believe should, do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base. It should contract the monetary base back to where it otherwise would have been, plus a slight increase geared toward economic expansion. Absent this major contraction in the monetary base, the Fed should increase reserve requirements on member banks to absorb the excess reserves. Given that banks are now paid interest on their reserves and short-term rates are very low, raising reserve requirements should not exact too much of a penalty on the banking system, and the long-term gains of the lessened inflation would many times over warrant whatever short-term costs there might be.

Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.

In addition, a rapid contraction of the monetary base as I propose would cause a contraction in bank lending, or at best limited expansion. This is exactly what happened in 2000 and 2001 when the Fed contracted the monetary base the last time. The economy quickly dipped into recession. While the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating. For Fed Chairman Ben Bernanke it's a Hobson's choice. For me the issue is how to protect assets for my grandchildren.

Mr. Laffer is the chairman of Laffer Associates and co-author of "The End of Prosperity: How Higher Taxes Will Doom the Economy -- If We Let It Happen" (Threshold, 2008). "

 

[OmCheeto]

From the WSJ.

http://online.wsj.com/article/SB124458888993599879.html

"Get Ready for Inflation and Higher Interest Rates
The unprecedented expansion of the money supply could make the '70s look benign.

By ARTHUR B. LAFFER

Interesting that the first 20 google hits for "exploding money supply" are all dated around the time of Mr. Laffer's article. March thru June of 2009. It seems no one is talking about it any more. It's almost like the pork barrel for arrow makers incident. Everyone jumps on the "ditto" bandwagon, plagiarizes someone else's article, and it's pat each other on the back time. Then someone figures out that the tripe they were predicting didn't come true. Then no one talks about it anymore. With perhaps the exception of the 12 million BuyGoldNoworYouraLoserBecauseTheSkyIsFalling.com's.

Here's the Fed's explanation of why they did away with the M3:

http://www.federalreserve.gov/Releases/h6/discm3.htm
Release Date: November 10, 2005

M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

I also prefer good news. Preferably if it was published today.

http://www.reuters.com/article/economicNews/idUSNYS00542020090918"
Fri Sep 18, 2009 10:31am EDT
Reuters

...

Such a concerted move among all of the index's components suggest an "unstoppable" recovery ECRI Managing Director Lakshman Achuthan told Reuters.

Achuthan has recently said that a double-dip recession is highly unlikely, and that an economic turnaround will be stronger than many analysts project.

"We have never wavered on our call precisely because at this stage of the cycle there are no relevant roadblocks," Achuthan said, adding that concerns over mounting unemployment, debt-laden consumers, and dips in a recovery are typical of recessionary times.

"Variations of these fears have existed at this stage of the last 20 business cycle recoveries spanning over a century."

...

 

[WhoWee]

Interesting that the first 20 google hits for "exploding money supply" are all dated around the time of Mr. Laffer's article. March thru June of 2009. It seems no one is talking about it any more. It's almost like the pork barrel for arrow makers incident. Everyone jumps on the "ditto" bandwagon, plagiarizes someone else's article, and it's pat each other on the back time. Then someone figures out that the tripe they were predicting didn't come true. Then no one talks about it anymore. With perhaps the exception of the 12 million BuyGoldNoworYouraLoserBecauseTheSkyIsFalling.com's.

Here's the Fed's explanation of why they did away with the M3:

I also prefer good news. Preferably if it was published today.

Fine, push M3 to the side. Is this relevant?
http://wallstreetblips.dailyradar.com/story/china-alarmed-by-us-money-printing/

" telegraph.co.uk - 12 days ago
China alarmed by US money printing
—
The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy. "

 

[Astronuc]

Here's an interesting perspective on the recovery.

August 24, 2009
The Invisible Achievement
http://www.realclearpolitics.com/articles/2009/08/24/the_invisible_achievement_98000.html
By E.J. Dionne, Washington Post

SYDNEY, Australia -- The hardest slogan to sell in politics is: "Things could have been a whole lot worse." No wonder President Obama is having trouble defending his stimulus plan.

If governments around the world, including our own, had not acted aggressively -- and had not spent piles of money -- a very bad economic situation would have become a cataclysm.

. . . .
In fact, for all the flaws in the execution of the bank bailout program, Bush's willingness last fall to put the urgent need for massive action over his own ideological proclivities is likely to go down as the most enduringly constructive act of his presidency.

. . . .
If anything, Rudd has it easier than Obama. Australia's unemployment rate in July was 5.8 percent, compared with 9.4 percent in the United States. Technically, at least, Australia has so far avoided recession.

And Rudd's conservative predecessor, unlike Obama's, was fiscally responsible. Thus, Australian Treasurer Wayne Swan points out that even after his government's large stimulus spending, the country's budget deficit will peak at 4.9 percent of GDP in 2009-10. In 2009, Swan noted, the U.S. budget deficit will hit 13.6 percent of GDP.

Then there is the biggest difference in the national political situations: Australia already has a national health system. This means that Rudd has been able to concentrate on the economy and cap-and-trade legislation while Obama has found himself battling in the health care trenches.
. . . .

 

[OmCheeto]

Fine, push M3 to the side. Is this relevant?
http://wallstreetblips.dailyradar.com/story/china-alarmed-by-us-money-printing/

" telegraph.co.uk - 12 days ago
China alarmed by US money printing
—
The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy. "

Everything is relevant. Opinions are relevant if they sway people one way or the other. Even lies are relevant if people believe them.

China is rightfully worried that the dollar might collapse. From your article above:

Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

China's reserves are more than – $2 trillion, the world's largest.

If the dollar were to lose half it's value on the international money markets, they'd lose a trillion dollars. If I had that much to lose, I'd be throwing quite the hissy fit.

On the other hand, if the dollar's value rises back to it's http://www.marketwatch.com/investing/index/DXY", they'd make $340 billion.

So I'd analyze their statement as being a financially logical one. They want the value of the dollar to rise so they will make money and they will say whatever they have to to make that happen.

Perhaps we'll be seeing Chinese nationals at future town hall meeting shouting at our reps with pictures of Germans with wheelbarrow's full of money from 1923 with maybe Obama's picture pasted over the peoples faces in the photo's and they can maybe throw in a few "Heil Hitler's" for good sound bites.

But as always, my foray into good news.
A sampling of the first 20 google hits for "economy" in the "news" section:

US Stocks Advance, Sending Dow to 11-Month High
Bloomberg - Sept 19, 2009

Dollar Falls to One-Year Low as Economy Spurs High-Yield Demand
Bloomberg - Sept 19, 2009

Japan's Bonds Fall Most Since July on Signs Economy Recovering
Bloomberg - ‎Sept 18, 2009‎

fedex Says Economy is Stabilizing
Wall Street Journal - ‎Sept 17, 2009‎

 

[OmCheeto]

Here's an interesting perspective on the recovery.

August 24, 2009
The Invisible Achievement
http://www.realclearpolitics.com/articles/2009/08/24/the_invisible_achievement_98000.html
By E.J. Dionne, Washington Post

Odd how we pick out different things to quote from the different articles you post:

If governments around the world, including our own, had not acted aggressively -- and had not spent piles of money -- a very bad economic situation would have become a cataclysm.

But because the cataclysm was avoided, this is an invisible achievement. Many whose bacon was saved, particularly in the banking and corporate sectors, do not want to admit how important the actions of government were. Anti-government ideologues try to pretend that no serious intervention was required.

So everyone goes back to complaining about high deficits and the shortcomings of government as if nothing had happened.

I suppose each of our paths creates a different canvas upon which we keep applying the paints to our realities.

...

Um... I don't know what that means.

I may have inhaled something in the mid 80's.

 

[mheslep]

Here's an interesting perspective on the recovery.

August 24, 2009
The Invisible Achievement
http://www.realclearpolitics.com/articles/2009/08/24/the_invisible_achievement_98000.html
By E.J. Dionne, Washington Post

Odd how we pick out different things to quote from the different articles you post:I suppose each of our paths creates a different canvas upon which we keep applying the paints to our realities.

The bank bailouts seemed to have stopped panics, perhaps creating another problem for later, but Australian PM Rudd speaks directly to fiscal spending here in Astronuc's Real Clear... source. In that sense I say PM Rudd is talking BS, especially when says, via Dionne:

One person who empathizes with our president is Australian Prime Minister Kevin Rudd. He argues that if the governments of the world's biggest economies had not injected "$5 trillion plus into the real economy" in stimulus and had not taken other coordinated actions, we would have relived "the tawdry tale of the 1930s."

First, the primary cause of the Great part of the Great Depression was the federal government itself through the tight money fiscal policies of the Fed. This is not controversial. Whether or not the government helped get the country out of the depression through fiscal stimulus is another matter.

As to whether the current day fiscal stimulus spending worked, in the opinion of at least one economist is no:
http://johnbtaylorsblog.blogspot.com/

Sunday, September 20, 2009
Is the Stimulus Working?
My recent Wall Street Journal column with John Cogan and Volker Wieland looked at the data available so far and concluded that there has been no noticeable impact. CNBC's Steve Liesman takes the other side in a debate with me on the the Kudow Report last Thursday.

Many asked me how we control for other factors, such as oil prices, in such studies; the answer is to use regression techniques as in this AEA paper. A contrast between Keynesian and more modern macro models is found in this robustness analysis by Cogan, Cwik, Taylor, and Wieland

http://2.bp.blogspot.com/_GhUVXaopHNE/SrbCITG0rvI/AAAAAAAAAD0/AJ0R0UBNSsE/s1600-h/graph011.gif
http://2.bp.blogspot.com/_GhUVXaopHNE/SrbCITG0rvI/AAAAAAAAAD0/AJ0R0UBNSsE/s1600-h/graph011.gif

 

[WhoWee]

The Government is in much worse shape than the banks. This is why Obama is focused on "health care reform". The (Democratic spending) party is over unless this Bill passes. The problem is clearly not insurance companies - it's Government spending and deficits.

http://www.ncpa.org/pub/ba662

"Social Security and Medicare Projections: 2009

Brief Analysis | Social Security

No. 662

Thursday, June 11, 2009

by Pamela Villarreal

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums. Last year alone, this debt rose by $5 trillion. If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both.

Social Security versus Medicare. Politi*cians and the media focus on Social Security's financial health, but Medicare's future liabilities are far more ominous, at more than $89 trillion. Medicare's total unfunded liability is more than five times larger than that of Social Security. In fact, the new Medicare prescription drug benefit enacted in 2006 (Part D) alone adds some $17 trillion to the projected Medicare shortfall - an amount greater than all of Social Security's unfunded obligations."

 

[Office_Shredder]

We have nearly doubled the money supply - inflation will follow.

http://www.shadowstats.com/alternate_data

The article makes reference to Argentina.
http://home.uchicago.edu/~gbecker/Businessweek/BW/2002/02_11_2002.pdf

Actually, I heard an argument that this won't necessarily occur, and it sounded decent:

In the past, governments that have greatly increased the money supply have spent that money. In this case, most of the money went to bailing out banks. Basically, the banks loaned money that they didn't have, and the government is now giving them that money so they can stay solvent. So in this case, the banks basically printed the money already, and the bailout money is just the printing of money that's already for all practical purposes been in the general economy.

Couple that with the fact that nowhere on that website does it indicate we doubled the money supply (the chart supplied indicates at most it increased by about 50%)

 

[OmCheeto]

First, the primary cause of the Great part of the Great Depression was the federal government itself through the tight money fiscal policies of the Fed.

Ummm... This is not your grandmothers depression. This is a financial and global revolution we are going through right now.

All rules are gone. ixnay. vamoose.

Either hang on, or jump off.

Roller coasters are not for wimps.



Wheeeeeeeee! Ah! Hahahahahaha!



ps. I predict 36 months will pass before everyone is sitting back and wondering what all the hoopla was all about.

 

[mheslep]

Ummm... This is not your grandmothers depression. ...

Yes, but Australia's Rudd was comparing to grandma's depression.

 

[Galteeth]

Bottom line, the fundamentals of the current world economic situation do not seem to be sustainable in the long term (the US consuming, China Producing, more and more government hand waving to make the numbers add up). Especially with the 40 to 70 trillion in unfunded liabilities. Inflation can be damaging in ways other then zimbabwe insanity (directing resources to inefficient users, warping people's consumption habits in unsustainable directions.) Time will tell.

 

[WhoWee]

Actually, I heard an argument that this won't necessarily occur, and it sounded decent:

In the past, governments that have greatly increased the money supply have spent that money. In this case, most of the money went to bailing out banks. Basically, the banks loaned money that they didn't have, and the government is now giving them that money so they can stay solvent. So in this case, the banks basically printed the money already, and the bailout money is just the printing of money that's already for all practical purposes been in the general economy.

Couple that with the fact that nowhere on that website does it indicate we doubled the money supply (the chart supplied indicates at most it increased by about 50%)

You can't isolate TARP as the only "spending". Obama has also given us the stimulus and wants cap and trade, health care reform, and possibly immigration amnesty. Further, interest rates are being suppressed. Consider all of these factors along with this from my earlier post.

"The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums. Last year alone, this debt rose by $5 trillion. If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both."

We are clearly in new territory.

 

[Galteeth]

You can't isolate TARP as the only "spending". Obama has also given us the stimulus and wants cap and trade, health care reform, and possibly immigration amnesty. Further, interest rates are being suppressed. Consider all of these factors along with this from my earlier post.

"The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today's dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

The unfunded liability is the difference between the benefits that have been promised to current and future retirees and what will be collected in dedicated taxes and Medicare premiums. Last year alone, this debt rose by $5 trillion. If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both."

We are clearly in new territory.

The catch 22 is that the holders of US debt don't want the currency to collapse, as their holdings will lose value. So they have to keep financing the US to keep it's economy afloat.

Again, can't be certain, but it seems like at some point, something's got to give.